Great Lakes Dredge & Dock Corp (GLDD) 2011 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q2 2011 Great Lakes Dredge and Dock Corporation Earnings Conference Call. My name is Ufrenia, and I'll be your coordinator for today.

At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator instructions)

As a reminder, this conference is being recorded for replay purposes.

I will now turn the presentation over to your host for today's conference, Ms. Katie Hayes, Director of Investor Relations. Please proceed.

Good morning. This is Katie Hayes, Treasurer and Director of Investor Relations, 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 second quarter and year to date. 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. Certain risk factors inherent in our business are set forth in our 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 to adjusted EBITDA reconciliation attached to our earnings release and on our website.

I will now turn the call over to Bruce.

Thank you, Katie.

Well, I trust you've all received and had a chance to review our press release this morning.

As noted in the press release, our business's quarterly results are often uneven. Accordingly, comparisons to the previous quarter or year are not necessarily indicative of the trends or state of the current business conditions.

This quarter saw a few items that can drive this phenomenon, and I will go through those, and as announced, there will be an opportunity at the end to ask questions, and we'll try to answer them as best we can. I will go through some of these items, Jon will, and then we'll certainly entertain your questions.

In the second quarter, our dredging revenue was hampered by equipment downtime, which resulted from a combination of unanticipated and accelerated shipyard repairs. We remain on track with our budget for both maintenance and capital expenditures this year, but the unplanned downtime resulted in shifting some work around, meaning into the second half.

And pricing on our projects remained on track, and the resulting contract margins were fine. The reduced revenue, however, in the quarter and the half resulted in lower fixed-cost coverage, reducing overall gross margins.

Total gross margin from the Company's consolidated operations declined quarter over quarter, driven by the lower revenue in the dredging segment. Most of the decline, though, was driven by negative gross margins in our demolition business. Demolition projects in the New York market, which we entered in 2010, continued to experience some cost overruns, resulting in additional losses during the quarter. This, along with legal expenses for those subpoenas that we discussed in the first quarter, drove down our second quarter results for the demolition segment.

The Company's year-to-date EBITDA of 41.9 versus 57.3 in the first half of 2010 -- with the results that we reported this morning, EBITDA excludes 6.2 in expense related to the extinguishment of our subordinated debt during the first quarter, but this expense did impact our earnings per share, and we talked about this in the first quarter.

As we look at operations, some of the highlights from the quarter were dredging. As I said, the quarter was challenging due to the equipment issues, but overall, project execution met estimates, and it created a timing shift. But our overall plan for 2011 remains on track.

Bidding opportunities have picked up, both domestically and internationally, and we saw more of this as the quarter wore on and into the beginning of the third quarter.

Despite the problems in the second quarter with equipment, as I just discussed, operating results were within range of expectation as we executed well on projects pretty much throughout the country. We had projects in New York, New Jersey, Florida, and North Carolina.

Our River and Lakes division performed well in the second quarter, following an unusually cold first quarter. As I said in the last call, we have an expectation of about half of the first quarter down due to weather, and we were pretty much frozen out the entire quarter. The second quarter, however, returned to expectation for this new division, and we remain on track for full-year results.

As far as demolition, we made significant management changes during the second quarter. As we reported last call, there had been a change in the division manager position, president of NASD, and we put in place a member of our senior management team here on an interim basis to set forth a business plan and a number of other items, which I'll discuss in a minute. But during the quarter, not only did we make management changes, we worked on fully integrating this business with our other businesses.

The restructuring, as I said, was headed by a Great Lakes senior management member, but we will be hiring a full-time manager shortly. This has been an initiative since we began to work on this in the second quarter, and we believe that we're close to having a very good manager in place.

We spent the quarter focused on developing a business plan and process and control improvements. We believe the changes in the operations of this segment will have a long-term positive effect on the business.

Just to kind of summarize, considerable management effort was spent in the second quarter to shift the direction of demolition operations. We upgraded controls. We developed and upgraded a business plan. We increased oversight, and we've put in place what we believe to be a good management team.

So over a very short period of time, we think we quickly, efficiently made changes to this business that are positive for the future, and we sense already a very reenergized business segment.

