Kirby Corp (KEX) 2014 Q1 法說會逐字稿

Hello, and welcome to the Kirby Corporation 2014 first-quarter earnings conference call. My name is Daniel, and I'll be your operator for today's call.

(Operator Instructions)

Please note that this conference is being recorded. I will now turn the call over to Steve Holcomb. Mr. Holcomb, you may begin.

Thank you for joining us this morning. With Sterling Adlakha and myself are Joe Pyne, Kirby's Chairman; David Grzebinski, Kirby's President and Chief Executive Officer; and Andy Smith, our Executive Vice President and Chief Financial Officer.

During this conference call we may refer to certain non-GAAP or adjusted financial measures. A reconciliation of the non-GAAP financial measures to the most directly comparable GAAP financial measures is available on our website at KirbyCorp.com in the Investor Relations section under Non-GAAP Financial Data.

Statements contained in this conference call with respect to the future are forward-looking statements. These statements reflect management's reasonable judgment with respect to future events. Forward-looking statements involve risk and uncertainties.

Our actual results could differ materially from those anticipated as a result of various factors. A list of these risk factors can be found in Kirby's Form 10-K for the year ended December 31, 2013, filed with the Securities and Exchange Commission.

I will now turn the call over to Joe

Thank you, Steve. Yesterday afternoon, we announced record first-quarter earnings of $1.09 per share. These results included a $0.03 per share of severance charges and an estimated $0.03 per share earnings impact from the result of weather and insurance deductible costs. But they still fell well within our published range of $1.05 to $1.15 per share given in January.

This compares with $1 per share reported in the 2013 first quarter, a quarter that included a $0.05-per-share benefit for the reduction of the earnout liability associated with the acquisition of United Holdings in April of 2011.

During the quarter, our inland and coastal tank barge fleets continued to experience healthy levels of demand across all their markets, high equipment utilization, and favorable pricing trends. We did experience higher-than-anticipated delays in our Inland Marine operations caused by weather in the Midwest which persisted longer than we had estimated in our first-quarter guidance. Severe ice conditions restricted our movements on the upper inland river system and extended beyond which was typically expected for most years.

We also saw greater-than-normal delays in our Inland business along the Gulf Coast because of winter weather systems. With respect to the coastal Marine operations, they were also impacted by weather. The cold weather in the Northeast did provide some offsetting benefit in the form of higher heating-oil volumes transported in the Northeast.

With respect to our land-based Diesel Engine market, it showed modest signs of improvement during the quarter. We think this market will continue to improve this year, and we should see a more material recovery in this business later this year.

With the change in roles at Kirby, the cadence of our earnings call will change slightly. David will discuss our quarterly results and provide more detail on Marine Transportation and Diesel Engine Service markets. Andy will then provide the financial update. After Andy's comments, David will conclude with some comments about our 2014 second-quarter and then full-year outlook.

Before I turn the call over to David, I do want to comment both on our succession plan and the incident that involved a Kirby vessel that occurred in the Houston Ship Channel on March 22. With respect to the succession plan, last night we announced the Board's election of David Grzebinski as our President and Chief Executive Officer and his election as a Kirby Director.

When we announced the plan to transition that role in April of last year -- when we first announced it, I am very pleased that the Board chose David. I plan to continue to stay as an active Chairman of the Board and look forward to working with David in his new role.

We also intend to transition the principal Investor Relations role for Kirby from Steve Holcomb to Sterling Adlakha this year. Steve has worked for Kirby for 41 years and has done a superb job heading our IR effort. Steve will remain with Kirby, helping with our SEC filings and ensuring a smooth transition.

With respect to the very unfortunate incident and spill that involved the Miss Susan on March 22, we're very grateful for the high level of cooperation and coordination shown by federal, state, and local agencies, and the US Coast Guard, in the cleanup efforts. Under pollution laws of United States, as Kirby owned the barge carrying the product, we're required to pay for the cleanup, which has gone very well.

As of today, the cleanup effort is essentially complete. We will, in coordination with all these agencies, continue to monitor the affected areas for any lingering effects, and we'll respond accordingly. But we don't expect there'll be much left. The cause of the accident is still unknown. The Coast Guard and the National Transportation Safety Board are in the process of carrying out their investigation and there is no time limit set for its completion.

