Great Lakes Dredge & Dock Corp (GLDD) 2006 Q4 法說會逐字稿

Good morning, everyone, and welcome to the Great Lakes Dredge & Dock quarterly update call. Today's call is being recorded. At this time I would like to turn the call over to Ms. Deb Wensel, Chief Financial Officer of Great Lakes. Please go ahead.

--begin our discussion by presenting the financial highlights for the quarter and full-year 2006. Then Doug Mackie, Chief Executive Officer of Great Lakes, will share his markets overview, which will provide a useful context within which to view my more detailed discussion of operating results.

Following our comments, there will be an opportunity for questions. Before I begin, however, I need to remind you that certain matters discussed may be considered forward-looking statements and participants in this call are cautioned to place undue reliance on such forward-looking statements. Furthermore, any forward-looking statements speak only as of the date hereof and Great Lakes assumes no obligation to provide any future updates.

Revenue for the quarter ended December 31st, 2006, was $121.8 million, a 10% increase from the same quarter 2005 revenue of $110.4 million. Results in the fourth quarter were driven by continued work in the Middle East.

During the quarter, the company concluded primary operations on its 2-year project in Bahrain and began initial operations on a 3-year land reclamation, Diyaar. Land reclamation projects involve the creation of land offshore for the development of housing, recreational, port or other facilities.

Throughout the quarter the company experienced good utilization of its fleet, both domestically and internationally. This level of activity, along with a mix of work with higher contract margins, strengthened gross profit margins in the fourth quarter to 15.1% from 14.8% for the same quarter in 2005.

Further improvement in gross profit margins was hampered by an additional $1.2 million of self-insured claims reserves the company recorded during the 2006 quarter. Operating income was up by more than 14%, despite a $1.1 million increase in general and administrative expenses resulting from payroll and incentive compensation.

Excluding a $1.4 million write-off of deferred financing fees related to debt reduction in connection with the Aldabra merger, interest expense of $5.6 million was relatively unchanged from 2005. EBITDA for the quarter was up by 9.6% to $15.6 million from $14.2 million in the previous year.

Net income of $1.7 million in the fourth quarter was down versus last year, due to an increase in tax expense of $0.2 million. Prior to the Aldabra transaction, GLDD Acquisitions Corp. had shares of preferred stock outstanding on which dividends were accrued semiannually. Those shares were exchanged for common stock of the company in conjunction with the merger and are no longer outstanding. Net loss available to common stockholders after accruing $2 million of preferred stock dividends was $0.3 million.

Revenue for the 2006 year of $426 million was up slightly from $423.4 million a year earlier. While fleet utilization between the years was similar, the increase in gross margin to 13.4% from 12.1% was the result of improvement in both domestic and foreign project margins-- project margins despite the negative impact from the increases in the company's self-insured claims reserves recorded during the year.

Operating income of $25.6 million more than doubled year-to-year due, in large part, to a non-cash write-down of $5.7 million for the impairment of goodwill and intangible assets related to the demolition segment, recognized during 2005 and a decrease of $2.3 million in subpoena-related expenses. Excluding these items for both years, operating income for 2006 was up by more than 23%.

Despite a $2.3 million increase in tax expense versus 2005, net income for 2006 was $2.2 million compared with a net loss of $6.9 million for the previous year. Net loss available to common stockholders for the 2006 fiscal year was $6 million or $0.61 per diluted share, compared with a net loss available to common stockholders of $14.6 million for 2005. Net losses available to common stockholders in 2006 and 2005 included $8.2 million and $7.7 million, respectively, of accrued dividends on the company's preferred stock.

EBITDA for 2006 grew by approximately 33% to $52.6 million from $39.4 million last year, which included the $5.7 million impairment write-down. Excluding the impact of the 2005 write-down, 2006 EBITDA grew by more than 16.5%.

At this point, I'd like to turn the call over to Doug Mackie, our CEO, who will give you an overview of what's going on in the dredging market.

Thank you, Deb. With the exception of the third quarter, the company experienced good utilization of its dredging fleet and improvement in contract margins from both domestic and international work during 2006. Although the 2006 domestic bid market produced over $700 million of contract awards, it continued to be negatively impacted by funding issues at the Army Corps of Engineers.

The Corps has been hampered in getting projects out to bid due to the current federal budget constraints, the changeover to central control in Washington governing the release of Corps funds and new restrictions concerning obligation of funds for contracts that roll into future years. The letting of beach can capital projects, in particular, has suffered the impact of the Corps' funding issues.

Fortunately, state and local authorities have been developing funding sources for beach work to protect vital tourism and beach front property investments. In addition, the developing market of new liquefied natural gas terminals has recently produced privately funded demand for dredging work.

Both situations have filled the void in the domestic market caused by the Corps' funding difficulties. During the 2006 fourth quarter, the company expanded its presence in the Middle East by repositioning more vessels overseas and signing two future projects-- I'm sorry, two further projects in Bahrain for a combined value in excess of $50 million.

The domestic capital dredging market includes deep port projects that are authorized under the 1986 Water Resources Development Act or WRDA, which had been, typically, amended or supplemented every 2 years up until the end of 2000. Unfortunately, the latest bill did not pass before Congress ended its session in November last year.

