Great Lakes Dredge & Dock Corp (GLDD) 2011 Q1 法說會逐字稿

Good morning and welcome to the first quarter 2011 Great Lakes Dredge and Dock Corporation earnings conference call. My name is Jasmine, and I'll be your operator for today. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to your host for today, to Ms. Katie Hayes, Investor Relations. Please proceed.

Thank you. This is Katie Hayes, Director of Investor Relations at Great Lakes, and I welcome you to our quarterly conference call. Bruce Biemeck, our President and Chief Financial Officer, will begin our discussion by presenting the financial highlights for the 2011 first quarter. Then Jon Berger, our Chief Executive Officer, will share his market overview. Following their comments, there will be an opportunity for questions.

During this call, we will be making certain forward-looking statements to help you understand our business. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. The risk factors inherent in our business are set forth in the filings with the SEC, including our 2010 Form 10-K and subsequent filings.

During this call, we will refer to certain non-GAAP financial measures including adjusted EBITDA which are explained in the net income new adjusted EBITDA reconciliation attached to our earnings release.

I will now turn the call over to Bruce Biemeck.

Thank you, Katie. And thank you for joining the call and reviewing our press release this morning. We'd like to make some comments, as Katie said, first about our first quarter operations and then Jon will talk about markets and opportunities.

First, as we start off, the business continued to operate at elevated levels. In certain of the areas we experienced an increased revenue level in capital and maintenance dredging, and demolition revenue as well, as we had expected.

Revenues in the quarter were $155.4 million, which is a decrease on a consolidated basis from $161.4 million. And I'd say that this was largely due to a decrease in beach revenue which was a project timing issue as we had more than sufficient backlog to generate more revenue in this area. But as you may recall, beach work has certain operating project windows and so the set of projects that we had in the first quarter weren't conducive to generating more of that revenue.

The Company continued to work on the Louisiana berm project in the first quarter, which completed a successful project. And we'll talk more about what's going to go on in the coastal area later. But that was a good project for us, good utilization, and we performed very well.

Gross margin for the Company on a consolidated basis declined slightly quarter-over-quarter. But as we look at the components of it, the Dredging gross margin improved and the improvement is attributable to a few things. One is that we did well at meeting our project estimates. We, as planned, were successful in improving our plant spending as well as our operating overhead expense.

The negative to gross margin for the quarter, what made it a reduction from last year's, was our demolition operation. We continued to work on some of the lower margin projects in backlog, but also began some projects which seem promising. And we will talk about those and our expansion into some other markets in that area.

We did do some beach work, although overall that revenue for that area was down. But the beach work projects we did work on had good margins, strong margins. But again, the project timing windows affected the quarter.

In addition, there were several high-margin maintenance projects worked on in the first quarter of 2010 and, of course, I've kind of touched on our capital dredging. Our operating income declined due to the decrease in gross profit. And we did have an increase in G&A expense but it was primarily related to the Matteson acquisition. As I said, plant and equipment spending is on plan and operating overhead is down and that is in accordance with our plan as well.

We did still maintain a high EBITDA level of $24.6 million, down on a consolidated basis and an adjusted EBITDA includes -- EBITDA includes $6.2 million in expense. And, as you can see in our adjusted column, we have dealt with this on an adjusted basis. The $6.2 million related to the extinguishment of our subordinated debt during the quarter, but this expense did impact our earnings per share. So that's why you see such a difference as you look at the two areas. Again, as we think about EBITDA, what affected our EBITDA quarter-over-quarter, the reduced beach dredging and the demolition business are the primary areas.

The bid market, first of all, dredging domestic, $197 million in total was awarded in the quarter. The Company had a high success rate in several of the areas. We won 72% of the beach projects, 21% of maintenance, 12% of capital and 31% of the overall market, which is below our average as you know.

Again, we talk about and we talked about in the press release the timing of bidding. This is always a variable that affects our quarter-to-quarter look at these things, and we rolled forward through April with the bids that we placed and our successful bids and that jumps up to 42% for the four months ended April 30th. So you can see we go from 31% to 42%. Again, you can tell how strong April was by that percentage that moved to that extent.

