Great Lakes Dredge & Dock Corp (GLDD) 2009 Q4 法說會逐字稿

Good morning, ladies and gentlemen and welcome to the Q4 2009 Great Lakes Dredge and Dock Corporate Earnings Conference Call.

My name is Keith and I will be your operator for today. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Ms. Katie Hayes, Director of Investor Relations. Please proceed, ma'am.

This is Katie Hayes, head of Investor Relations for Great Lakes and I welcome you to our quarterly conference call.

Deb Wensel, our Chief Financial Officer will begin our discussion by presenting the financial highlights of the quarter and year ended December 31st, 2009.

And Doug Mackie, Chief Executive Officer of Great Lakes, will share his market overview.

Following their comments, there will be an opportunity for questions.

Before they begin, however, I need to remind you that certain matters discussed may be considered forward looking statements, and participants in this call are cautioned not to place undue reliance on such forward looking statements.

Furthermore, any forward looking statements speak only as of the dates hereof and Great Lakes assumes no obligation to provide any further updates.

I will now turn the call over to Deb Wensel.

Thank you, Katie.

I hope that all of you had a chance to review our press release this morning which includes financial highlights for the period.

2009 was an outstanding year for Great Lakes. While the fourth quarter fell short of our expectations, for the reasons I will comment on next, we earned a record revenue and EBITDA for the full year and we won 47% of a $1.1 billion domestic bid market that was bolstered by stimulus funding.

As expected, fourth quarter revenue increased over third quarter as the addition of the Dredges Texas and California boosted fleet utilization in the domestic market, more than overcoming decreases in both foreign and demolition revenue.

However, margins were significantly reduced by weather related issues on certain domestic projects and the demolition business continues to be negatively impacted by the slow construction market through the end of 2009.

Revenue of $161 million for the quarter ended December 31st, 2009, was relatively unchanged from $163 million for the same period in 2008.

However, in the 2009 fourth quarter, 20% of dredging revenue shifted from foreign operations to domestic with the repositioning of the two dredges.

Gross profit margin of nearly 10% in the fourth quarter of 2009 was down from 11.1% for the fourth quarter of 2008, resulting in full year EBITDA of $77.6 million, slightly less than anticipated.

The primary contributing factor to the shortfall was severe weather conditions in the Gulf and along the East Coast.

In the first and fourth quarters of any year, we are particularly exposed to weather conditions and unfortunately, it is only in this time frame when certain projects can be performed because it is when environmental windows are open.

Inclement weather delayed the completion of our project thereby causing us to incur additional cost which cannot be passed on to the owner.

A number of our domestic dredging projects, including several complex Louisiana coastal and wetland restoration contracts, incurred weather delays from the effects of November's Hurricane Ida in the Gulf, two nor'easters along the Atlantic Coast and excessive flooding in the Mississippi Delta.

One particular project on the Mississippi River was held up for over a month. This is significantly outside of the typical weather delay expectations built into our estimates, based on historical weather data.

The fourth quarter was in marked contrast to our first quarter when the weather worked very much to our favor and we record revenue and improved gross profit margin.

Revenues for the year ended December 31st, 2009, increased by 6%, to $622.2 million, compared with $586.9 million for the same 2008 period, primarily as a result of greater dredge fleet utilization during the year.

The increased utilization, coupled with higher margins on domestic projects during the first half, positively impacted gross profit margins, which increased to 14.2% from 11.8% for 2008, despite the unfavorable margin impacts from foreign operations and the demolition unit.

Operating income increased more than 60% during 2009, reaching $42.3 million versus $26.1 million a year earlier, as a strong gross profit performance offset a 6% increase in G&A for the year.

EBITDA was $77.6 million, a nearly 40% increase from $55.9 million for 2008.

Net income attributable to Great Lakes Dredge and Dock Corporation for the year was $17.5 million or $0.30 per diluted share versus $5 million or $0.09 per diluted share the prior year.

It was another impressive quarter for the domestic bid market which reached $292 million, having been primarily fueled by beach and maintenance work.

Great Lakes continues to maintain a solid backlog as a result of contracts won during the fourth quarter.

The company's contracted dredging backlog as of December 31st, 2009, was $366 million, compared with $361 million at December 31st, 2008.

For comparison purposes, we adjusted the 2008 backlog number for the portions of the Diyar contract that became an option pending award in the first quarter of 2009.

Our total backlog is consistent between year-ends and makes this change as the amount of domestic dredging backlog has increased 48% to $330 million, compensating for a reduced level of foreign backlog.