There is optimism that the bill will pass in the new Congress within the next few months. The important positives for the industry included in the current WRDA are authorizations of various additional harbor deepening projects and approval of 12 priority projects under the Louisiana Coastal Restoration Plan. Given the current funding issues for all dredging work, a new authorization bill would not have much impact in the near term, but would provide support for the continuing deep port projects in the future.

Nevertheless, as we roll into 2007, Congress has not yet passed a budget and it may be that the government will operate under a continuing resolution for the remainder of this fiscal year. As we noted last quarter, appropriated money was going unspent due to the issue of continuing contracts.

Since the core did not have enough funding for their particular projects in the last fiscal year, they intended to carry over the money to be combined with this year's appropriations. However, under the current continuing resolution, none of this money can be spent until the budget is passed, so until there is an agreement on the budget, we would expect a drag on this year's bid activity.

The other issue that will continue to present challenges for the domestic dredging industry is the base-plus-option bidding structure the Corp is utilizing. The Corps is bidding projects that include a base amount of work-- of work which can be more easily funded, plus options for an additional-- for additional work that can be awarded as funds are released. The problem for Great Lakes and the industry overall is the scheduling of equipment and forecasting utilization, since the contractor has to commit and reserve equipment for a scope of work that may never be awarded.

Despite these concerns, we are optimistic that there will be additional capital work put out this year. Already in January, Great Lakes bid and won a $67 million deepening project in Port Jersey and additionally we are tracking planned future port development, including another phase of the New York Harbor 50-foot deepening project, a port expansion project in Jacksonville, Florida, two deepening projects in Portland, Oregon, and several port expansion projects in the Tampa area, which, in aggregate, could generate over $200 million of bidding opportunities for the market in 2007.

We saw a reduction in beach nourishment work during 2006 to $126 million following the 2005 record market of $297 million. However, it is still considered a robust market and certainly above the beach market in years prior to 2005. Fortunately, while the Corps funding has been minimal, more beach communities have taken over the responsibility for developing funding sources to meet their beach nourishment needs and are putting out their own projects for bid.

Great Lakes did over $80 million of beach work in 2006 for non-federally funded customers. Based on discussions with numerous local communities and the Corp we have identified-- we have identified beach projects from both federally funded and non-federally-funded customers valued at approximately $116 million that look possible for bidding in the next 6 to 12 months.

Another positive is the increase in dredging demand related to the continuing development of LNG terminals in the U.S. We completed our first LNG terminal project in Freeport, Texas, in the third quarter of 2006 and began our next LNG terminal project in Golden Pass, Texas. We have completed approximately one-third of this $70 million project in the fourth quarter and will finish the remainder of this work in 2007. In the near term, we will be pursuing several significant project solicitations with private customers for additional LNG terminal work, as well as a large harbor expansion project.

As I discussed in last quarter's call, we moved 3 of our hopper vessels and a large rehandling barge from the domestic market to the Middle East. During the last 6 months, we have seen Manson Construction's new hopper dredge enter the market, adding significant capacity to a stagnant dredging sector that is under continuous downward pressure due to a shortage of contract funds.

At the beginning of 2006, we could foresee the excess capacity would, most certainly, driven down bid prices, possibly below the low levels of 2005. Consequently, we concentrated on seeking additional work outside the U.S. to occupy some of our equipment and to maintain the supply and demand level of hopper equipment in the U.S. at a more stable level.

As a result of our efforts, we were able to secure the $300 million Diyaar project in Bahrain, which will provide work for 4 hopper dredges and a large rehandling barge for at least 3 and up to 5 years.

At the same time, we are carefully monitoring the future requirements of the long-term hopper market in the U.S. and when the volume in this market sector warrants more capacity, the company will be ready to build.

With all of the concerns over the state of the domestic market, we are pleased to report that our overseas operations in the Middle East continue to generate opportunities for utilization of our fleet. While the Durrat project concluded primary operations in the fourth quarter, the Diyaar project continued mobilization and commenced dredging operations. And with the addition of the 2 projects the company secured in the fourth quarter, the equipment rolling off of the Durrat project will be fully employed.

As a result, we are-- we now have in backlog sufficient work to occupy our equipment in the region into 2008 and beyond. The boom in the Middle East market that has been going on for the last 5 years shows little sign of abating.

The merger with Aldabra has proved to be very timely as we seek to heighten our international presence. By virtue of reducing our bank debt by more than $50 million, we are now in an advantageous financial situation to obtain letters of credit on more favorable terms, which will enhance our competitive situation overseas. We will only be able to increase our international sector by deploying more U.S. resources or gaining access to more equipment overseas.

Now let me ask Deb to walk you through a more detailed analysis of our fourth quarter and the fiscal 2006 performance.

Okay. The following is a general overview of contracts contributing to the quarter's performance within the context of the dredging markets we serve and our demolition segment.

Revenue during the quarter of-- the fourth quarter of 2006 included $38 million of domestic capital, $29 million of foreign capital, $15 million of beach work, $26 million of maintenance and $13 million of demolition revenue for a total company revenue of $122 million. The comparative numbers for the fourth quarter of 2005 were $45 million of domestic capital, $15 million of foreign-- foreign capital, $22 million of beach, $16 million of maintenance, $20-- $12 million of demolition, for total company revenue for the quarter of $110 million.