A very positive development, I think, is that in Louisiana we have developed and we, of course, have been working on coastal -- on the berm work in Louisiana and have worked on improving our relationships which is important to us because the coastal restoration project ahead is important to our Company.

We also have taken on a significant project in Louisiana, a demolition project which has really only just begun in the first quarter but shows very positive signs. It's a bridge demolition project and we -- the stars are all lining up right for that project.

We can say, too, that the common -- and we've won another project in the first quarter or actually in the second quarter in Louisiana for demo. And to an extent this is due to a cooperative relationship between our dredging and demolition divisions which has been one of our initiatives for a long time and that is going well.

So in terms of dredging backlog, at the end of March, $232 million versus $282 million at the end of December. However, I've talked about the month of April and how that will affect our position going forward. We have added $60 million to backlog since quarter-end so in the month of April we added $60 million.

As is always the case, there are low bid projects not included in backlog awaiting formal contracts, as well as options on existing contracts and foreign projects in the negotiating stage. You can see from the press release those numbers of those outstanding items are up and those normally become booked backlog.

Our demolition backlog remained pretty flat, $80 million versus $81 million. So as we've worked off some of the lower margin backlog we have added backlog. And as I've said, we have added what we consider to be favorable projects. Our expansion into new markets such as Louisiana has been the reason for part of this higher backlog level as we look at recent quarters and we see this area continuing to grow.

Let me say a few things about debt and liquidity. As you are aware, we refinanced the $175 million 7.75% notes in the first quarter, increasing the note to $250 million with a more favorable interest rate.

Our revolving credit facility, which matures in June 2012 had available at quarter-end, and still has available, $135 million out of $145 million. We don't have any cash borrowings. What we have is letters of credit, $10 million in letters of credit that are for project guarantees.

We had a -- from a working capital standpoint our receivables did increase. The areas of increase were foreign receivables which do take longer, but there were a couple jobs in particular with payment terms that required that we build some receivable. But obviously, our cash balance remains strong.

The key ratios that we focus on and talk about, total leverage ratio netting domestic cash and equivalents of 1.6 times, interest coverage 6.7 times. Our foreign dredging investment working capital has been reduced over 2010 but that's largely because of a reduction in the revenue stream there. As I said, we did have a couple receivables that aged out a little further than we would have liked.

And as we build this back up, and we're going to talk about this in a minute because there are some very positive signs in the international dredging markets. But as we build this back up we have put forth a strong mandate to better watch -- to keep the working capital investment as part of the decision making process rather than just looking at pure operating income.

We also have -- we are working in Brazil, as we said, in a minor way. We see a strong market there. And we -- if successful on bidding projects that could increase working capital levels higher than domestic but not significantly. Not the way that working capital levels have increased in the Middle East.

We're currently contemplating a replacement of our revolving credit agreement in accordance with our strategic plan to address the maturity date of 2012. So this is a second quarter initiative as we look at it now.

We do believe though that coordinating a proper credit agreement with a complementary bonding agreement is correct directionally and so our focus is on both areas. We need to get these agreements in better alignment in our view.

So with that, you may have questions which we'll get to later but I'm going to turn the call over to Jon. He's going to discuss some of the considerations moving forward and the market outlook.

Thank you, Bruce. First off, I'd like to say overall I am pleased with our execution in the first quarter. 90% of our business, our dredging business is on plan and is starting to solidify for the second half of the year. So I think Bruce and I are getting very encouraged that that part of the business is on very solid footings. And we'll talk a little bit about the demolition business and the things that we've been going through there.

I am very happy with the execution of our dredging side of the house in the first quarter. As Bruce said we had solid operating margins. And with the April low bids and bookings we're back up to our historical low 40s percent win rate, which we expect to have in the marketplace.