With respect to the financial impact, we have reserved $100 million on our balance sheet for the claim. Aside from the $1-million deductible, we expect our insurers to reimburse us for all these costs. As a Company, we carry $1 billion of insurance for pollution and liability exposures.

I'll now turn the call over to David

Thank you, Joe, and good morning. Let me first say that it is both an honor to be elected by the Board as Kirby's CEO and an immense challenge to follow in the footsteps of such a great leader as Joe Pyne.

I'm very grateful for the opportunity to be Kirby CEO, and I look forward to continuing to work with Joe, as Executive Chairman. During Joe's almost 20-year tenure as CEO, Kirby has compounded its earnings at greater than 15% per year. And the stock price has increased over 1,144%, compounding at approximately the same rate as the earnings. Joe's leadership has been truly remarkable and it's comforting to know that he'll still be around as our Chairman.

Now, I'll turn to our Marine Transportation business. During our first quarter, the inland Marine Transportation sector continued its overall strong performance with equipment utilization in the 90% to 95% range and favorable term and spot-contract pricing.

As Joe mentioned, we did experience high-delay days during the quarter, which was primarily a result of the heavy winter weather that created freezing temperatures on the upper Ohio, Illinois, and upper Mississippi Rivers. We also experienced, as Joe mentioned, numerous frontal systems along the Gulf Coast, with high winds and fog. So, delay days totaled almost 2,900 days, which was over 40% higher than the roughly 2,000 delays reported in the first quarter of last year in 2013.

Most of the poor weather that we experienced on the Mississippi River system in the quarter subsided by late March. However, frontal systems bringing fog and high wind up to the Gulf Coast did continue to negatively impact our Gulf Coast operations through the end of April. However, at this time, operating conditions throughout most of the river system and on the Gulf Coast are favorable.

For the first quarter, Inland transportation revenues from our long-term contracts -- that is, contracts greater than one year or longer -- were about 80% revenue, with 57% from time charters and 43% from contracts of affreightment. The increase in term contracts as a percent of revenue from last year is a direct result of a decrease in spot-contract moves resulting from the difficult weather, as more equipment was required to meet the term-contract volumes. Going forward, we expect the percentage of term- and spot-contract revenue to trend back to the 75%/25% level, which was consistent with 2013.

Inland Marine Transportation term contracts that renewed during the first quarter increased in the low- to mid-single-digit level when compared to the first quarter a year ago. And spot-contract rates, which include the price of fuel, increased modestly compared with the fourth quarter, and they still remain above contract rates, which is consistent with what we experienced through 2013.

Our coastal Marine Transportation sector also continued to perform well, with utilization in the 90% to 95% range, which is above the 90% range we saw through most of 2013. And, during the first quarter, approximately 80% of the coastal revenues were under term contracts, compared with 60% for the 2013 first quarter and 75% for the 2013 fourth quarter.

All the coastal product markets remain strong. And, last night, we announced the Board of Directors has approved the exercise of our option to construct a second 185,000-barrel coastal tank barge and tugboat unit on the West Coast. And the estimated progress payments for this additional unit are included in our updated capital expenditure guidance.

In addition, the Board also approved the construction of two new 155,000-barrel coastal ATBs and tugboat -- tank barge and tugboat units. And the cost of these units will depend on our discussions with customers, horsepower size, market conditions, and steel prices, and at the time when we enter into shipyard contracts.

We expect to have those vessels under contract prior to their delivery. And we expect the total cost to construct both ATBs to be in the range of $125 million to $145 million. The bulk of the cash expenditures for these two additional vessels is expected to be in 2015, with delivery dates somewhere in the mid-2016 range.

With respect to coastal Marine Transportation pricing, term contracts that renewed during the first quarter increased in the high single-digit range when compared to the first quarter a year ago. And spot-contract rates, which again, include the price of fuel, continued to improve during the quarter and remained above term-contract rates.