Demolition services backlog at December 31st, 2009, was $16.4 million compared with $23.5 million at December 31st, 2008.

However, 2010 has gotten off to a good start as our Boston based demolition business recently took on over $30 million of work, a significant portion of which are projects in the New York market where it's been gaining a foothold.

All of this activity is an encouraging sign for the demolition unit as it heads into 2010. It is difficult at this point to tell how much the demolition business will recover this year.

As expected, capital expenditures for the year totaled just over $26 million, since we moved up a large dry docking overseas into the fourth quarter to accommodate projects scheduling for the beginning of this year.

For 2010, we anticipate capital spending to be approximately $25 million and depreciation to reach $34 million.

[By end of the quarter] we've reduced debt by $19 million, bringing year-to-date debt pay down to $30 million, due to increased EBITDA and lower working capital investment overseas.

Revolver borrowings were $11 million at year-end. As of December 31st, 2009, senior and subordinated debt, net of $3.2 million cash and cash equivalents, was $182.8 million, and outstanding performance letters of credit totaled $32.8 million, of which $17.1 million was outstanding on the company's revolving credit facility.

[$155] million revolving credit facility matures in June 2012 and includes and $85 million sublimit for the issuance of letters of credit.

At December 31st, 2009, the company had $117.6 million of borrowings available under this facility, after giving effect $9.3 million of unavailable commitment due to a defaulting lender.

Leading positions in our credit facility are held by Bank of America, RBF, GE Capital Corporation and Wells Fargo Bank.

At year-end our total leverage was 2.4 times, down from 3.65 at 2008 year-end. And interest coverage was 5.3 times, up from 3.7 times a year earlier.

During 2009, we saw a reduction in working capital investment from the prior year, primarily due to a reduction in foreign working capital requirements as operations slowed there.

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.

Thanks, Deb.

The domestic bid market continued to be active through the fourth quarter, with $292 million of work awarded, bringing the full year 2009 market to a record $1.1 billion.

As had been the trend in 2009, maintenance work accounted for the largest portion of projects bid in the quarter, due to the Corps of Engineers focus on returning our nation's channels to their stated depth.

Great Lakes won all of the beach work awarded in the quarter as well as half of the capital work.

Bidding for beach work improved at the end of last year and as a result of the total 2009 beach market was nearly 50% larger than 2008.

While state and local authorities may still struggle to get beach projects funded, the end of 2009 was a positive sign that work which needs to be done will continue to come out.

Overall, the company won 47% of the 2009 domestic market, above our previous 3 year average of 42%.

Although the list of projects with stimulus funding was announced last May, we have not been able to determine the dollar amount that entered the market during 2009. However, we know it was a significant driver of last year's bid market.

As we look forward, we believe that while the majority of the work that is being funded by the stimulus program has been awarded, a significant amount remains to be completed by the industry in 2010.

The President has announced his budget for the fiscal year 2011. While it is down from the previous year, we believe it is just the starting point, as historically it has increased from what has been initially presented.

The positives are that discussions for next year's budget are starting early and there appears to be a change in sentiment by the administration towards increasing appropriations for beach projects that should improve future funding for this market.

As we mentioned during the last call, operations under an approved budget as opposed to a [continual] resolution, helps the Corps fund and bid work much more efficiently.

With regard to other pending legislation, the outlook remains positive for passing the bill to secure revenues for the Harbor Maintenance Trust Fund, for its intended purpose, primarily maintenance dredging.

It's increasingly acknowledged how critical it is that our ports and waterways be maintained at their stated depths.

A new WRDA bill, the Water Resources Development Act, currently appears to be on tract to be introduced in the first half of the year with the Harbor Maintenance Trust Fund legislation included.

Although we are hopeful for passage of this bill before the end of the summer, and encouraged that the 2011 budget process has begun, the number of current legislative priorities in Washington makes the timing of both uncertain.

The Panama Canal expansion continues to move forward. The deepening of the canal heightens the need for the US to even its East and Gulf Coast ports as the deeper draft cargo ships come through the canal will want to offload in our ports.

This is evidenced by the $350 million deepening project in Delaware River, the first phase of which was bid earlier last year, and the $600 million deepening project that is planned in Jacksonville, Florida.

In the shorter term, we see domestic capital projects on the horizon, such as deepening another section of New York Harbor, work for the Navy in Norfolk, and other deepening work along the East and Gulf Coasts.