Bruce mentioned that we've seen some very nice opportunities coming out in the international markets, both Brazil, also the Middle East, Bahrain, Qatar, Iraq actually we're seeing some nice opportunities there.

Some of the unrest in Bahrain, as you've seen, has caused the region to start making some capital investments to support the whole population. So we're seeing some opportunities that are looking to be fast tracked there.

And there are some other opportunities around the world where we're getting calls to do some work or to bid on work. So we're very happy with the positive signs we're getting on the international market.

You've all read about the Mississippi River raging and the flooding. You've seen the Army Corps today take some action to try to alleviate some of that. You've heard most of the states along the Mississippi River and its tributaries call for emergency funding for Mississippi River dredging. Louisiana's governor did that. And the river really will start cresting there in two weeks but the expectation there is that we will see some emergency funding and that bodes very well for our new river and lakes division. So never happy to see people suffer, but we are there to support and execute.

There are three things that we've always talked about for our dredging business domestically that will be true value drivers. The Gulf Coast Restoration, port deepening and the Harbor Maintenance Trust Fund/RAMP bill.

And as we talked we told you that it was our expectation that the Coastal Restoration will be probably the first one to hit the market. And as of the beginning of April -- or the middle of April we've seen that starting to happen. On the 21st of April the Natural Resources Trust trustees for the Deepwater Horizon spill, i.e., came to agreement with BP to initially fund the first $1 billion towards restoration.

If any of you spent some time on that, that's $500 million that should be coming in very soon to be divvied up among the states, $100 million each and $500 million to follow right behind or the federal government to initiate some projects there.

So with the work we did in the Gulf, and we expect a significant amount of that work to ultimately end up being dredging work, and the relationships we've built because of the successful work on the berms, we believe that Coastal Restoration is starting to hit the market and will have an influence on the third and fourth quarters.

Secondly, we've talked many times about the Harbor Maintenance Trust Fund or the RAMP bill. We again have bipartisan support, 77 co-sponsors as of today. It's 17 people in the House and 17 in the Senate.

What I've done is I've challenged our people internally, the leaders of the DCA and the RAMP to get much more tactical and develop a more grassroots push from the many constituents whose livelihoods are positively affected by the passage of the bill.

Everyone acknowledges this is a good bill. It makes sense. It touches so many people's lives. What we have to do is just get that ground swell and get very tactical. Talk to our congressmen, talk to our senators and we're taking a much more active grassroots push and we're challenging the leaders of DCA, the RAMP and internally ourselves and our fellow people to really push that.

And the third step function growth we keep talking is port deepening. I'm sure many of you have looked at and see every day one of the East Coast major ports or even some of the minor ports are coming out, talking about the needs to deepen their ports and the necessity.

So it's really not a matter of if, it's really a matter of when. So we feel again very pleased with where we are on our, both our domestic and international opportunities on the dredging side.

Respectively, Bruce talked about the reception we received in refinancing our notes. We were very happy with both the execution and the reception we got in the marketplace. And I think that will bode well for us in the future should we choose to avail ourselves as we grow the capital markets. So we're very happy with that.

Okay. NASDI. It's been very obvious that neither Bruce or myself or the management has been happy with the direction and how we operate this business since we took over in September. I think we've been very clear about this, both internally and externally. However, as we went through our strategic planning process and looking at it, we did like the set of services that NASDI has to offer and how they integrate with our core business. And we see opportunities for that.

So we went through and took the painful steps necessary to make NASDI a true part of the Great Lakes team. And things that we did to do that include we focused them much more on profitable work where we can add value. And I think Bruce talked about this, but a good example is the work we're doing in Louisiana with the bridge work. We now have over $30 million of projects there. Good margin work with relationships that we have down there, and we look forward to executing that.

We've also taken the steps of putting much more control on their bidding, their purchasing and on their internal controls. And we're looking for opportunities to streamline some of their operating management styles and bring some of that back into our core office where we can get some efficiencies.