Moving to the Diesel Engine Services segments the first quarter reflected positive results across most of the end markets, and our marine diesel and power generation markets demand was generally stable; however there was some improvement in the Midwest, East Coast, and Gulf Coast marine markets. The land-based Diesel Engine business services market benefited from an increase in both the demand for oil-field equipment and the demand for service.

We did sell a small number of new pressure-pumping units in the quarter, and we are seeing heightened demand for re-manufacturing. So, we're cautiously optimistic that demand will continue to improve in 2014 and that there will be a more sustainable improvement in this business -- the land-based business, by the end of this year or early next year.

I will now turn the call over to Andy for some detailed financial information, and then I'll come back and discuss the outlook.

Thanks, David, and good morning. In total, Marine Transportation segment revenues grew 4% and operating income grew 9% as compared with the 2013 first quarter. The inland sector contributed approximately 70% of the first-quarter Marine Transportation revenue, and the coastal sector approximately 30%. Our inland sector generated a first-quarter operating margin in the mid-20% range, while the coastal sector operating margin for the first quarter was in the high teens compared to a mid-teens margin for the 2013 first quarter.

Overall, the Marine Transportation segment's first-quarter operating margin was 22.4%, compared with 21.3% for the 2013 first quarter. With respect to inland tank-barge capacity, during the 2014 first quarter, we took delivery of 27 new tank barges, totaling approximately 290,000 barrels of capacity, and retired 10 tank barges, removing approximately 135,000 barrels of capacity. The net result was an addition of 17 tank barges to our fleet and an increase to our inland capacity of 155,000 barrels, bringing our total inland tank-barge capacity to 17.4 million barrels.

Our previously announced 2014 inland transportation construction program, including those barges that delivered in the first quarter, is expected to consist of 66 inland tank barges with a total capacity of approximately 1.2 million barrels. Currently, we expect to finish 2014 with approximately 18.1 million barrels of capacity, or 700,000 barrels above our current 17.4-million-barrel capacity level.

Moving on to our Diesel Engine Services business, revenues for the 2014 first quarter increased 9%, while operating income was down 9% compared with the 2013 first quarter. In 2013, we had a $4.3-million benefit to operating income from adjusting the earnout for United Holdings.

Adjusting for the effect of the earnout benefit in 2013, operating income was up approximately 30% quarter over quarter. The segment's operating margin was 8.3% compared with 10% for the 2013 first quarter, or 6.9% excluding the earnout benefit.

Our land-based operations contributed approximately 60% of the Diesel Engine Services segment's revenue and swung to profitability this quarter with a low- to mid-single-digit operating margin. As David mentioned, we're seeing real signs improvement in our land-based operations, with a pickup in the sale of engines and transmissions, parts and service, as well as the sale of some new pressure-pumping units.

Re-manufacturing demand, while slow in the first half of the quarter, increased in the last month of the quarter. We continue to expect more meaningful improvement later in the year or early in 2015. The marine and power generation operations contributed approximately 40% of the Diesel Engine Services revenue, with an operating margin in the mid-teens range.

On the corporate side of things, we continued to pay down our debt during the 2014 first quarter, thanks to continued strong cash flow. Our 2014 capital spending guidance is currently in the $320 million to $330 million range, including approximately $135 million for the construction of 66 inland tank barges and one inland towboat, approximately $55 million in progress payments on the construction of a185,000-barrel ATB scheduled be in service in mid- to late-2015, and approximately $25 million in progress payments on the second 185,000-barrel ATB to be placed in service in the first half of 2016.

The balance of $105 million to $115 million is primarily for capital upgrades and improvements to existing inland and coastal marine equipment and facilities, as well as diesel engine service facilities. Total debt as of March 31 was $708 million, a $41-million reduction from our total debt of $749 million as of December 31, 2013. Our debt-to-cap ratio fell to 25.3% as of March 31, compared with 27% as of December 31, 2013.

At March 31, we had no outstanding borrowings under our revolving credit agreement, compared with $41 million as of December 31, 2013. This morning, our total debt outstanding was $695 million, as compared to $13 million -- a reduction, I'm sorry, of $13 million, since the end of March.

I'll now turn the call back over to David.