We talked in the first quarter about a bridge division. We've kind of cut out from the demo business a division which focuses on bridge work. We have been in the New York market on some bridge projects, and that was kind of a new entry and has had its share of learning curves. But we bid on and won a demolition project in Louisiana for a bridge, and along with it, upgraded the management of that bridge demolition group, and that project continues to go very well.

The bid market for the second quarter and for the year -- For the year in domestic dredging, there was $333 million of work awarded this year. The Company won 78% of the beach projects, 22% of maintenance projects, 12% of capital, and 40% overall market, which is about our average.

We were excited to see two sizable coastal restoration projects bid this quarter. We have talked about that in the past and weren't sure whether that would be onstream in 2011 or in '12, but we have seen two projects come out now, so that project -- that market has actually delivered earlier than our expectation.

Great Lakes was the low bidder on the larger of the coastal restoration projects, a project called Pelican Island, worth 43 million plus.

In July, the Company was low bidder on 90 million in projects, and I know this goes beyond June 30, and this is often the case. We step into the next month the first part of the following quarter and we have some bidding success.

But we did -- we picked up many million in projects, putting the year-to-date win rate up to 48%. The July wins included 70 million of capital work, and when we look at that 70 million of capital work and add it to what we won on the first half, we actually end up with 44% of the capital market that we bid on for the first seven months. And as I think you know, the capital market is the one that we tend to have higher margins on and therefore greater success.

The dredging backlog at June 30 was 196 million. That compares to 282 million at the end of 2010, but as I said, July was a very strong month. If you -- no matter how you look at it, the July activity was big, and the market, which is uneven, like our business, and that's what drives it, you can see that there was a big pick-up in July and we see a number of bidding opportunities ahead in the coming months.

As always, there are low-bid projects not included in backlog awaiting formal contract, as well as options on existing contracts and foreign projects in the negotiating stage.

Domestically, we can't call low bids margin our backlog as it's not legally contracted, but it is indeed rare that it does not convert -- track to backlog. Or as a different matter, we're depending on the location and customer time, and adjustments can occur.

Demolition backlog of approximately 75 million remains at an elevated level, which is in line with year-end 2010 level of 81.

Equipment spending -- In the first six months, we've spent 9.3 million on capital expenditures. The 2011 capital spending is expected to include a typical 20 to 25 million for maintenance CapEx and includes spending accompanied by justification to increase revenue or decrease expense. An initiative this year has been to focus on capital spending, which drives a reduction in expense, such as rent-versus-buy analysis for support equipment.

During the second quarter, we sold one of our foreign-flagged dredges, the Victoria Island hopper dredge. It's a foreign-flagged older dredge. It's a less-efficient piece of equipment. The contribution from the dredge has continued to decline in maintenance, and class certification spending was not warranted any longer.

This is part of a process that we have implemented and an initiative we have -- we are taking a look at all of our equipment and rationalizing our equipment by looking at historical utilization, the margins that have been driven by that piece of equipment and the spending for that equipment. This program will continue in the second half, and we do believe we have some equipment that is excess.

Debt and liquidity -- As previously discussed in the first quarter, we refinanced our 175 million of 7-3/4 senior subordinated notes and issued 250 in 8-year senior unsecured notes. We continue to focus on and analyze our capital structure against our growth plans, particularly as we plan for a new credit facility. Our revolving credit facility, which matures in June of 2012, had 135 million of borrowings available at June 30.

In the second quarter, our cash declined a little bit under 100 million, I think, to about 95 million, and what's happened there is kind of a seasonal investment in pipe and other inventory items.

Key financial ratios -- at the end of the quarter, our total leverage, netting domestic cash and equivalents of 1.9 times, interest coverage 5.3 times.

Our foreign dredging investment working capital has been reduced to over 2010 as work in that region slowed. In past years, there has been a working capital build-up as we have built backlog, which we believe will occur in coming months. But we've put in place a strong mandate to minimize further investment, and we'll watch this closely.

We're currently contemplating replacement of the revolving credit agreement in accordance with the strategic plan and given the capital structure considerations I just discussed, so that is on our agenda for near future.