These capital projects could add more than $200 million to the domestic bid market in the next 12 months.

With regard to additional funding sources, the Supplemental Appropriation Act of 2009 that was signed into law last June, appropriates $400 million for barrier island and ecosystem restoration to rebuild shorelines impacted by historic levels of storm damage along the Mississippi Gulf Coast.

The Corps is in the planning stages for this restoration and has indicated that it will start bidding projects in the fourth quarter of 2010.

Funding for the Coastal Impact Assistance Program, which we have mentioned in previous calls, appears to be going to smaller projects, not undertaken by our segment of the industry.

As Deb said, we relocated two dredges back to the active US market, as our operations [flowed] in the Middle East. We are winding down the existing operations on a Diyar project, with a significant amount of remaining work delayed indefinitely.

Our current backlog will keep a portion of our Middle East fleet busy into the third quarter of 2010, and we see several potential dredging projects on the horizon there.

We are cautiously optimistic about our opportunities in that market, as we being the new year, and the world economy moves out of recession, and oil prices begin to stabilize.

It appears customers in the Middle East are beginning to feel confident, moving forward with infrastructure projects, though they may not be the large scope that they previously were.

Several projects have been announced [leading] to dredging for industrial growth and government infrastructure expansion.

If even a portion of these projects do proceed, then we expect a high level of activity returning to the region going into 2011.

Nevertheless, there remains uncertainty in the short term with regard to the timing of the international market's recovery.

Elsewhere in the international market, the number of bid opportunities is increasing, providing new market opportunities for the deployment of our international fleet.

We look forward to 2010, with a solid domestic dredging backlog, and our vessels positioned in the US market where we feel they have the best opportunities for utilization in the near term.

While there is increased uncertainty with regard to the timing and scope of some of the domestic funding initiatives, given [then] that many legislative priorities before Congress, we are encouraged that the 2011 federal budget discussion has begun.

We are hopeful that this bodes well in terms of the Corps being able to work under an approved budget which will expedite both the bidding and the funding process.

This coupled with the underlying demand for the work such as that, for the deepening projects in ports along the Atlantic and Gulf Coasts, as a result of the expansion of the Panama Canal.

The restoration of the coastlines along the Gulf Coast and increasing focus on beach projects is a strong indication that dredging activities should continue at a healthy level in the US market.

We are convinced that the fundamentals are in place for continued, strong long term growth in the domestic dredging market. Nevertheless, we are cognizant that the timing of funding approvals do influence our shorter term performance.

That coupled with the uncertainty of the international market and the demolition business will achieve a sustained momentum and at what levels leads us to adopt a conservative outlook at this early point in the year.

As was the case a year ago, we are not providing specific EBITDA guidance for 2010 at this time. We do believe that 2010 could be similar to 2009 predicated upon a healthy 2010 domestic market and some improvement in both our foreign dredging operations and demolition business.

As the year progresses and the market dynamics become more clear, hopefully we will be able to provide more clarity and forecasted EBITDA results for 2010.

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

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

Ladies and gentlemen, if you have a question, please press * 1 on your phone. (Operator Instructions).

Your first question comes from the line of Andrew Kaplowitz with Barclays Capital. Please proceed.

Good morning, guys.

Good morning.

So, Deb is it possible to break out the weather related impact in some way or the demolition write off so we can get a view as to how much of the margin [miss] or those pieces?

Well, I think it was fairly significant. We talked about being able to be in a cash flow range of 80 to 85 and I think we clearly would have been in that range solidly without those two events.

Could you tell us the write off number in the demolition business, could you tell us that?

It's a significant, I think it's about $1.2 million hit.

Okay, that's fair. And the demolition business outside of that write off, I think I remember you saying that it was sort of break even. Was it losing money in the fourth quarter outside of that write off and what do you expect it to do in 2010?

That's a fair question. And they actually didn't do as well as we had hoped in the fourth quarter, outside of that write off.

We sort of knew that project could give us some trouble and they didn't do well beyond that. And I think again it goes back to the very difficult market. I think in the construction industry and certainly in the demolition, there's just not a lot of starts going on. The work that's getting done is highly competitive.

And two, a lot of construction business includes modifications and change orders and that. And that's just a typical part of the business. And we've just seen customers really having trouble and us not being able to get change orders that we normally would.

So I think the combination of all of that really was difficult for Nancy for this year. That being said, I think that some of the difficult projects are behind them.