The majority of our $67 million of fourth quarter 2006 capital revenues were generated by the following -- continuing work on the new LNG terminal project in Golden Pass, Texas, with our hydraulic dredge Texas, our hydraulic dredge Florida continuing to-- or returning to work on our deepening project in Brunswick, Georgia, and a significant contribution from the substantial completion of our project at Durrat in Bahrain, as a result of strong performances from our hydraulic dredges Carolina, California, Utah and Alabama, as well as the initial dredging operations and continuing mobilization on our new project at Diyaar in Bahrain.

Beach revenue in the fourth quarter increased to $15 million compared with only $4 million in the third quarter. Weather, environmental windows and delays by the customer on one large beach project hampered our ability to produce more work from the beach projects we had in backlog. Even so, we ended the year with over $94 million of beach revenue, which equaled last year and continues to represent a significant portion of our dredging revenues.

Maintenance revenue in the fourth quarter totaled $26 million, a stronger quarter for maintenance work than we have generated recently. The majority of the quarter's maintenance revenues related to dredging on the East Coast, including the entrance channel to 2 naval bases and a channel in Newark Bay.

Despite the Corps' chronic funding issues, maintenance work continues to be put out to be bid and provide steady work.

NASDI had another solid quarter, generating approximately $13 million in demolition revenues. NASDI has consistently generated this quarterly revenue level over the past 2 years.

The activity in the Boston areas continues to provide constant opportunities for NASDI to take on a good amount of projects, a number of larger projects in the range of $1 to $5 million.

Turning to the fourth quarter bid market, the fourth quarter 2006 domestic dredging bid market representing work awarded during the period totaled $151.3 million, of which Great Lakes obtained a close-to-27% share. $81.6 million or slightly more than half of the bid market, was represented by capital projects, which included the deepening project in Oakland Harbor that I have mentioned over the last 2 quarters.

The total low bid for the project was originally $115 million, however only the base scope of work was awarded this quarter for $48 million. The remaining $34 million in capital work is made up of uncharacteristically small projects. This is a result of an adjustment in the way the Corps is packaging its bids to deal with its funding difficulties over the last few years.

There was one beach nourishment project let for bid in the quarter at Pine Knoll Shores, North Carolina, which Great Lakes won for $14 million. The remaining $56 million of the quarter's market was maintenance work, of which Great Lakes won a 37% share.

The domestic dredging bid market for the 2006 year totaled just over $714 million and was on par with the last 2 years. While the 2005 beach market surged to almost $300 million with the special appropriations related to hurricane damage, this year it returned to a more typical level of $125 million. At the same time, the maintenance work let this year increased-- continued to increase, reaching almost $350 million compared with an average of $260 million for the last 2 years.

The capital work increased, as well, with the addition of private LNG terminal development projects. Great Lakes' share of the overall market in 2006 was 36%, which is in line with historical averages over the last 5 years.

Although the domestic market generated $714 million of awards in 2006, the Corps of Engineers continues to struggle with funding challenges, as Doug explained. Consistent with the base-plus-option bidding strategy, most of the bids let during the quarter were designed with the intent of being ready to award the base contracts immediately and then award the options for additional work based upon 2007 appropriations. The subsequent work option-- the subsequent option work will be included in the bid market statistics when the work is awarded.

Turning to backlog, even though the company worked off a good amount of backlog in the fourth quarter, our dredging backlog remains solid at year-end. Given the company's domestic bidding success in the fourth quarter and the addition of 2 contracts in Bahrain, dredging backlog at December 31st, 2006, totaled $352.3 million versus $260.8 million a year earlier. The company's December 31st, 2006, reported backlog does not reflect approximately $186 million of low bids pending award and options related to additional work on projects currently in backlog, including approximately $156 million for the second phase of the Diyaar land reclamation contract.

The demolition services backlog at December 31st, 2006, was $16.6 million compared with $17.4 million at the previous year end. NASDI has consistently been able to generate stable revenues and backlog and is expected to maintain this trend as there continues to be good work-- good demand for demolition services in the Boston area.

Our backlog by dredging type and segment at December 31st, 2006, was $72 million of domestic capital work, $185 million of foreign capital, $56 million of beach, $40 million of maintenance for a total dredging backlog of $353, adding $16 million of demolition backlog for a total company backlog of $369. This compares to a year ago where we had $95 million of domestic capital, $90 million of foreign capital, $61 million of beach, $15 million of maintenance for a total dredging backlog of $261 million. Adding $17 million of demolition backlog gave us a total company backlog of $278 million.

Looking at equipment spending, capital expenditures for the fourth quarter totaled $12.6 million, bringing our year-to-date capital spending to $36.2 million. The fourth quarter included $6.1 million for completing the construction on the dredge Long Island, which was being reconfigured as a material rehandling barge to be used on the Diyaar project in Bahrain. $10.4 million of the capital spending for 2006 related to this vessel and in December it was sold for $12 million and leased back under a long-term operating lease arrangement.