Before I turn it over to Jon, I'll just say that while I've talked about a couple of issues in the second quarter and the first half, we view those largely as timing issues, some of them driven by equipment considerations and needs, but we have obviously put together a forecast for full year, and we think that the second half for our business looks good for both divisions, both dredging and for demolition, and we believe we're on track with our plan for 2011.

I'm going to turn the call over to Jon Berger now, who will discuss some of our strategic planning and growth considerations and add some more color to our results for the second quarter and first half.

Thanks, Bruce.

We've talked a lot over the first six months of the year about moving Great Lakes strategically forward, and we've actually accomplished a significant amount of that in the first half of the year. That will pay great dividends over the coming quarters and years. So let's start talking about them.

First, the demolition business. I think we've talked a lot that either we're going to get the demolition business integrated and part of Great Lakes or we'd have to do something different with it.

Well, we really attacked that in the second quarter. We spent a significant amount of time, changed out management, as you well know, and rationalized the business and strategically focused to align with our plans, and I would have to say that Bruce and myself and the full Board are very encouraged about what we're seeing.

As Bruce said, we reorganized the management team, and we took out over $1 million of overhead. Additionally, we're in the final stages of interviewing for a head of demolition. We've seen some tremendous candidates with skill sets that we believe align very well with what we want to do with our core demolition business and the growth of our demolition business.

We've also spent a significant amount of time implementing strong controls and more efficient processes. Along with that, we hired a new controller with 20 years of demolition and construction experience, and that's coming along very well.

We've talked about integrating Great Lakes and moving the demolition business into more environmental services work. We started to make those changes, and we see some great opportunities out there for that.

By merging it and using the skill sets that we have at Great Lakes, we've been able to implement improvements very quickly and also bring new opportunities that they hadn't looked for to the table.

As Bruce said, we've developed a focused team of professionals around the demolition of bridges. That's a specialized demolition market that takes advantage of our experience and equipment working on water. We believe the market dynamics are very favorable for this work and the unique skills should garner higher margins in demolition business as we win those projects.

Also, we are in discussions now, which should also position NASD on the environmental side of demolition, where we have some experience, and again, where we believe we can specialize and garner higher margins.

All these moves represent strategic advantages and opportunities that result from the integration of the two business segments. We believe we're ahead of plan in integrating that. We took a lot of hits in the first half and second quarter, but Bruce and I are very comfortable that we've positioned this business long term to be successful and a real producer for Great Lakes, and we expect to see positive results for the second half of the year.

Okay, secondly, our DEC joint venture. We recently announced a joint venture with DEC to capitalize on the combined skill sets to accelerate our environmental dredging and demolition activity. We fully expect to hit the ground running and expect to see contributions in the next two or three quarters from this joint venture.

Again, this builds upon the skills and experience we acquired in the Matteson acquisition and also some of our demolition experience and the repositioning we've done with the demolition business.

This work can entail significant margins and also some very large-scale projects, and we look forward to putting together the combined skills that we have with our partner, and we believe that ultimately we bring to the table a very unique value proposition in the marketplace, so we look forward to accelerating and putting resources behind that in the coming quarters.

Internationally -- We are finalizing a teaming agreement with a large and successful Indian civil contractor to enter the Indian dredging market. Part of our international strategy is to team with local presence to help streamline the entrance into new countries.

The market for dredging in India will be multi-billion dollars over the next three to seven years, and we believe we need to be part of that solution. The Indian government has made upgrading the maritime assets a key investment priority. In India, there are 12 major ports and 187 minor ports. The major ports are growing at 9% a year, and the minor ports are growing at 17%.

Additionally, there is ample funding for these projects in India, and so we're looking very forward to entering this market, and we believe we will announce hopefully soon an agreement with, like I said, someone that will help facilitate our ability to enter that market with the ground running. So we look forward to that supporting our international endeavors.

Okay, now let's talk a little bit about some of the markets.

We talked many times about the Harbor Maintenance Trust Fund, and Washington has clearly been in a different mode for the last month or so dealing with the debt ceiling, and I'm sure that after it's approved today in the Senate, everyone will be running off for a five-week vacation. So we believe we'll have to take the Harbor Maintenance Trust Fund up again in September, when Congress gets back. Right now, we have 110 co-sponsors in the House and 25% of the Senators have signed on for the bill.