They did start some, opened projects in the fourth quarter that will go into next year that look good. And the fact that they have picked up a sizeable backlog in the month of January.

All these things were kind of, we were working on over the last six months of the year, and contracts started to sign up. So we have over $30 million that we've picked up. And a significant portion in the New York market where we've been targeting. And so we feel pretty good about that.

And so, I think that points to some upside for demolition here going forward. It's certainly early on. How well the construction market recovers and how it does during this year, I don't think anybody's predicting that yet.

So we'll just have to kind of see how that goes.

That's helpful.

Doug, if you look at the biddable market in 2010, and you look at the 2009 $1.1 billion number, how do you think 2010 will compare? From your comments it seems like it'll be sort of close, but I don't want to put words in your mouth. What are you guys thinking for the overall biddable market in 2010?

Well, you just gave me the really hard question right off the bat.

Obviously we don't have a number for what came in from the stimulus plan. We think it's $300 million to $400 million, but we haven't gotten anything out of that.

So, I would think that we would be down from the $1.1 billion. We would be hopeful that it would be between $900 million and $1 billion because there is backlog from the stimulus plan in our backlog and also our competitors.

The 2010 budget was stronger than the 2009, so it should be with the other initiatives, along the Gulf Coast, it should be a pretty strong market.

January is never a really big month for bidding. But we've seen some projects come on and I guess when we get through the end of March we'll have a much better view of it.

That's helpful.

Just a clean up question, if you look at the foreign business, the backlog dropped decently between 3Q and 4Q, and I'm wondering if there was any sort of changes in the existing backlog? Again, did you have any more cancellations of existing work? Was the Diyar project cut more? Any color there would be helpful.

No, there's been no cuts. And our customer at Diyar has been paying monthly. And there's definitely some [optimism] there in the Middle East. Whether or not it will result in a lot of bids, but there is a lot of bids we're looking at. There is many more than we saw six months ago. We just have to get them signed up.

Do you have a view on the pricing dynamic in the Middle East? Is it too cut throat or do you think you can get decent work at decent margins?

Well, it's going to be lower than we've had in the past, but again, we're in the middle of negotiating several projects and it is probably attuned to maybe '07 market, margins. So it's going to be down from what it was in early '08 when we were going hot and heavy.

So it will be down somewhat. But I think it's a decent -- the last couple of jobs we took, which were smaller, were decent margins. Lower than US, but within the range.

Thanks. I'll get back in queue.

Your next question comes from the line of Trey Grooms with Stephens, Inc. Please proceed.

Good morning, Doug and Deb.

Good morning.

Good morning.

Just a few questions here. One, with the vessels that you guys mobilized from Middle East in 2009. So, they're both, I guess what is the kind of status of those two vessels right now and the jobs that they're on. I think one of them is winding down. Can you kind of give us an update specifically on each of those vessels that you mobilized back?

Well, both vessels are back. Those were operational in the fourth quarter, actually the Texas had started in the third quarter. They both are working now and have backlog into second quarter.

Through the second quarter for Texas and probably through the second quarter for --

For the California.

The California.

Okay. Do you guys, at this point are you expecting to mobilize any additional vessels in the near term or through 2010?

The only vessels we think we would mobilize would be if we were mobilizing out of the Middle East to Brazil or other areas in the Middle East.

Okay. So you don't foresee bringing anything back to the US. Do you actually have anything you can bring back to the US at this point?

Yes, yes we do.

Okay. And then the other question is, so the maintenance work was outstanding in 2009. But if I understood your comments earlier, I think you said that you would expect 2010, the total bid market, to possibly be down a little bit from 2009. Is that correct, overall?

Yes. I think this is a result -- again, it was, stimulus really had an effect, obviously. Now, as I said, we're running off backlog still from that.

But we're also, with the weather problems we had in the fourth quarter, and they were probably the worst I've seen in my history, it should generate more maintenance work because it's not only the East Coast and the Gulf Coast, it's even the North East, all of them have had record bad weather throughout the area.

We've had, probably, a record number of, for the whole industry, of dredgers in the Mississippi Delta. It bodes well for winter disasters for dredging.

I think the other thing to think about here is that we all understand that the Corps knows that they need to do more maintenance work than what they've been doing before. They were able to use stimulus funds to get some of that backlog out of the way. But I think they understand that that needs to be at a higher level, and of course, that's why we're focusing on the Harbor Maintenance Trust Fund coming up.