The remainder of the fourth quarter's outlays included continued spending on the hopper dredge Padre Island and on the construction of a new booster that began last quarter, which is needed for beach nourishment work and LNG projects. Boosters are used for projects that require material over extremely long distances, sometimes as far as 5 or 6 miles.

Also included in the year's total spending was $3.9 million for the purchase of the dredge Victoria Island and 2 scows upon exercise of the early buyout options related to the long-term operating lease arrangements for these vessels.

As a result of the ongoing funding shortages for Corps projects, many of the contracts being issued are smaller and, therefore, shorter duration than in the past. To improve mobilization times between projects requiring pipelines for moving dredged material, the company increased its investment in domestic pipe inventory. In addition, we increased our foreign pipe inventory to accommodate the expansion and backlog of projects in the Middle East. Pipelines are utilized to transport dredged material from the dredge to the placement or disposal site. The total investment over the third and fourth quarter of this year totaled approximately $6.5 million and we expect a further investment of approximately $2 million by the end of the first quarter of 2007.

Fourth quarter 2006 maintenance spending, which is equipment-related costs that are expensed in the year incurred, was $8.6 million, bringing year-to-date spending to $32.6 million. As anticipated, this is higher than our recent annual average of $28 million and is the result of a general increase in shipyard pricing for labor and materials, as well as 2 expensive equipment breakdowns during the year.

Looking at our debt and liquidity, as previously announced, Great Lakes merged with Aldabra Acquisition Corporation, a publicly traded blank check company, on December 26th, 2006, and is now traded on the NASDAQ. By virtue of the funds received in connection with the merger, the company paid down, in full, its senior bank term debt of just over $50 million. The company's $175 million of 7.35% senior subordinated notes, due in 2013, remain outstanding. This merger has allowed the company to de-lever, which will allow more flexibility in pursuing opportunities in 2007 and beyond.

At December 31st, 2006, the company had total debt of $194.7 million, total cash and equivalents of $3.6 million and outstanding performance letters of credit totaling $39.3 million. The company had no revolver borrowings outstanding and, therefore, total availability was $39.2 million.

At December 31st, 2006, Great Lakes was in compliance with all financial covenants in its senior credit agreements and surety agreement. At year-end, without adjustments allowed by our senior credit agreements, our total leverage was 3.63. Senior leverage was 0.31 and interest coverage was 2.49.

Turning to a couple of other matters, on February 10th, 2004, the company was served with a subpoena to produce documents in connections with a federal grand jury investigation. We believe the grand jury was convened to investigate the United States dredging industry in connection with work performed for the U.S. Army Corps of Engineers.

The company believes that it has fully complied with all requests related to the federal subpoena matter and has delivered its affidavit to that effect. We have received no additional communications from the Justice Department since that day, however the matter continues to remain open and the company is continuing to incur legal costs, although at a much reduced level from 2004 and 2005.

In the normal course of business, the company is party to various personal injury lawsuits, for which we maintain insurance to cover claims that arise from injuries to our hourly workforce, subject to a deductible. Over the last year there has been an increase in suits filed in Texas, due in large part to 2 Texas law firms aggressively pursuing personal injury claims on behalf of dredging workers resident in Texas.

Aggressive medical advice in these cases is increasing the seriousness of claimed injuries and the amount demanded in settlement. During the year, $4.5 million was recorded for our self-insured portion of these liabilities.

Our current recorded self-insurance reserves represent our best estimate of the outcome of these claims, however the incurrence in the future of new claims of similar nature is not possible to predict. The company, along with industry, is working diligently to defend ourselves against these claims and reduce the potential for additional claims of this type.

Finally, our outlook. The fourth quarter of 2006 was a solid quarter for operations. Our 2006 EBITDA of $52.6 million was higher than expected, given the strong utilization in the fourth quarter and the improvement in both domestic and foreign project margins throughout the year.

Looking-- looking forward, given our current backlog, our expectations for bidding opportunities in the domestic market and assuming that project margins remain at existing levels, we believe the company's EBITDA will be in the range of $52 million to $57 million for 2007. At this level of EBITDA, we expect to generate sufficient cash flow to meet our current annual debt service requirements of approximately $18 million and to fund our necessary capital expenditures in the range of $16 million to $18 million.

This concludes our prepared remarks, but I would also note that we will provide a summary of the operating and backlog information provided herein, as well as a reconciliation of our EBITDA, which is a non-GAAP measure, to net income, a GAAP measure, in the financial section of our company's Web site at gldd.com.

I would now like to open the call for your questions.

Thank you. [OPERATOR INSTRUCTIONS] We'll go first to John Parker with Jefferies.

Hi. I was wondering if you could comment on the SG&A expenses. Are those-- are there any merger-related expenses in there and do you have any guidance for 2007 run-rate SG&A expenses?

Yes, there are no merger expenses in the G&A expense and I think as we look into next year that we don't see any-- anything other than general salary increases.

So the full year for 2006, you'd do a little bump up for salary increases to get to 2007?

Yes, that would be the biggest impact.

All right. Do you have any reaction to the administration's proposed budget for 2008?

Well, we find it lacking in many ways, however, the Senate and House generally add significant additional projects and money to what the recent administration has put out as a proposed budget.

Okay. Are you at all capacity constrained in the United States with all the mobilization to the Middle East?