Thank you, Andy. Let me talk a little bit about the outlook. In our press release, we announced our 2014 second-quarter guidance of $1.25 to $1.35 per share. This compares with $1.11 per share earned in the second quarter of last year, and that quarter included a $0.07-per-share benefit due to the reduction of the United earnout liability.

For the 2014 year, we raised our guidance to $4.80 to $5 per share, compared with $4.44 in 2013. Remember also that the 2013 earnings included $0.20-per-share benefit due to the elimination of the United earnout. Our second-quarter guidance assumes a modest improvement in pricing for our Inland Marine Transportation markets, with normal improvement in seasonal weather patterns. It also assumes a continued strong coastal market with higher term- and spot-contract pricing.

For our Diesel Engine Services group, we are cautiously optimistic that we have seen the bottom of the cycle for our land-based market and should see improvement continuing throughout 2014. Our second-quarter guidance also assumes our diesel engine services, marine, and power generation markets will remain stable.

The primary difference in our 2014 second-quarter $1.25 low-end and $1.35 high-end guidance range is related to different assumptions regarding seasonal weather conditions on both our inland and coastal marine transportation markets and the level of improvement in our land-based diesel engine services market.

For our full-year 2014 guidance of $4.80 to $5 per share, the primary drivers between our low end and high end include the potential improvement of the land-based diesel engine services market and utilization and operating conditions for our Marine business.

In summary, the year has begun on very solid footing, with 2014 forecast to be our fourth consecutive year of record operating results. Our balance sheet is strong. Our excellent cash flow allows us to continue to build new inland and coastal equipment, as well as to continue to pay down debt. And we still remain optimistic for potential acquisitions.

So, with that, I'd like to turn the call over to questions. Operator, could you open the line?

(Operator Instructions) Chet Atkins from Stephens

Good morning guys, thanks so much for the time. So I guess just to start off with David, to go back your last point on the M&A environment. I'm just curious to get a sense for how you see that today - clearly demand is robust across most of your business lines and improving in the diesel engine business. Are you still seeing M&A opportunities that you would say are at reasonable prices? And if you don't see those opportunities out there, how do you think about managing the balance sheet terms of deleveraging versus returning cash to shareholders?

Thanks Jack. As you know, and as you stated, the market's pretty good right now; demand is high looks like it's going to be that way for a while. So price expectations from sellers are more likely to not meet our return hurdles if we paid the full price they might be asking. So - but you never know. As you know, a lot of our potential acquisitions have unique situations; they can be sole proprietors and whatnot.

But price expectations of sellers is clearly up given the strong demand. The likelihood of an acquisition is probably not as high as we'd like. But there's always possibilities out there. That said, in the absence of acquisitions what you see us doing is building some capacity. We've talked to you about this before. There's times to build capacity, there's times to do acquisitions, there's times to delever, and then there's times to buy back your stock. And clearly we're in - at that time were we believe it's time to build capacity and you see us building both inland and coast wise capacity. That said, we're constantly talking to the Board about potential dividends, and will continue to evaluate that, but right now we think we've got good uses for our cash

Okay great. Thank you David. As a follow-up, just curious to get a little bit more color on the improving fundamentals within the diesel engine services business, on the land side, I think that business took a nice step forward in the first quarter. Just curious to know what your customers are telling you about their plans and expectations for the remainder of the year? And how do you think about capacity within that business would you look to selectively add capacity if demand continues to improve?

Clearly we have come off the bottoms that we saw last year. The land-based diesel engine business improved from kind of a modest slight loss last year in the last two quarters to a mid- to low-single digit operating margin this quarter. As we said that there some increased demand for service and parts and equipment as well. As you heard some new frac units we sold. We continue to see that building; the inquiry level is up considerably. Customers are quite constructive about their needs and desires going forward. I think from our perspective we've got to get the margins up. The pricing is still depressed and we've got some work to do there. So that's going to take some time to play out but that's going to be our focus here in this year, is trying to get those margins up to where we think they need to be.

Great David thanks from much for the time.

Michael Webber, Wells Fargo Securities

Good morning guys. Again congrats to David and Andy and everybody in their new roles.