The only issue for 2010 is that we're hopeful that it'll pass this year and if and when it does, you're looking at October 1st before that really comes online. So a little bit further out than this year. And I think that's why we're just a little bit uncertain about what level the funding might be.

But as Doug said, there is still some from stimulus. We see some, actually, in the President's budget. We saw some beach work. So we think that's a real positive. And, of course, we saw the beach work pick up at the end of this year.

And then it sort of depends on how much the capital work sort of fills in. So, we're hopeful that it can be a good year, but again, it's just this uncertainty. Even as we were uncertain last year how much the stimulus might add to the budget.

Right. Okay, and then this is kind of on a follow up I guess to a previous question, but in discussing the weather you said that you thought you had probably come into the range, the EBITDA guidance range, that you'd given if it weren't for the weather. Do you have any idea of how much revenue actually kind of got, at least on the revenue side, how much of that revenue actually got kind of pushed back into the first quarter, if you will?

There's a fair amount of additional revenue, I'm not really sure. We don't necessarily look at that statistic. But, yeah, that will carry into the first quarter of next year.

The unfortunate part about it is that it doesn't just push the work into the next year, it does increase the cost on the job overall.

So, some of the decrease in the margins on those jobs, we have to take this year. And even if we have good weather next year, it will be hard to overcome what we already experience on those jobs.

So there's not much of an uptick on those projects for the first quarter.

Okay. And then, Doug, I think you mentioned that you had, if I understood your comments earlier in a response to an earlier question, that you would expect Middle Eastern margins to be similar to around the level that we saw in 2007. Is that correct?

Yes.

Okay. Could you take a stab at the domestic side on margins, given kind of where we stand today, looking out this year?

It is, and again, what margin, we've got several different margins that we put out. I'm an operating margin guru. And it really doesn't translate to --

If you look at where our margins ended this year, at the 14% which we talked about, those margins are higher than what we've done since 2003, on a total company basis. There's a mix between foreign and domestic there.

We did well this year on margin improvement. I think that as we look at the backlog that we've taken this year, I think we have similar domestic margins there. And we're hopeful that certainly demolition, which was a drag to that 14% this year, if we look to see some improvement there, I think we're at a little bit higher percentage and would have an expectation that we might be able to maintain that.

Given, as we sort of say, given a healthy domestic market, which we don't know about, but if that's the case, we think we're in this range of margin level.

We're definitely, our margins are up from last year. And our backlog, the domestic margins are up over last year's margins, domestic. And obviously we have a higher percentage of domestic work.

So it does, as Deb has said, if we could continue being able to bid and win margins for the second half of the year, so we have the utilization, than we can do very well in 2010.

This is always the thought process we have looking at the back end of the year, in this case the back end of 2010. And what the Corps and the beach communities and some of the port authorities, what they'll put out will really tell the tale.

Okay, well, thanks. That's very helpful.

Your next question comes from the line of Richard Paget with Morgan Joseph. Please proceed.

Good morning, everyone.

Good morning.

Good morning.

In the fourth quarter, your win rate in maintenance was lower than usual. Were there any big projects that you guys didn't get that skewed those numbers? Was it some of the bids came up in geographies you're not as strong in as others? What's your take on the reasoning for that?

I don't think there was anything specific in those (inaudible). There's a big project in Baltimore. How big was that, Doug?

About $14 million or $15 million which we've been successful for the last four or five years winning that. And we were not successful. That was probably the biggest piece of, that maintenance piece, in the fourth quarter.

Okay, so there's nothing we should read into this, saying maybe things are getting a little bit more competitive. It's just sometimes, I want to say the inherent lumpiness of backlog and construction. But sometimes that's the way it falls?

Yes.

Yeah. Exactly. A particular project at any particular time can be won by any competitor. It just depends on how much you want it and how much somebody else may want it.

Okay. And then getting back to the whole WRDA issue. Can you just kind of remind us if things go through and the Harbor Maintenance Trust Fund is fully allocated, what kind of incremental dollars are we talking about that will come into the market from where historically it had been at?

Historically it had been at, as high as $1.4 billion, $1.5 billion. Last year it was somewhere around $1.2 billion, actually with a slow down of imports and exports.

We won't know exactly until the end of 2010, October of 2010, what that measure will be.

So if it stayed at $1.2 billion and [there are] between $700 million and $800 million at Corps, it could be incremental of $300 million to $400 million, now that will be in our sector and it will also, the Corps will take a piece of that just for managing the projects.

It might get a net of $250 million to $300 million. If it's passed later in the year or in the summer, they may not start rolling them out until 2011.