And finally, we've demanded accountability throughout the organization. I think that my observation is, is that we were not in tight control there. We were giving them too much leeway, and in their desire to grow for growth's sake they were just taking on unprofitable work. So we've done some things to institute accountability throughout that organization, and I think that will flow through in the second half of the year.

And while doing this -- implementing these changes, which are clearly in the best interest of both Great Lake and NASDI and position us to grow this business in the future, it became the choice of the leader of NASDI, as we talked to about, to focus his energies elsewhere. We've had a good relationship with him, and he is available to assist us in the transition.

One thing I'd like to say, I've been through these transitions many times in my career, and I believe we've equipped ourselves properly. We've taken care of the people there, and we've laid the groundwork for future success in moving that forward. Even with the unacceptable performance of our demolition division in the first quarter, Bruce, myself, and the whole organization are comfortable that we will execute well this year.

From a growth perspective, we're starting to see some good opportunities to implement the strategy we said about environmental services, looking for things where we can take advantage of our skill sets, both in the marine side and project management side. So we're starting to see some interesting opportunities that we're exploring from a corporate development side.

So all in all, I think we had a solid first quarter. We're comfortable where we're executing. Bruce went through you the -- some of the numbers, and now we open it up to any questions anybody may have. Thank you.

(Operator Instructions). And your first question comes from the line of Andy Kaplowitz from Barclays Capital. Please proceed.

Morning everyone, it's actually Mark Milhallo stepping on for Andy.

Good morning, Mark.

So you mentioned that for the first four months of the year you've increased your win rate to 42% from 31% in 1Q, can you just discuss what you're seeing in terms of specific win rates? If you include April, are there any specific types of projects that you're winning more frequently, or is it kind of a -- it's just a matter of variability that can occur on any given period?

Well, it's all the markets that have been positive in April, but I'd say our hopper dredging work has been outstanding during the month of April. So we're just seeing favorable market conditions, and we think the next thing that we'll begin to see -- that will appear as strong is the work on the Mississippi River, including the levee work, not just the river dredging but the levee work too, which has been one of our initiatives to follow up on the success that Matteson had in the levee work and pursue more of that.

Okay, got you. And then you mentioned it, but just regarding BP's recent agreement to provide the $1 billion toward restoration projects in the Gulf, do you have an estimate for the amount of work you could potentially win from Coastal Restoration? And also, you mentioned that this work could come mostly in the third and fourth quarters, but do you think that a significant amount could extend into 2012?

Well, yes, the answer is it will extend, and we firmly believe there will be significant funding beyond that first initial $1 billion.

And then just considering your backlog performance in rivers and lakes in the quarter, as well as you mentioned the horrible flooding in the Mississippi, do you have an updated outlook on the run rate that we could expect in the segment as we progress through the year? And I understand seasonality comes into play considering the winter months for 1Q, but do you have greater visibility for the year?

Well, we believe that the budget objective that we gave to the river and lakes division is attainable. The river and lakes division was slow during the first quarter and historically has been. This year probably experienced colder weather and more freeze out than some of the milder ones, but on average the first quarter is just a slow quarter.

And it largely is for bidding as well, but now we're starting to see the bidding opportunities show up. We did bid on several projects in the first quarter, which were again a cooperative effort, as I talked earlier about a cooperative effort between demo and dredging will this time -- our traditional, our historical dredging operations and the new river and lakes, and so there were some bids that the two companies worked on together and that process has gone well.

Okay, great, and then one final one from me. Just, can you provide more information on Brazil and any opportunities or the types of projects that you're bidding on in the region?

Well, it's a large market. We've been at it for a few years, it's hard to break into any new market, and I'd say that South America is a difficult area. We have performed work in 2010 and now into 2011.

There are, I guess, administrative hurdles to look at as we do this. One is qualification. It's almost a catch-22, we're unable to -- to enable yourself to bid on a project you have to have experience in that area. So as I say, kind of a catch -2, but by some creative work on our operating people's part we've been able to achieve that experience through subcontracts and qualify ourselves.

So I think as we look forward we see Brazil as a market that should be very strong, and a location where we ought to be able to start to see some real benefit from our investment in that market.