Thank you

I wanted to stay on coastal, and David in your market, I believe you gave a range to those two ATBs that just got Board approval, at I think $125 million to $145 million in total. I think they would come in a bit cheaper than the previous two, like the one that's under construction and the one you just bought. Is that a function of the fact that they are a bit smaller or is that you guys getting a bit more scale with the order and exercising those options? And then if you can talk a bit about the kind of contract tenure that your clients are discussing and the kind of geography in terms of where you think those will end up trading

Sure. The first two that we - well, the first one we announced was 185,000 barrels, so it's little bit bigger than the 155,000, so there's a price difference there. And a big driver in price difference is certainly horse power. 185,000 requires higher horsepower and horsepower costs are high. So the size is probably the biggest differentiation there, but the range really depends on the customer requirements and the horsepower. There is horsepower differences that you can use for the 155,000; you could use the 6,000 horsepower and 8,000 horsepower so that's why we had the range there. A lot depends also on where we end up with final customer requirements because there are certain things you can do to the barge to meet certain customer needs. Initially the 185,000s are on the West Coast, we are building them out there at Gunderson, as you know. The other two barges that is yet to be determined. We're in discussions with customers now about that. So it's a little premature to share with you where they might be working and for - well, we wouldn't want to comment on for who anyway Hopefully that gives you the flavor of it.

That's helpful. And then just to kind of follow-up on that - and you touched on this a bit, but I kind of wanted to expand on it - you mentioned obviously asset values are pretty high here. And you commented on that in your M&A discussion, but just where are the returns right now on newer, larger scale coastal assets? And if you think about kind of incrementally where we can go from here - I mean, I would assume the pricing has picked up to the point that you guys feel comfortable stepping into new builds again, but from here how much incremental upside do you think you could see to asset values and/or to pricing?

Well, we continue to see a - well, first let me address that we fully expect to get our 12% after-tax return on our vessels. The new builds. But we continue to see high single-digit pricing increases on the coastwise business. If you think about it, we're seeing pretty strong demand, increasing demand in product moves across the business. You've got a supply if you think about the fleet in the coastwise business, in our market which we think about barges less than 200,000 barrels, there's about 265 barges and a good 45 of those are older than 30 years old. So we could see supply come out just from that. So it's a long-winded way of saying we would expect the pricing and the market dynamics to remain in place for a while.

That's helpful thanks for your time guys

Jon Chappell, Evercore Partners

Thank you, good morning. David, on the diesel engine services part, kind of a little bit of renewed optimism for the end of this year and into '15. Just trying to decipher how much of that has to do with kind of the transition that you have been speaking about over the years to the remanufacturing side of the business? You mentioned that you needed to the prices up in the land-based and I assume that was for the OEM, but seems like a slow transition maybe finally starting to occur and how much of the optimism is associated with that?

It's a mixture of both reman and new equipment, certainly service and parts too. Spare parts and service are increasing with the age of this fleet. So, it's a mixture of both. I wouldn't say it's being led by reman. Clearly we're still - it's still very early days in reman and our focus has been to get our capacity and through-put up on that and to get the remans to proceed quicker through our facility. But it still developing and it's still early days. I would say the improvement is across all parts of the land-based business whether it's parts, service, reman and some new OEM equipment

Okay. That helps. And then a follow-up- just on the inland business, the pricing. You mentioned - this is going to sound like nitpicking but just hear me out - you mentioned the pricing the term contracts is a up low- to mid-single digits and the spot prices are up - I wrote down modestly. It seems that maybe that's a little bit lower than some of the ranges you've given in previous calls. Is the strength in that core business kind of plateauing a little bit? I know you've spoken about the risk of eventually over-building this market. Are you starting to see the capacity starting to catch up to the demand a little bit or we still little bit of a ways away from that?

No. We think we're a ways from that. We're still running 90% to 95% which is essentially fully utilized, and every new barge that comes out of the shipyard is immediately put to work. Renewals have been slow. You have - we don't renew all the contracts. All at once, at one period of the year so they ebb and flow and I wouldn't read anything into that. We're still very positive, as you saw us 29 new 30,000 barrel barges, it looks like things are good for a while.