No, we are not.

Okay. So you have enough-- enough vessels. And I think you said you were ready to build when the market picks up. Does that mean that you're looking at new projects or I'm wondering if you could use some of your new-found liquidity to purchase other companies in the domestic market?

We are always-- we always have several different dredges on the drawing board. We've-- it's been that way through my entire career. So we've-- when there is ever an opportunity that shows up in domestic or foreign, we try to be the first one into it.

And, yes, having a better balance sheet does give us the opportunity to either possibly build or purchase competitors' equipment.

Okay. On the Middle East front, you won $50 million in additional projects. Can you offer any-- any color on what it's like to compete there in the bid market? I mean, I guess that really fills out your next year or 2 years, as you said. Any color in terms of the competition you're running into there and your ability to maintain that level of sales in the Middle East market?

It continues to be very robust and no let up. We-- as I said in my-- as I said, the-- we see the rate of work going on for a long time and it is-- the reason we could bring additional equipment over there is the fact that there is-- there is, probably, a shortage of equipment in the Middle East.

So we believe, based on current conditions and what we see, that this-- this market should continue for a long time.

All right. On the-- on the liquidity front, Deb, you said you had availability of $39.2 but in your press release you said you had letters of credit of $39.3 and those don't quite square up with your $60 million revolver.

Right. We have a separate facility, which I think I mentioned over the last year, that allows us another $20 million of letter of credit capacity and so I believe about $18 million is under that separate facility. Therefore, there is only about $20 million on the current facility, which, then--

I see. Okay. Yes, I was wondering about that. So-- all right, I mean, I was wondering if you were going to take on a bigger revolver, but I guess you already announced that and I hadn't accounted for that, that $20 million, and you think that's sufficient for the foreseeable future in terms of revolver capacity?

I think so.

Okay. Can you break out cash interest in the quarter? I know in the past you've had non-cash swap interest included.

I don't have that in front of me. I don't think for the fourth quarter that it was significant.

It wasn't significant? All right.

The Long Island, I'm wondering-- you always have plenty of liquidity. What was the rationale for doing a sale/leaseback on the Long Island?

Well, we've typically done that when we have new equipment and this was substantially a new piece of equipment to the extent that we reconfigured the vessel. And so it gives us the right kind of financing terms related to that type of equipment on a long-term lease--

Okay.

--rental for it.

Do you have a purchase option at the end of that lease? Hello?

Yes, I'm sorry. We do.

Okay, you do. Okay. And then one thing I noticed, your beach backlog seems to be very strong and it seems to me you can maintain the same levels you've had the last 2 years in 2007 based on that backlog. Is that your view?

Yes, I think so. I think beach work will continue to remain a significant portion of our revenues. The market seems to be sustained through not so much the federal side, but certainly by the state and local. So we would expect that to continue next year.

Great. Well, thanks a lot and good quarter.

Thank you.

We'll take our next question from Ian Wallace with River Run.

I'm curious as to why the increase in backlog isn't anticipated to translate into an increase in EBITDA for '07. Is it the mix or you expect increased pricing pressure or your cost structure or what?

Well, some of it is the ability to-- what the backlog is. When it's a large capital project as Diyaar, and that's about $130 million of that backlog at the end of the year, there is only so much of that that we can work off next year. So that project extends for the next 3 years.

So, again, it's a healthy amount of backlog, but there is some of it that-- that only a portion of it can be worked off in the following year.

So if you looked at your backlog that you expect to realize on in '07, it's actually not up that much?

I'm sorry. I didn't understand.

If you looked at the portion of your backlog that is going to be executed on in '07 versus the backlog a year ago, that number really hasn't changed that much?

Well, I do think it is higher. I think at this point, in order for us to meet our anticipated EBITDA we have to take on a certain amount of work, bid and win and perform next year, but I think that is a smaller portion that what we were looking at this time last year.

If you-- if you look at your backlog, although some of it extends further into the future, do you think that's true kind of across the industry and that may translate into better pricing?

Translate into?

Better pricing?

Well, I think we've seen the pricing getting better. Certainly over this year it's gotten better. I think our competitors do have better size of backlog, although they don't have the extension that we have, which is the foreign work.

Okay, great. Thank you.

We'll take our next question from Richard Paget with Morgan Joseph.

Good morning, everybody.

Good morning.

I mean, it sounds, at least in the real near term that the funding issues with the Corps isn't really going to change and then with the possibility going forward with an election year, I mean, who knows what's going to happen? I mean, would you guys consider, given your comments, about the overseas markets, committing more assets over there?

Yes, we're-- we always look at that. We're watching the Corps bidding schedule carefully and trying to find out what is actually committed to be bid and we-- we always are looking and considering taking more equipment overseas, but it is-- it is a-- it is a big decision, just because of the costs if we wanted to return it quickly, if the U.S. margin-- U.S. market took off.

So we would consider it, but haven't made that decision yet until we get a little bit more information from the Corps.

And then, I mean, it seems the needs are out there, but what's kind of the level of critical, must-do work where if they're not doing this maintenance the ships start running aground? I mean, are we at that level now or are we approaching that?