It takes them some time. It all depends on how quickly the WRDA bill goes through and Harbor Maintenance Trust Fund gets -- we're already set for 2010 budget. And so we don't know how fast the Corps will be able to take those revenues.

Okay. And beyond just the additive dollar funding from that, what do you think it does for the Army Corps' mindset in terms of, do you think since they know it's going to be this year after year ongoing funding, that they're going to start longer term planning and bigger size projects will start coming out?

I think the Corps does do longer term planning and they've just not been able to get the funding. So what will this do? They'll be able to work their longer term plan and to continue to do the higher level of maintenance every year that really needs to be done.

So I think as the Corps proved with the stimulus funds, they were ready. And they knew where the money needed to be spent. And so I think the same thing will happen with the Harbor Maintenance Trust Fund.

They know how to do this maintenance work and they know what needs to be done and that, I think, is what it will give to them is this sort of stability of funding will make it much easier for them.

I think, I don't know if you have any other comment to that, Doug, but I think that they're prepared and I think this whole stimulus has really given us a lot of confidence that -- and we've had confidence in the Corps before, I just really think it was the funding issue that they just didn't know how to handle.

Okay, and I guess I'd be remiss if I didn't ask a weather question. Just given the Northeast, some of the weather we have had here year-to-date, has that been a factor so far, first quarter?

January. There's been one dredge that suffered, but nothing like what was going on in the fourth quarter. Obviously if you're in the Northeast you know.

We have a dredge near, in southern New Jersey, on one of the beach jobs. And as you can imagine, it got hammered pretty hard for a couple weeks. But nothing other that stands out.

We think we're still looking at a strong first quarter and it would be nice if the weather settled down a little bit.

Okay. I read some of your competition has been building some new dredges. What's your sense in the industry of new capacity coming on line over the next year to 18 months?

Yeah, there's just one dredge that was built new. And that was LaQuay, and LaQuay was purchased by Orion.

We knew that, that's a smaller dredge, a 24 inch dredge or lower, and really can't work offshore.

They could, and they did, bid on a job recently, I assume with that new dredge. But it was a pretty, again, it wasn't offshore, but it was a difficult job and they were not very competitive.

So, there'll be some consolidation in that market which we really don't compete in. Maybe we compete with that group five or six times a year.

If there is an impact, it shouldn't be very big.

Okay, so your overall sense is there's not going to be a meaningful influx of new vessels coming into the domestic market?

No.

And finally, just a quick housekeeping, I know you guys have continued to pay down debt, but sequentially debt expense was up a little bit. Was this just kind of working capital timing or did the interest rates go up at all?

I believe our interest expense for the year, and you're just looking at a quarter, maybe? I don't know --

Yeah. Fourth quarter over third.

Okay, and I think we may have just had a -- oh, fourth quarter over third? No, nothing that stands out. Certainly our interest rates are [low]. I think we had average debt similar between the two quarters. It's possible it's a swap.

A swap.

We record the change in the market valuation on the swap and that can swing a bit in any particular quarter depending on [pretty] future events.

Okay, thanks. I'll get back in queue.

Not a big answer there, but no, I don't think there's anything to note there.

Your next question comes from the line of Jack Kasprzak with BB&T Capital Markets. Please proceed.

Thanks, good morning everyone.

Good morning.

Good morning.

I was going to ask, since it was just addressed, on interest expense, what would you think for 2010 interest expense might be?

Well, we did have some good pay down here in the fourth quarter. Interestingly, we kind of continued that a bit here in the first quarter of this year.

So, presuming interest rates similar to this year, we would see that average debt would be lower next year.

But, of course, right now we have the $175 million of (inaudible) which will really be the debt outstanding for 2010. So that's at 7 and 3/4s. And that's pretty much the same year-over-year.

Okay, great.

And I wanted to ask about the comment in the prepared remarks you declined to give EBITDA guidance, but I think you said, correct me if I'm wrong, that you see EBITDA more or less in line, at this point, more or less in line with 2009.

Given that you think the margins in your backlog could be pretty similar to what we saw in 2009, around that 14% level, I'm surprised that we wouldn't start the year thinking that we could at least be up modestly, just when I look at some easy comparisons from 2009. The beach business in the second quarter was very weak, seems pretty strong now.

You had two dredges off line that you we're moving in Q3, had this really bad weather that you described in Q4. Why wouldn't revenue at least be up modestly given those comparison issues on flat gross margins?