Great. I appreciate it thanks, David Thank you Jon

Ken Hoexter, BofA Merrill Lynch

Hi guys this is actually Shawn Collins on Ken's team, good morning.

Good morning.

Your business is obviously doing very well and you are experiencing strong demand. Can you comment on what you are seeing on the domestic economy side? Obviously first-quarter weather slowed things down, but if you had to normalize with that, how does the economy look out there?

We're kind of in this shale gas and liquid Renaissance. So we're a little - we're benefiting from that, and I would say almost in spite of the economy. The economy still a little tepid. When you think about, particularly in our coastwise business, a good part of what we move is refined products. And refined products are really diesel, gasoline, jet, and those volumes are up and demand is up but it's not what you would have expected and hoped from the economy. If the economy really gets going again, we could see even more demand from our perspective. Both on the refined product side and then the asphalt. Some of what we move coastwise is asphalt, which is driven by homebuilding and road construction and whatnot. So the economy is kind of mixed from our perspective but we're benefiting from this shale, gas, and oil Renaissance. More than anything else.

Okay. That's great. That's helpful, thank you. You estimate that the weather cost you $0.03 in the quarter. Can you just - so I guess that is almost $2 million - can you just talk a little bit about what's in that number and how that worked out?

We said $0.03 I think, which would be closer to $3 million than $2 million. But when weather gets tough what happens is you slow down. You can't move, and part of what we do on the inland side is we have time charters which is 57% but then 43% are contracts of affreightment, and contracts of affreightment just to simplify it, might be where we get paid X dollars to move from point A to point B, and then when weather comes, those contracts for affreightment slow down. You are not as efficient, you have to go slower, you may get delayed by fog. So that really is what impacts you and then you may also have to add horsepower depending on the situation. You move slower particularly in the ice conditions on the upper river system. We had to move a lot slower and add some horsepower there. Plus the ice, believe it or not, beats up the boats and barges so we had a little bit of extra maintenance expense to repair some of that equipment that got beat up by ice. So it's a mixture of things. And I don't know that answers your question, Shawn, but it's hard to be more specific than that

That's helpful insight I appreciate it. Okay, thank you very much, guys

Thank you Sean

Greg Lewis, Credit Suisse

Thank you and good morning, and congratulations on a great quarter. Dave, my first question is related to in mid-March; you announced the you were going to go back and order more inland barges and then I guess of those 29 inland barges it looks like 18 of those were from shipyard contracts from another operator that were I guess not exercised. Is that what happened? Could you explain a little bit the genesis behind that order being placed?

Yes, no - we had a competitor that, to use a phrase, got out a little over his skis, and it was really about being able to handle those additional barges from accruing and boat standpoints. At first he wanted us to charter those barges from him and of course we didn't want to do that, we would rather own them outright. So it was a win-win for us, we were able to keep the capacity coming into the market from a competitor and get the capacity ourselves. So we basically stepped into that gentlemen's contract with the shipyard

Okay great. That seems really good. And then just real quick on the pressure pumping or the DES business. When we think about, I guess, two years ago I believe it was, a new unit cost about $1 million and a remanufactured unit cost I think you were quoting $500,000-$600,000. In terms of pricing as we look right now, is that kind of where the rates - or where pricing is? Is it sort of up from that - those levels? Down from those levels, sort of as we come out of the cycle?

I think pricing is so much customer dependent, and equipment option dependent as you might imagine. Particularly on reman. You just never know what you have to do. But I would just say this; the pricing is not where it needs to be. It's lower than it is and you see that in our margins. We do need to push for pricing up going forward. And you would expect that coming out of the bottom of the cycle, which I think is the nature of your question

Okay guys thank you very much for the time

Thank you, Greg.

Kevin Sterling, BB&T Capital

Good morning guys, this is actually William Horner on for Kevin. Going back to the coastal business for second, and I appreciate your color you gave on the supply side, but to more focus on utilization which as you noted picked up a bit this quarter despite some of the challenges from the weather. Given the current market conditions, how much higher do you think utilization can go?