Okay, great, thanks very much for the color, guys.

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

Oh, hi. It's Jack Kasprzak, good morning everyone.

Hi, Jack.

Good morning, Jack.

I wanted to ask about the demolition business. You have a lot of detail there, but lost money in the first quarter based on the backlog, some of the new projects you mentioned and organizational improvements. I mean would you expect the business would be profitable starting in the second quarter for the balance of the year?

We expect the business to be profitable for the year. We're still working off some of the problems, and I can't say that the second quarter is where we break into the black, but I -- as Jon said, certainly the second half we see as a very positive period.

Okay. The amortization of intangibles, the $1 million in the first quarter related to Matteson. I assume that's isolated to the first quarter, is that correct?

No, that will be for the rest of the year. Most of those intangibles are related to backlog, so that will be run off over this year only.

Yes, but it will decline, because that backlog --

No, it's a straight line.

Well, that's right, it is a straight line.

So $1 million per quarter just for this year?

No, no, it was about $600,000 in amortization, and then the rest was just an increase in G&A-related amounts.

Yes, we said $1 million could be largely attributable to, so the bulk of that was that amortization.

Got it. Interest expense, can you just give us a sort of normalized post-refinancing quarterly run rate for reported interest expense?

Yes, just hold on. We'll bang it out. Shouldn't be that hard. See if we can get our HP working.

It'll be about $4.6 million a quarter, if I did the math right.

Great, just wanted to get some clarification, thanks. And the berm work has ended, will that have -- will the ending of the berm work have any impact on margins?

The berm work certainly fulfilled its purpose in terms of utilizing our equipment. We were able to employ a number of pieces of equipment, and -- but that slowed down over the last couple of quarters.

I can say at this point as we look at April bidding and opportunities, I think we expect our utilization to be okay and not be suffering from the loss of that. But it wasn't -- I wouldn't say that it was a significant factor in the first quarter. It has kind of declined over a period of time.

Okay that's great, thanks very much.

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

Hey, good morning everyone. This is actually BG in for Trey.

Hey B.G.

Hey, just had a question on maintenance dredging on the top line. It actually came in a little bit above what we were expecting, and I see from your prepared comments that this was having to do with probably just a shift from -- you talked about getting away from the berm work that expired.

But given your other comments about the additional $1 billion from BP that is expected to come on line now, what should we kind of be expecting with the maintenance dredging with respect to the top line? Would it be fair to say that this is going to -- we're going to see some pretty solid growth for the remainder of the year, or are you actually going to be maybe redeploying some of those assets somewhere else?

Well, the answer to that depends on the timing of the release of that work. I'd say barring -- if we take that program off the table, we're looking at a maintenance dredging outlook like we normally would. I mean, a kind of a normal growth pattern -- the things that can affect it are those two program, two of the three programs we talked about and that's Coastal Restoration and also Harbor Maintenance Trust Fund. So in order to really think about any kind of bump up in that area, it really depends on those additional programs.

And Bruce, I assume that we would codify any additional incremental river work that would come out, such as the Mississippi flooding as maintenance work?

Correct, yes.

Okay, and then just to clarify on this, I believe you said that you were looking kind of a 3Q or 4Q kind of timeframe with respect to the $1 billion from BP. Is it -- would you -- do you also say it was kind of the same kind of timeframe with respect to the additional work that may be available on the Mississippi River?

No, that's coming now.

No.

Okay so you'll see that in the next quarter, in 2Q?

It should --

Between Q2 and Q3, yes. It should flow through, and I would just watch the news. Every governor, like I said, is calling for -- is calling for spending. So this -- there will be announcements as to Army Corps supplemental expenditures for emergency contracts.

Yes, and you may see more on the -- in the newspaper on the levee side and then the business section on the river dredging.

Okay that's helpful, thanks. And then just lastly, can you give some of your thoughts of just overall what you're seeing in the bid market currently, domestically? Is it more or less competitive? Just some thoughts there would be helpful.