I don't think we're at that level now. They've-- they've been doing the maintenance work, in most cases. Deb said it was up almost $90 million last year. So what they have been delaying is the capital and the beach portion. Certainly there were many jobs in 2006 that we expected-- in the capital area and in the beach area, which we expected to be bid and they weren't.

So I think we're not getting to the level where they're going to not maintain-- do the maintenance. They're above that, but they are delaying some of the capital and beach work that the federal government would do, usually.

Okay. And then with LNG, I think you said that the project in the fourth quarter, you did about a third of a $70 million project?

Yes.

Assuming you kind of go at the same pace in the first half of '07, do you have any other LNG projects lined up for bid?

There are-- there are several that we've-- we are negotiating now, as well as non-LNG projects that we're-- we're in negotiations with. We feel pretty good that we'll be able to-- to be successful on a majority of them. They are-- they are private and they take-- private jobs, just like foreign jobs, take a little bit longer to secure since there's a longer negotiating process.

Okay and then the kind of bump up in maintenance work, did that have anything to do with mild weather? You guys had more operating days or was it just work was picking up in general?

A lot of the work that came out from the Corps was maintenance and we can do all types of work, so that's-- that was what we had in backlog in the fourth quarter.

Okay, so no benefit from mild weather or anything like that?

No, no.

No.

Okay, thanks. That's it for me.

We'll take our next question from Sarah Thompson with Lehman Brothers.

Hi. It's actually [Lawrence], on behalf of Sarah. I'm sorry, I had to jump off the call for a bit. Can you go through your guidance, very quickly, again please for '07?

Oh, sure. What I indicated is that, given our current backlog and given these expectations for bidding opportunities in the domestic market and that we assume those margin levels should remain here at the levels they are now, that we would have EBITDA for 2007 in the range of $52 million to $57 million.

And how about CapEx and free cash flow?

Yes, in looking forward our debt service requirements should be approximately $18 million and we look at cap spending in the range of $16 million to $18 million.

Okay and are you guys willing to give some color on free cash flow? I know CapEx looks like it'll be down $17-$18 million year-over-year, possibly cash taxes will be a bit higher, and working capital would be the other variable. Can you guys help us think about free cash flow into '07 when it was roughly flat in '06?

Yes, I think-- I mean, we have some opportunity here. Obviously, we will have an increase in tax and-- but beyond that, we also have approximately $12 million in early buyout options on other operating leases coming up here in 2007, so that's-- that's certainly an opportunity for us and I think that's generally it. I mean--

And I assume those-- those buyouts of operating leases, if successful or if completed would be used for debt reduction or would that be used to--?

I mean, we certainly could use free cash flow for that.

Okay. And as you guys think about your leverage, roughly 3.3 times right now on a net basis, do you guys have a kind of a target, a target range? I know you referenced in your press release that your newfound financial flexibility will allow you to pursue international initiatives, but, I mean, have you guys-- are you focused on continued debt reduction or are you guys comfortable in the kind of 3 to 3.5 range?

I think we're a company to generate cash and to pay down debt and we do still have debts that we can pay down, so I think that will continue to be part of our strategy.

Okay. Thanks very much.

We'll go next to [Chris Pauley] with [Crown Advisors].

Thank you for taking my questions. You said you were going to be posting some of the detailed information on the Web site. Do you know approximately when we can pick it up there?

It should be out there now.

Oh, great. And then secondly, is it possible for you to post an updated PowerPoint presentation on the company?

We have not, typically, posted any PowerPoint presentations and, perhaps, the one you-- you may have seen was in connection with the Aldabra merger.

Right.

Yes, we didn't have any intention at this point in time, but that's something that we can consider.

I would request that you please consider it. It's done quite frequently and you can leave off whatever you don't want to put up there, but in light of the fact that it's a new company and-- in terms of recently going public and not very-- followed very broadly, it would be helpful for others that might want to learn more about your great story?

Okay. Very good. We will take it under consideration.

Thank you.

We'll go now to Adam Ritzer with CRT Capital

Hi. How are you guys doing?

Good.

A couple questions, just following up on some of the information you talked about when you were doing your road show. Can you discuss any potential real estate sales within your JV? I think that was something you were pursuing and actually had some property that was being offered or bid on. Can you update us on that?

Yes. I mean, it's still-- it's-- it's still proceeding. It is bogged down just because committees have got involved from the city that we're dealing with, but we see it proceeding and, hopefully-- I'm very hopeful and hopefully very confident that we will resolve this in the first quarter.

Okay. Can you remind us what price you're trying to sell that for?

We cannot.

Understood. In terms of-- other things you mentioned, that there's a large -- I don't know that large is proper word -- but a number of pieces of equipment that are coming off lease that you guys were going to try and buy, therefore improving margins or giving you more opportunities. Maybe I'm mistaken in what I'm saying, but can you tell us about that and what the opportunities are for that equipment?

That's part of the equipment I was talking off that's coming off or that we have these early buyout options--

Right. Exactly. I think it's noisy here. Maybe I missed what you said. If you could repeat that, I'd appreciate it.

Yes. I mean, we have the opportunity and we have, in the past, exercised that opportunity and what that does is requires the buyout of that equipment but adds to cash flow with the reduction in lease expense.