It similar to the inland. 90% to 95%, you are essentially full utilized Coastwise, because coastwise has some time charter and more time charter - it's 80% time charter - you can get a little better. But effectively full utilization is 95%

Okay thanks, I appreciate that. From a follow-up with the drawdown of crude and cushioning in recent months with the resulting supply glut in the Gulf Coast are you seeing any direct impacts to your inland or coastal volumes down there as a result the supply going up?

No. I don't think so, we haven't seen that

Okay thanks.

Thank you, William.

John Mims FBR Capital Markets

Hi guys, this is Chris Kerry on for John. I just want to get back to the diesel business. We've been expecting some improvement there for a long time and this quarter was certainly a step in the right direction. But I'm just kind of wondering how you guys think about tracking the potential development of that business? Is it really just a function of order inquiries, pricing inquiries, or is there sort of a measuring stick that you guys use to gauge the outlook in that business beyond those inquiries which I mentioned?

Just external gauges that we look at, certainly the land-based rig count and horizontal rig count. We look at and that give you some indication. The other thing we look at a lot is you can see the pressure, the public company, oil service companies that have pressure pumping exposure. They will often talk about their North American land business and where their pressure pumping margins are going. And you can see in recent announcements that things are improving and once their margins start improving they get a lot more constructive with their capital spending and their maintenance and repair budgets. So that is kind of an external indicator that we look at.

Okay. Yes, that is helpful. And then on the margin progression in that business, given what you said, do you think about possible margin expansion of that business more on the pricing side given that it is quite low currently? Or is there still kind of operational efficiency improvements that you can make within that business squeeze to kind of squeeze out additional margins?

No, good question. Our margins as I said this quarter were low- to mid-single digits. We think, kind of on the OEM side, the assembly and manufacturing side, we should have high-single-digit margins and on the reman side and service side should be mid-teens kind of operating margins. And to get there we're going to need a couple of things; pricing is certainly one aspect but we also need more volume health. You get more fixed costs spread certainly our throughput could help. So it's a combination of all, but the pricing would certainly be one thing that could help a lot. As volume increases as well

Right. That makes sense. Just as my follow-up I know it's been touched on a couple of times here, but when we are thinking about how to model the barrel additions and the net barges additions in the year, I think, correct me if I'm wrong, but I think I heard18.1 million barrels is the goal for the full-year? Is that correct? Okay, so if we are thinking about progression is that about 230,000 barrels a quarter or is it a little lumpier than that?

No. It's very much back-end loaded. We got the Trinity shipyard contract, and assumed that position from the other competitor, that was late in the year. They were pretty much sold out for most of the year so we kind of finished off the year for Trinity. So it is back-end loaded. It will be kind of late in the year.

Okay. And you expect net additions to kind of track that same sort of progression, I mean with the first quarter with about 17, I think we're looking at 66 for full year if I'm not mistaken there. So on kind of a net additions to the fleet are we thinking about - it will track a volume the barrel volume progression as well? As far as being a bit more back-end loaded

Yes

That's all the questions I had, great quarter thank you

Think you, Chris

David Beard, IBERIA Capital Partners

Good morning gentlemen

Good morning, David

I was wondering if you could look out into 2015 and 2016 relative to capacity additions. You've been in the inland side and also you have been taking 58, 66 barges, kind of keeping your market share relative to capacity and you brought your fleet age down. Do you think you will stick within that 60-ish new barge orders for the next 2 or 3 years or is there a point where you have got the fleet age to where you want, and you'd bring that number down and let other guys take capacity, or how you think about that?

I don't think - we haven't declared yet. I don't know that we will build at that level going forward, but we're still thinking through that and as the year develops and as we - one of the things that's happening inland, you know we move a lot of chemicals. And one of the things we're assessing and watching carefully is all the new construction that's been announced in the chemical space. And how that plays out. You know those big chemical facilities take - well they can take years to just permit. So a lot of that capacity may not come on until 2016 2017 so were going to watch and see how that develops and it will be a dynamic decision process as that develops.

And maybe - you guys have usually been pretty countercyclical in terms of investing which would tell me at some point in time you'd put less money in inland barges, I guess with the caveat that the mix could shift toward chemicals - is that still your approach as we look out over deliveries for 2015, 20 16, 2017?