Well, again, to the extent that we have backlog and can look out over that, that's what we can comment on. But at the beginning of any particular year, we need to take on somewhere between 40% and 60% of next year's revenue in that year.

And that needs a healthy bid market. And now that we have the foreign segment we need to pick up some work there, as well.

So, yeah, I think you could look at different scenarios and how would you do better for 2010 than 2009? Or how might you not get there? And it's all really going to be dependent on what comes out to bid here, mostly in the domestic market, but we still have some anticipation that we pick up something internationally.

And while we think that we see things coming, it's really hard for us to say what the timing of those will be. So, yes, we can think of different scenarios of what might be a reasoning for doing better than 2009. We just don't have any clarity on being able to say that those markets for us will allow us to do that.

But certainly we're positioned, if that's the case here in the domestic market. And if construction activity continues along, we should see some input from Nancy this year.

So, you can look at it from those terms. So I think it's just the difficulty of us really being able to tell what that domestic funding will be and when these international projects will start coming out as to how much that affects our 2010.

Okay. Fair enough. Thank you very much.

Your next question comes from the line of John Rogers from D.A. Davidson. Please proceed.

Hi, good morning.

Good morning.

First, can you tell us what the segment operating income was for the dredging and demolition business in the quarter?

We certainly put that in our numbers.

The 10K, that will be in our 10K.

I apologize, we don't have that in front of us right now. But, as we said, demolition was the low break even [of degree] and then, of course, dredging may not (inaudible).

Okay. Given the debt on the revolver, that expires in 2012?

Right, mid 2012 is the maturity date for the revolving credit facility.

Okay, so another year or so before you look to renegotiate that at least?

Well, certainly we have that luxury, however, as it is, I think it's always prudent to take a look at what you can do in the market. And right now we've said that we take free cash flow (inaudible) some good opportunity in the dredging businesses, we'll pay down debt.

And so, as we look forward here, 2010, and producing some free cash flow, and that this point not having a lot borrowed on our revolving credit facility, we'll need to think forward as to how we might be able to continue to reduce debt, I think.

Okay. But given the numbers for CapEx and depreciation and assuming similar EBITDA levels, you should be able to pay down at least the same levels of debt in 2010? Is that fair?

I think that's fair to say. The only problem is is that we don't have any debt exactly that's payable down right now. Other than the revolver which is only at $11 million at the end of the year.

Okay. So you can't pay any more down, or anything significant, in 2010?

That's right.

Okay. And then, Doug, back to your comments on pricing. I want to make sure I understand these correctly.

As you look at the bid market right now, I think I took away that your pricing is similar right now to what you saw in 2009? Or do you think pricing has gotten better?

I think backlog, 2010 backlog, versus year-end '08 backlog, '09 has higher margins. And at similar, well actually not similar, because we have more of it is domestic, which are higher margins than the foreign is.

So, if you're looking, it's similar in backlog but certainly the margins are higher than they were at this point in 2008, (inaudible).

Okay.

(inaudible)

So, 2010, January 1, 2010's margins are better than in '09. As it should be because domestic usually has higher margins than foreign.

Okay. This may be more difficult, but on a shorter term basis, in the quarter, or what you're seeing in the market right now, has pricing changed a lot?

There hasn't been a significant, and this is, usually not January, the first couple weeks of January there's not much coming out. And it's hard to tell.

Some projects where there's people have capacity are bidding very low, but there's still most of the industry has pretty good utilization.

There hasn't been enough work that we're seeing to really make a guess as to whether or not the market is going to allow the higher margins we've had in the end of 2009.

So it's really hard, with less than 60 days of bidding, to tell what margins are. We've gotten some really good margins in January and there's been some pretty tough [bids] in other, in February.

Okay.

You can't really say anything about it because it's different times to work. Fewer competitors in one area and more competitors in another.

Okay. I understand it's just a snapshot of the market right now. But given your guarded optimism for 2010, and we talked about this I guess a little while ago, but it seems that your margins right now in your backlog are better.

You've got less downtime scheduled in terms, in costs associated with barges, or dredges moving. And who knows about the weather, but it seems as if margins should get better in 2010 on the same level of revenue, based on all that.

It's all based on --

Unless the pricing really deteriorates --

(inaudible)

(inaudible) get the bid.

And I think if you make that assumption that if the market pricing remains similar --

Yes.

You're right, we don't have the mobilization costs that we had to take in this year. And assuming better weather, which we had at the beginning of this year --

Okay. I just wanted to sort of understand what you were seeing out there or if there was something else that I was missing.