Well, the answer to the question depends on the types of work that come out. Obviously, Great Lakes is the largest competitor in domestic dredging, but we do have other competitors who have equipment that can operate well in some of these markets.

Now we've had a good bidding month, and that bidding month has resulted in very favorable utilization for our hopper dredges. And the hopper dredges are the area where we compete with -- where we compete more with the other large dredgers than in the capital area. And so as we think about our hydraulic dredges and our backhoe dredge, as projects come out we see ourselves as having a pretty strong advantage in those bidding opportunities.

Okay, thanks, and then just real quick, do you guys still expect Matteson to be accretive in the first year?

Yes.

Yes.

Okay thanks, I'll pass it on.

Your next question comes from the line of Philip Volpicelli with Deutsche Bank. Please proceed.

Good morning.

Good morning.

Good morning, Philip.

The first question is with regard to the EBITDA, I just want to make sure the -- all the one-time charges you guys talked about, the $1.9 million accrual with the refinancing and the debt restructuring fees, are those all out of that $24 million and change number, right? They're not included?

Correct, but the $1.9 million was never in income at all. It was a regular accrual that hit equity. I think that's what you're talking about.

Yes, non-cash, okay.

Yes.

And then with regard to the backlog, the $60 million of business that you guys won in April, can you break that out into beach capital and maintenance?

It's primarily beach.

It's primarily beach, yes.

Okay. So that work has to get done before the summer, is that accurate? Or is it something that kind of goes on --

It's primarily the next couple of quarters.

Okay. And then on the road show you guys talked a little bit about possibly purchasing a new dredge. Can you update us on where you are in that thought process?

We're going through the analysis, and we have to make some assumptions on the RAMP bill and port deepening, but we're in a position now to pull the trigger when we get comfortable that those markets are timed right.

Okay.

We haven't committed to a new vessel now.

Nothing decided yet.

No.

No. We've not committed, and we continue to challenge our operating people to make us believe in it. Show us the facts and figures. And so we're very supportive of a program like that, but want to be sure that we're on solid footing before we do pull that trigger.

Of course, okay. And last question from me, on the acquisition front, clearly you guys have some dry powder on the balance sheet. Any thoughts of acquisitions? Is there another tuck-in that would make sense?

We're seeing -- we're clearly seeing some additional opportunities, so we are going through them, but we're going through them in a very methodical basis. And we're trying to balance the time Bruce and I have with also getting NASDI structured properly and internally working through things. But we are seeing some stuff, but we're not going to have an announcement in the next couple weeks that we're doing anything.

Okay, great. Thanks.

(Operator Instructions). Your next question comes from the line of Steve Howard from Fundamental Equity Advisors. Please proceed.

Thank you. Quick question for you on Brazil. In terms of breaking into that market, you guys have one dredge down there, right?

Yes.

We currently have one dredge, yes.

And it sounds like your strategy currently is to do the subcontracting to get the foothold and then move forward. Would it make sense to do a small acquisition to get more into that market? Or do you think the more prudent way is to do what you're doing right now?

We're investigating that possibility. It can help to have a Brazilian partner, and we've talked about a couple possible situations. But it's, again, it's a difficult market to develop the right strategy to --

Yes, and we've kind of done the whiteboard and looked at it a bunch of different ways. The first thing we had to do is to get -- even though we've dredged -- we clearly are qualified to dredge, the country requires you to actually get a certain license. And the only way you can get that is basically subcontracting for someone else. And as Bruce said we think we are in a good position where we will have certain of those licenses.

We're in discussions also with, looking at some major civil contractors about being potentially kind of a joint venture arm to them. So we're looking at all different angles of what is the right way to enter the market. Clearly looking at a small acquisition is one of them, but also looking at other ways to get us entry into the marketplace.

Okay, and then in terms of a new project, how much -- just kind of the bidding comparison or the number of bidders relative to what you're seeing in different other markets. Is it more competitive or is it -- do you think it's pretty much the same?