Yes. You know us well, David, that we are very return on capital focused and we look at the life of the asset and what it can earn through its life and make sure that we can get a return. So, the cycle plays into that but what we are seeing now is this is - this cycle is a little longer than most. And continues to develop. It's really hard to declare any more than that at this point.

Helpful, I appreciate the color. Thank you

Thanks, David

Nick Vendor

Hey, good morning gentlemen. Congratulations on the quarter and the new appointment. I wanted to come at the capacity discussion one more time. Can you give us a little bit of a sense of, with the contracts that you've entered into both on the inland side and on the coastal side, what you're seeing at shipyards, what the order book looks like currently, and sort of how you feel about that capacity dynamic sitting here in the beginning of 2014 and looking out to the future?

Let me break that into - first good morning, Nick. Let me break that into for two segments, inland and the coastline. On the inland side, Trinity and Jeffboat are the largest -- the two largest inland shipyards and Trinity is sold out for this year. From our knowledge. And so that kind of puts a cap on the capacity that will come in. I think Jeffboat focuses on their own boats, American Commercial Line, ACL, and they focus primarily on their own equipment. So it feels like the shipyards are sold out for this year on the inland side. I think they're developing their order book for next year. So it feels like there's not a lot of extra capacity that could come in, in the near term. On the coastwise business, it's still early days, there's any number of shipyards out there. We've announced our units - our 4 units, there's a couple other of our competitors, that announced 1 or 2, so it still early days and there appears to be ample shipyard capacity at least for the near term on the coastwise side.

Great that's helpful. You guys have done such a prudent job of sort of aligning the product exposure and in the inland coastal markets. As we sit here today and you're sort of focused more on some of the new build activity, do you look out at the market and think of any other products that you'd like to get exposure to or one particular product line that you would like more exposure than you currently have that might lead you either down the path of M&A or just organic new build activity?

Well, we're very liquid focused. So pretty much any liquid will move. We tend to follow what our customers need to focus and focus on our customers needs and what - we have some very long term customers as their product makes changes we tend to adapt and make sure we have the right equipment to meet those needs. But if it's liquid we are pretty much involved with it now. So there's nothing we need to add from an acquisition standpoint on that side

Understood. I will sneak one more in here real quick - as far as the land-based market goes, is sort of the uptick that you've seen in legacy markets with legacy customers, or are you seeing growth and expansion in any sort of new geographies or jurisdictions as you look at the market

No. We're pretty much North American based, domestic US based. However some of our customers and some of the bigger customers obviously may have us reman equipment and then will take it internationally; in fact we know couple of them have done that in the past. But it is primarily domestic focused, which is what you would expect given the shale impact. And in terms of customer mix, we have got the standard customers and that mix hasn't changed a lot. We have picked up a new customer here or there along the way. Because of our ability to serve, to offer the service

Sure, thank you guys. I appreciate the time.

Thank you

Matt Young, Morningstar

Good morning guys, thank for squeezing me in. Most of my questions have been answered but I just wanted to clarify; so in the diesel engine segment it sounds like you think the right margins for manufacturing should be somewhere in the high single digits and mid-teens for reman correct?

Yes. That is correct.

Could you provide an idea of where the reman margins are now and where they were throughout most of 2013, just generally?

Well, most of 2013 we didn't have enough volume to have our operating margins actually in the positive so it's really hard to disaggregate it because we didn't have the volume to absorb all our fixed costs. Clearly we're not happy with where the margins are yet. Every day we're working to get those margins up through either getting more efficient, trying to get more volume and also get more price. So it's hard to be more specific than that, Matt.

That's fair. So then the improvement then, and I know you spoke about this - but then the improvement is a combination of demand and efficiency, but it's probably mostly leveraged from demand, at this point.

Yes, that's correct.

And then can you just remind us real quick what the mix is, approximately, of the reman, I mean it's kind of small right now, but the reman versus manufacturing?

We break it into - we kind of a lump spare parts, other service revenue, and reman together. And I want to say that's about 70% of our plan based business and 30% is OEM.

Okay that's helpful. All right. Thanks.

Thank you, Matt.

I have no further questions at this time

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