Okay. Can you remind us how much that would cost and what kind of EBITDA that could generate for you guys?

I don't remember. It was not a significant number in 2007. One of the biggest lease buyouts is near the end of the year.

Okay.

The bigger impact will be in 2008.

Okay. Can you give us a little more color on your projections for '07? You just mentioned $52 million to $57 million in EBITDA, which appears lower than what you had in your documents with projections during the, I guess, road show period. And you just did-- just did $15 million of EBITDA in Q4, which seasonally, I guess, would be a little bit slow. That's annualizing at $60 million. What is the difference or things that could be a little bit slower in Q1 or Q2?

No, I don't think the guidance is inconsistent with what we had put out previously. And, again, a particular quarter, there's a lot of things that impact a quarter. So, typically, we don't take a look at a one quarter run rate as being what we'll do over the next 4 quarters.

Okay, so you said $52 to $57, you think, is consistent with what you had in your documents of projections?

I think so.

Okay. It seems a little bit lower to me, but maybe that's just me.

And in terms of acquisitions, with your letters of credit, with the reduction of debt, where are your-- is your priority international acquisitions or is there domestic, smaller businesses that are out there that you can buy ships on a favorable basis from?

Well, our priority is, if there was going to be one, would be to acquire domestically.

Domestic's the priority? Okay.

And I think when we had met with you, you mentioned that there's a number of Mom and Pop operators that might have 1, 2, 3 dredgers that you think you could buy opportunistically. Is that still out there? Is there anything near term that we could look to see, now that you have added liquidity?

Well, I think what I said-- you're accurate, but I think what I said is that there are these -- I don't know if I'd call the Mom and Pop -- but they're family-owned companies--

Right, right.

--through generations and we-- we expect, over the longer term, that they will become available, that given the history of this industry they pop up very unexpectedly. However, I would think that just based on the family's situation that something will happen. I really can't predict within how many years.

Okay. So would it be fair to assume, with your experience in the industry over the last, I think, 100 years you guys would be one of the first couple of calls when somebody wants to sell something?

We would be the first call, I'm sure.

Okay, great. Thanks very much.

We'll take our next question from Oliver Corlett with R.W. Pressprich & Company.

Good morning. Could you just give us a little color on the competitive situation in the foreign markets, like in the Middle East. I know, obviously in the domestic market you have sort of Jones Act protection that you don't have against the bigger international players. Are the foreign margins generally lower as a result?

It-- at the moment, they're not. They're about-- the margins are on par with the-- with the domestic margins and, as far as the competitive situation, we are-- we are a small player in the foreign market. There are 4 European dredgers who each approach a billion dollars, not euros, a billion dollars, some over a billion euros, of sales a year. So we are-- we are a small player, but have competed head up with them and have done very well.

Do they have economies of scale, as a result of that, or is it pretty much sort of dredge-by-dredge cash margin business?

Well, yes, I mean, it is-- overall, like in our market in the U.S., which is-- which is restricted, I think economies of scale may be more significant. But the-- you could-- we're looking just for a few projects, where they're focusing on hundreds of them. So it's-- we find it, over the last 5-10 years that we can get the projects we want, all depending on-- on the market, whether it's hot or cold.

Right.

So we've been successful, being the small player and getting the jobs we want and keeping our presence there.

And in the domestic market, I guess your bid share was a little bit lower than normal in the last quarter, does this-- and with the Manson dredge coming on and so on, does this sort of imply that the margins in your backlog right now, domestically, are lower than they have been recently or roughly the same?

No. Some of the reason we may not have the margin-- or the percent of the market, bid market, is because we are taking vessels outside of the market--

Right.

--where we can get as good returns. And so--

But I think overall, we were still, if you look at the annual percentage, we still took on what would be consistent with what we typically do, so even with our reduction in vessels.

A couple of percent, maybe, but we're-- and we're happy with the margins here in the U.S.

I think if you look in the fourth quarter, there was a large capital project, which was that Oakland project, which we were not low bidder. And so a lot of times in a particular quarter's bid market, one project can sway the statistics pretty significantly, because those capital projects do tend to be fairly large.

Right. One sort of small question. I've been reading in the press about one beach project at St. Lucie is it, there seem to have been some operational problems. Is there likelihood to be any sort of extra pressure on your margin because of that or is that a minor difficulty?

That is a minor-- that is a minor issue. It is a very political issue, but will have no-- very little, if any, financial ramifications for us.

Okay. Finally, speaking of politics, the midterm elections, would you say or could you say whether-- what kind of impact that might have in terms of appropriations for the Corps or for a passage of WRDA? I mean, was it-- would you say there was any kind of change in the attitudes because of the shift in the midterms?

Well, I'll just about historically in my-- in my career, which is about 30 years. We find that Democrats spend more in dredging than Republicans.

Okay. Thank you very much.

Sure.

We'll go next to Dennis Scannell with Rutabaga Capital.

Yes, good morning. Just a couple of questions and a point of clarification. You had mentioned and the previous caller was-- had also alluded to a new hopper coming into the market. Is that a new build? Can you give me a little bit of history there in terms of what's going on?