We talk about it many times, what it does to the marketplace. There's good momentum. We have a sponsor in Congressman [Busoni] and many others that are working very hard. I don't think I'll make a prediction whether or not it will get done or not, but I think we're closer than we've ever been.

Bruce mentioned coastal restoration. We talked about that this would probably be the first monies coming out, and the three or four things that will grow are pure market, and we're seeing that. And as Bruce said, we saw the two big projects coming out, and we've seen BP commit the first $1 billion to the Natural Resource Trust based upon the BP horizon spill, and we've seen Louisiana themselves say they're going to commit $600 million of new projects out there, and again, we won the first and the biggest project so far let out, the Pelican Island.

So we look forward to coastal restoration over the next couple of years providing nice incremental activities. We're excited about this, we think it's long overdue, and we like that market very much.

In the press release, you saw that we gave guidance for the year for 85 to $90 million. That is without any exogenous event in the last two years. We had the stimulus in 2009, the berms in 2010. At 85 to 90, that would be our second-best year ever. So we're comfortable that we'll hit those numbers, and we believe that's a good performance in this market this year.

We are excited about the opportunity we see coming along the Mississippi River. With the significant flooding that occurred, we're starting to see emergency dollars come out for both our traditional market and our rivers and lakes. We see that as an exciting opportunity for the second half of the year.

As Bruce said, our demolition business we believe we have on the right track, and we expect it to do positive results.

I just got back from the Middle East a week ago and met with government officials there. We're very encouraged by what we are hearing. We are seeing improved prospects in the Middle East. We're seeing opportunities being discussed and contracts let, and so we're very excited about the opportunity for that division to start gearing up again and the opportunities to take that back to where it has been.

As we said, we're completing our first or second small project in Brazil, and we've added two other projects behind that, and we have other projects we see on the horizon of bigger size. We've got our license to dredge independently there, so we do not need to bid with other people now, and that was an important step that occurred in the last quarter.

As we mentioned, beach work has been a large part of the market so far this year and we were able to win a very large percentage of those projects.

Our demolition expansion has resulted in higher revenue projections, and we've gained the learning curve on some of those new markets, so we expect to capitalize on that as it goes forward in the second half of the year.

Finally, we continue to work on [garner] savings from operating efficiencies, and I'm very excited to see that. Virtually all of our employees and internally are seeing a much more commercial focus in all areas of our business, and we're looking to rationalize older equipment and identify higher-return investments.

Our team at GLDD continues to work hard to execute on our growth strategy, and we are very pleased how we've come forward in a very short period of time to embrace this and hit milestones on our strategy.

So with that, I'd open it to questions.

(Operator instructions)

Andy Kaplowitz, Barclays Capital.

It's actually [Mark Milhallo] stepping on for Andy. So you guys mentioned in your opening remarks that you expect the demolition segment to come in positive for the second half of the year. And then I think you also mentioned on the 1Q '11 call that you expect that segment to achieve profitability for the full year. What are your expectations now for the full year? Do you still expect profitability in that segment?

Yes, let me answer that. We did have a rougher first half, second quarter than we had anticipated as we dug into the projects and looked our realistic expectations of how those jobs would come out.

We have put together a forecast, and it has a strong second half for demolition. If we ignore the legal expenses that have been incurred with the subpoena activities, we think that the full year for demolition will be slightly positive, so, yes, in the black for the full year.

Okay, that sounds great. Just more of a high-level question regarding demolition. You spoke a lot about the integration of the business and how it's progressing. Do you see any obstacles or have run into any obstacles over the past quarter regarding that segment and its integration?

No, I think that our problems have been related to management practices, some control practices, and our new entry into the New York market, which previous management underestimated some of the obstacles in that area. We continue to look at that market. We see a number of projects ahead, and we just -- we believe that we just have to take a different view of those as we're bidding them. So in terms of obstacles going forward, we really don't. We see opportunities going forward.