Well I'd say it looks different than the Middle East because in addition to the large European competitors there are also a number of Brazilian dredging companies.

Right, and then going back to demolition, you expect to be profitable by full year. Should we expect sequentially less bad in terms of less of a drag throughout the next few quarters? Or is there going to be -- have we reached the trough and then move forward maybe three, four quarter -- third and fourth quarters?

No, I didn't mean to imply that we'd given up on the second quarter. I just think that we feel very good about the second half as opposed to the second quarter.

You know, I've done this many times. And I think that with the things we've done it should taper down and pick up. What is normal the case is when this happens all of a sudden I would suggest to you that a lot of bad things or less positive things get flushed through.

And I think over the fourth quarter and the first quarter I think we've taken a very, very sharp pencil to the historical contracts and the margin on those contracts. So I think -- I would hope that the big hit issues that were just being -- hoped that they would go away have probably flushed through the system.

Okay, and then in terms of is there a profile of a bad contract? Is it a big contract in demolition? Is it a small contract? Are those longer contracts? Are they more complex?

No, the truth of the matter is what happened is management, in the effort to grow, moved into some new markets that were -- and they underestimated the complexities of moving into new markets and they underbid some things from a margin perspective.

And then they got beat up by the unions in New York, a new player in the New York marketplace so they hit it. So that's where we're just working through some tough contracts. And we've got to just work through, hunker down and get them done and try to get them done as best as possible.

But no, it really isn't. I mean, a good example would be the bridge project in New Orleans. Once you hit stride it's a very repetitive project. And you usually can make up some ground and do real well on a big project, especially when you've eaten the mobilization chart. So it just -- it was specific to -- the biggest part was specific to moving into a new market and underestimating the complexities of moving into that market.

Okay, that makes sense. And then is there a targeted margin going forward, what you'd like to be -- where you'd like to be in maybe two years out or whatever?

For the Demo -- for the Demo operation?

Yes.

Well good question, there is a level margin that we've observed no matter who's working a project. The trick seems to be to add components to that normal work, whether it be taking better advantage of the scrap that results from it or selling some of the demolished material to the right users, be it antique bricks or concrete for crushing --

Yes, benefits (multiple speakers).

-- you end up crushing it yourself.

Yes, beneficial use. I think some of the things that we observed, Bruce and I over the first six months here and nine months here, is some of the demolition guys that do better, or did better, were ones that did a better job of, as Bruce says, handling this whole scrap issue.

And that's partially control, partially thought process, and making a cost into a potential revenue stream, such as beneficial use of old brick, wood, taking concrete and grinding it up and making it into roadbed or cracking it for riprap. And we have some of those skills, we should point out. Clearly in the New York, New Jersey market with our Amboy aggregates and --

And the (multiple speakers).

-- stone. We have the ability to do some of that distribution in the relationships. And that's when we talk about integrating our sets of services better, that we were unhappy. Those are examples of that.

Okay, so in terms of the margin you have one but you're not willing to disclose it yet, the goal for that business?

We're still --

If it's too soon, I mean it is a business in flux. That's fine, I just --

What I can tell you though, just because I think it's worth noting, is that Jon's right. We did have some bad experiences. We expanded into new markets, particularly the New York market.

So when it did come time to think about this bid in Louisiana, which is a very large project, we put all the resources we could. I'm looking into that and thinking about, could there be similar labor problems?

It's a ways away from our home base. Is that going to present a problem? Do we have the right guys? And so we have hired some new people that have a greater level of expertise in that -- and a proven track record. So that's why we feel pretty comfortable with that job and I have to say, as it started out in 2011 it's going the right way.

That's good to hear and, okay, I'll leave it at that.

Okay.

Thank you very much.

Thanks.

And there are no further questions at this time. I would like to turn the call back to Ms. Katie Hayes for closing remarks.

Thank you very much for joining us today. We look forward to talking to you at our second quarter conference call. Thanks again.

Thank you.

Thanks guys.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect. Have a wonderful day.