Sure. Manson Dredging -- I think we've been talking about this for over a year now -- Manson Construction Company, which has-- which is primarily a West Coast operator, has built a very large hopper dredge, which was, I think, started construction almost 2 years ago and entered the market about 6 months ago.

And it-- from our point of view, it was-- it was not-- we couldn't have justified it. Let's put it that way. So this big dredge came in and, fortunate for us, we had great opportunities overseas to take 3 of our dredges out. But it was-- it was foreseen, but a surprise that anybody would build into the market as it is now.

Any-- any other new builds that are kind of-- either being-- you wouldn't necessarily know if they were being anticipated, I guess, but in process--?

No, there's none in process. And we would know quickly if there was any new builds, because there's only so many shipyards out there.

Okay. Okay. And then a couple other quick things. In your guidance, would it be fair to assume that revenues would be-- for the year '07 would be flat to slightly down? Is that--?

I think, generally, flat.

Okay. And within that, on the-- on the domestic piece, is there-- is there any piece of that that is at risk if the new Congress continues to operate continuing resolutions as opposed to actually passing a budget?

Well, I think at this point in any year there is always risk and it depends upon what does come up in the domestic market. However, I think, as I indicated in one of the earlier questions, that starting out this year that we do have a smaller portion of what we called, needing to have potential work, which is work that would be-- have to come out for a bid, we'd have to win and perform in the year. And that-- that is-- always, at the beginning of the year, we have to do that.

It's just fortunate, I think, for this year what we-- what we look at, going forward, here is that is a smaller number than we have seen. Although it's in the range of what we have seen historically.

Okay. Have you sensed-- can you size, like, the percent of '07 that you expect that's in the backlog? I mean, are we talking 80% or 60% or--?

Well, I think historically we always have between 40% and 60% in backlog. I think we're at the higher percent starting this year, yes.

Got you. That's helpful. Just a couple other quick things. Have you talked about the net book value or the carrying value of the real estate that you're talking about on the-- for the JV?

I answered one question and we're still-- it's a process that has continued. We're still pursuing it, but we're not giving-- or have not given any numbers.

About the values or anything?

The value, right. Correct.

Or even what's on the books?

The books would be meaningless.

Okay, fair enough. And then one last thing, the-- the total shares outstanding now, is it 40 million or--?

Very close to 40 million, yes.

And are there more warrants or are those all exercised?

There's more.

No, no. There's--

18.4 million.

Of warrants outstanding.

18.4 million of warrants. And then the expected tax rate for-- for '07?

In terms of our tax rate for '07, I don't know. I mean, our current-- the '06 tax rate was about 32%.

Okay. And no reason to think it would change that much?

It's not clear. I mean, the foreign does impact and to the extent that we use foreign tax credits, that could make that lower, but we did utilize foreign tax credits this year.

And the-- are those pretty much all cash taxes?

Yes.

Okay. Great. That's it for me. Thank you very much.

[OPERATOR INSTRUCTIONS] We'll go next to [Tim Priado] with West Creek Capital.

Hi. I just had a quick question. Earlier in the call, you mentioned -- and I'm quoting here -- if the market in the U.S. takes off in reference to why you aren't sending more stuff abroad.

Could you give the historical precedent for that, talk about what that would do for pricing, what would cause the market to take off and maybe, also, talk about the excess capacity in the market right now?

I don't know if so much of it's, necessarily, if the U.S. would take off, but if the U.S. market would improve to what we had seen before 2004, I think that's more of what we think about as being a pretty stable domestic market. And that would include, then, more-- more projects coming out in the capital sector.

So there certainly is demand out there for those projects, but those are the ones, as Doug mentioned, are being postponed currently.

Okay and could you talk about the current capacity in the market?

There's-- I mean, the capital projects are-- the competitors for the-- the competitor capacity for capital projects is a smaller subset. We-- fewer players in that type of work. So there is capacity, but probably it's a better situation for us since-- since we have the majority of the tools that do capital work.

Okay. Could you talk about what pricing would do if-- if all these projects, I guess, came into the public market?

Well, again, I don't know that we would expect them to all come in a big flurry. Obviously, if there's an increase in the market that tends to improve margins, but I think, too, in the past we've always talked about there's the specifics of each project's bid as to the margins.

I mean, obviously, back in 2004, we saw a significant impact on margins downward because of the lack of work. Over the last couple of years, that has been coming back up and is still a little bit below what we saw prior to 2004, but not significantly. I suppose what we would do is if the market came back to those prior periods, we would think that the pricing would be similar. I don't think we're talking about any big changes.

Yes, I mean, they-- it's very unpredictable because we've had flurries in, like, 2003 where they put out a lot of work, 2002-2003 at the same time and prices did go up significantly. We-- it's hard to predict that we'd see that again, especially the way they're measuring the work they're putting out now.

But any-- any improvement of capital work coming out of the federal government, would-- would improve margins somewhat. But it all depends on the degree of work that's put out.

Okay, great. Thank you very much.

And it appears that we have no further questions at this time. I'd like to turn the conference back over to management for any additional or closing comments.

Okay. Well, thank you. Thank you for joining our fourth quarter updates and we look forward to talking to you at the end of the next quarter.

Thank you. Once again, ladies and gentlemen, that concludes today's call. Thank you for your participation. You may disconnect at this time.