Yes, and so, Mark, one of the things that we've been able to do is as we've integrated the business is bring opportunities to them that they've historically not looked at and we have two or three things that we're looking right now from a strategic level that will bring meaningful business, we believe, to the demolition business that they heretofore haven't really looked at, part of which is the joint venture with DEC, getting into environmental dredging, and also some environmental work does involve some demolition work. And we see some other things that we think are attractive markets that our corporate can help them, that heretofore we really have never tried to do.

Okay, and just the follow-on to that comment around your JV with DEC, Jon, I think you mentioned that Great Lakes will see contributions from that JV in the next two to three quarters. At this point, do you guys have an estimate as to how much the JV could contribute to earnings in 2011 or 2012?

You know, we're just getting our feet wet there. We believe 2012 is where it will really hit the ground running. We're looking at some test projects right now that we hope to ink in the next two to three weeks, but I think the big projects are probably out there in 2'12.

Okay, great. Thanks very much for taking my questions, guys.

Absolutely, Mark.

Richard Paget, WJB Capital.

Bruce, you talked a little bit about some issues with the Liberty Island dredge, and I think that was working on the Nags Head Beach project. Is there going to be any lingering impact in the third quarter with utilization or any delays on that job?

If I said Liberty, I meant Victoria.

Oh.

That's -- the Victoria's the one that we sold. That was a foreign-flagged vessel.

Okay. But I mean there were -- I think I read somewhere that there were some mechanical issues with Liberty Island?

Well, we had issues with -- we had some -- when I said unanticipated and unplanned or unanticipated and accelerated equipment issues, yes, okay, I thought you were referring to my comment about the Victoria Island.

Yes, we had some equipment problems with a number of dredges, and no, it doesn't result in any problems with respect to finishing projects. As I said, the effect of the equipment issues really pushed revenue and earnings up into the second half from the first half.

Okay. So it was mostly, I mean at this point in time, a 2Q phenomena?

Yes, that's correct.

And then you talked a little bit flooding on the Mississippi. I mean is there any way to quantify the opportunity there at this point? I mean I think I saw 90 to $100 million requested for emergency dredging. Is that the number? Is that a decent number to kind of look at opportunity-wise? And what do you think the timing on any of those projects coming out?

Well, we're not sure. As you say, you saw 90 to $100 million discussed. What we do know is that within the last week, three projects have come up that we'll be bidding on, so it's hard to say what eventually the total market will be, but we think we're well positioned for the projects that are coming up, and we believe there are a number of other projects that will be required because as the water level has receded, there's going to be some problems with depth and with moving traffic through the river system.

All right. And then with the coastal restorations, I know you won one and then I guess you'd bid another. Are there any other kind of on the radar screen that are coming up any time soon, or those are the only two that you've seen specifically?

Well, we've seen those. We know there are a number of others that are on the drawing board, and we are positioning ourselves to be ready to bid on those.

Okay. And then, finally, with the initiative to move into India, now is that something you would partner with a local company that already has dredges there, or would actually have to send some of your boats over?

Yes, I mean we would clearly send some equipment there. Depending on the project, we may team initially, but what we are looking at doing is teaming with a strong civil engineering contractor so we can go after work both on the water and things that might include land construction and also take advantage of their relationships and knowledge of how to deal in the Indian markets.

But there -- certain of the projects require equipment that we have, but it might be better to also utilize some local expertise. There's some drilling and blasting we're looking at that we could ship equipment over there and probably would for the long term because there is some hard rock on the Indian coast, but it might be easier for the first project to utilize a local if we think they have the right skill set.

All right, thanks. I'll get back in queue.

Yes, thanks.

Thanks.

Trey Grooms, Stephens.

One question. Do you guys have any idea how much revenue you think was pushed to the back half of the year due to the unexpected downtime in the quarter?

Well, sure, we have an idea. I mean we know that our second-half revenue is expected to be larger than our first half. I think that it's fair to say that some of it's also pushed out to 2012. But that said, we think we can recover sufficiently.

When equipment is down, as it has been, one of the things that occurs is trying to take the proper pieces of equipment and fill in for those projects in priority order.