No.

No. Some of it's similar to what it was in the fourth quarter, but it's not a, there's not enough bids to really do a scientific --

Sure.

[Conclusion to this].

Okay. Alright, well, thank you.

(Operator Instructions).

You next question comes from the line of Tim Priadle with West Creek Capital. Please proceed.

Hey, good morning. I just had a couple of questions.

First, to circle back on international business, you mentioned that you had stuff overseas that you could bring back. I was doing some digging and it looked like maybe you had seven dredges that you flagged out of the US market or that were not flagged in the US market. A,is that accurate and B, can those be re-flagged here?

I believe we have, was it 10 vessels?

10 vessels.

Overseas right now. 6 of them are foreign flagged. So that allows 4 other vessels that are there that could return to the US market.

Okay. So just quickly, the ones that I had market down as foreign flags were there's one cutter, the Utah, and then 6 hoppers, the Victoria, Sugar, Manhattan, Northerly and then the two you bought in Brazil?

Yes.

All the cutters are US flagged. It's the hopper dredges that are not US flagged.

Okay, so the Utah's a US flag. It's the 6 hoppers, they're not.

That's correct.

And now, what was the rationale behind flagging those out when you did?

Three of the six we bought internationally. They were already foreign flagged --

Foreign built.

Foreign built, foreign flagged, and could never come back to the US.

Okay.

Three of them were vessels that we took over there, particularly for the Middle East market and effectively we had just built the hopper dredge Liberty Island. And that really took the capacity here in the US and those vessels were better employed over there.

And I think being that they are the older hopper vessels that we own, that's the right market for them to be in at this point. There not going to be as competitive here domestically.

But why couldn't you keep them with US flags and keep the flexibility of bringing them back while working overseas? Is there a tax reason?

No, it's the cost to run the vessel. So, overseas with a foreign flag, it's much cheaper.

If you keep the US flag, you have to keep US crews. And it's very expensive.

For that type of vessel.

The cutter vessels are different. They don't require the large crew, US crew. So, it's only a certain number of individuals that have to be US and the rest can be international.

Okay, that's very helpful.

And then just on the margins question, it's very rare that we get a peek into your quote unquote competitor's margins. But with that Orion acquisition that you guys previously mentioned, it looked like they're thinking that that business can do a high teens margin?

Whereas Great Lakes typically does, this year it's 14% to 15% margin, backing out the demolition. Is there something I'm missing here? Is there hope that we could get our margins up into the high teens?

Well, the difference is that they have a combination, their biggest grouping is [marine] construction, which, that generates most of their revenue.

Obviously that would grow a percentage, but I think they're expanding into the marine construction as fast as they are with dredging. Now this is, I can't tell how well those dredges will do.

They obviously think that they can match those percentages, but time will tell. And they did bid a pretty sizable job and it was not close with their first bid.

It will be interesting to see if they can make the margins that they're getting in marine construction.

Right. Given their guidance, they expect to be able to make the same margins.

Yes.

Are you skeptical that given the current bid market, I don't want you to denigrate a competitor, given the current bid market that you probably cannot achieve high teens margins?

Well, since we don't really compete in that market, we don't have that size dredge, with a couple exceptions.

Maybe they can make it with that smaller market. Maybe they are making 16, they can make 16% in that sector.

I really don't have the information, obviously, with their revenues and margins. And I don't know if they break it out into segments. I don't think they do.

Okay. And with the bigger, more expensive dredges, I would think that there would be fewer competitors and you'd be able to achieve higher margins than the smaller dredges. What's wrong with my thinking there?

Well, again, it depends on how much, just like us. The higher percentage of the market is a really good thing or a really bad thing, but at times when the market is down. But that market could be --

Again, we don't know the full dynamics of that market and the competition in that market. Also too, [as we've talked here] we are a significant, have a significant international portion to our revenues. And we're bigger because we have that, so that does impact our overall margins and ability to produce at that level.

We're just in a different market here, both domestically, and then of course, with the international piece.

So I think it's a little bit difficult to say that we're talking apples and apples here.

Okay. Well, that's very helpful. Thanks a lot.

You have no other questions at this time.

Thank you for joining our fourth quarter update. We look forward to talking with you about our 2010 first quarter.

Thank you.

Thank you.

Ladies and gentlemen, that concludes today's conference. Thank you for participating. You may now disconnect. Have a great day.