So we see revenue increasing maybe 40 to $50 million in the second half, but as I say, some of that will -- some of that is from new opportunities, and some of it is from projects that are pushed, and some of that revenue will just by necessity flow into '12.

Okay. That's helpful. And then you said you're looking at all equipment as far as kind of rationalizing the fleet, I guess. Are you mostly focusing on foreign-flagged vessels or anything domestic that you're looking at that kind of stands out?

No, our process is to look at every piece of equipment, both major pieces of equipment, that is dredging equipment and support equipment. And so as we look at that, we believe that there may be another dredge that is excess that is foreign flagged.

As far as other equipment, at least at this point, what we're seeing is mostly some support equipment. We don't at this point see any major pieces of equipment domestically that seem excess, but I answer that -- I've answered that, but I also want to say that we're taking a hard look at it, and our analysis is not complete.

And, Trey, one of the things you've got to realize is when we take a piece of equipment out, it doesn't affect our ability to produce, we think, and also, it positively impacts our maintenance expenses. So obviously some of the older equipment that we look at taking out, whether it be dredges or some of the support equipment, tends to spend more money on maintenance just to keep up at an operating level, so we kind of benefit twice from it.

Okay, that makes sense. Kind of looking at the bid environment or the bidding environment in dredging, are you guys seeing competitors acting any more or less rational at the bid table given kind of where the -- what the opportunities are and kind of what the bid environment looks like today?

No, I don't think we're seeing anything unusual. I mean I think we always tend to think our bidders are irrational -- our competitors are irrational, and I think they probably think that way about us sometimes.

But I think, overall, we're seeing jobs come out either some as expected, some ahead of schedule, such as the coastal restoration, and we see some -- the bidding practices that we see we think are in line with our expectation and historical patterns.

Okay. That's all I've got. Thanks a lot, guys.

Thanks, Trey.

Jack Kasprzak, BB&T.

With regard to the demolition business, when will the projects where you're having the cost overruns or project be finished, do you think?

Well, a couple of them go beyond 2011. However, the projects that I spoke of, we took loss reserves on them, so as we go forward, they won't be negative margin, but they'll be revenue booked with zero margin, as we'll use up the loss reserve.

Okay. And the press release mentions the expense related to the investigation, 1.3 million in the demolition business. It says expenses are going to -- you expect them to decline significantly in the future. Does that mean the -- what does that imply with regard to the investigation? Is it done? Winding down? How can you qualify that?

Well, I'm not sure we can qualify much other than it's been quieter over the last month or two, and we really just have to react and respond accordingly to wherever the Justice Department goes.

But we have provided a reasonable amount of information to the Justice Department, and we're in a position now to respond to other information much more efficiently.

As you probably know in these things, the cost of producing the information in an electronic age where all that information is so cumbersome, well, we've got the information in a position now, we have it all catalogued, we have it all -- the things we have to have digitized digitized, so we can respond much quicker as required, and we have completed our internal investigation.

So those things were big costs in the first half of the year just to get -- to complete our internal investigation and then be in a position to initially respond to that first information request, and any incremental information request, we think, will be much more efficient than it has been. So that's why we think the costs will go down.

Got it. And longer term, when you get demolition to where you want it after initiatives you've taken, what sort of margin business should this be? I mean dredging's up in the high teens, approaching 20% at times. In terms of a gross margin, what sort of -- what kind of business do you view demolition as longer term?

Well, I think we've said in the past that the demolition business is basically a lower-margin business than dredging. However, as we have focused on this during the first half and particularly the second quarter, and as I said, we spent considerable management time looking at this, what we found as we analyzed the market, as we perform in Louisiana, and as we look at the practices of other demolition companies, margins are pretty flat for basic work across the board.

But there are opportunities in activities related to that basic demolition, whether it be crushing stone or a number of things that in a manufacturing environment you might think of as byproducts, and in this environment, there are those same kinds of opportunities. So as we look at our business plan, we think we can take this from, say, a 15% average margin in demo to something higher, maybe approaching over 20%.

So maybe even in line with where your dredging business has been?

Yes, I mean we see an opportunity to be at the 25% or so, but that depends on how we can proceed with the number of initiatives that we have related to the basic demolition contract.

And I think as we talk about, I think some of the areas we're trying to position the demolition business to be in besides our core Boston market and moving into New York market are some of the bigger projects because the bigger projects you hit stride and you end up doing better.

And one of the things we saw as we analyzed the businesses, we do a tremendous amount of small projects at low margin just to keep customers happy, and we've got to rationalize that some way while maintaining our good clients.

And, two, start moving into some of these specialized demolition businesses along the environmental side, along with the bridge side, where we believe you can garner higher margins.

Okay. Separately, we all know the Panama Canal's being expanded, be finished by the end of 2014. There's a lot of hope, I guess, that US ports would do some capital work related to that expansion, but it seems like at this point it's a little more hope than reality.

I mean are you guys -- what's your view of that now in terms of ports needing to ramp up? Is there a backlog of work building out there that you guys are starting to see and makes you a little more optimistic 2012/2013 that you can start to see some projects, or is it still more concept than reality at this point?

You know, Jack -- if you ask me, Jack, it's not a question of if, it's more a question of when, and there's certainly a lot of talk among the states individually. Miami has had a lot of talk. You've seen studies being prepared and funded for Charleston and Savannah, so do I think it's a '12 event? No. But do I think it's a '13 and '14 event? Yes. I mean I do -- '14 and '15. I think it really is a matter of when and not if.

Okay. That's great. That's it for me. Thank you.

Thanks, Jeff.

Thank you.

Philip Volpicelli, Deutsche Bank.

The guidance that you guys put out there, the 85 to 90 million of EBITDA, what does that include exactly? Does it include the $90 million of new projects that you are the low bidder on in July? And how much of that, I guess, revenue is already in the books, and how much more do you need to get to get to that level of guidance?

Well, part of the 90 million that we picked up in July will certainly go into 2012. For example, the coastal restoration piece. But as we look at the forecast and that's an important part of the forecasting analysis to us, we have line items for both segments where we force out what we have to win and perform that isn't already in backlog or low bid. And when we look at that, we think -- we believe that it is a -- it's a level that is in line with historical pattern, that is, as we look back over the years and see what we have to win and perform, it's in line with the historical analysis, and we think that it's very -- we think it's very doable.

Okay. And then can you quantify the loss reserve that you took in the demolition business that will, hopefully, I guess, bring that business to profitability by the end of the year?

Well, we've loss reserved three jobs, and I guess at this point, I'd sort of look at it as what we've set up previous to the second quarter and what we set up in the second quarter, you see the numbers for the first half for the demolition segment, and what I'm telling you is if you take out the legal expense, we think that we will have a full year -- we'll have full-year positive earnings.

So I think that gives you an idea of what are numbers look like in the second half. I'd rather not be specific about loss reserves on particular jobs.

Okay. Maybe I can ask the question a little bit differently. The exceptional items that occurred in the second quarter between the unplanned downtime for some of the dredges and then some of the legal costs and the loss reserves, can you break those three down as maybe a percent of the -- or give us a dollar amount so we can just kind of back into what a normalized margin would've been in the second quarter here?

I have not done that. I kind of have a feel for that, and I focus more on what we will be doing in the second half.

Needless to say, both of those affected our second quarter and first half, and I think that -- I don't think that's the kind of thing that I want to put a number on at this point, and I don't think we usually will be that specific about particular projects.

So I mean I think that, again, if you look at the demo segment for the first half and knowing that we expect that the full year will be better than breakeven, I think that kind of gives you a pretty good indication of the demo segment.

Okay.

And part of that reason is there's ultimately a true-up on the end of some of these contracts with our clients on whether or not certain of the loss reserves we might've taken are caused by delays on their part or delays on our part, so I think getting too granular probably doesn't put us in a great negotiating position with some of them.

Yes, okay, understood. All right. That's fine.

And then with regard to the sale of other dredges, would it be in the neighborhood of the 6.6 that you got for Victoria Island, or are you looking at larger dredges or smaller dredges, or kind of give us a sense of other, I guess, changes in the fleet.

Well, as I said, we really at this point don't have sights on any major pieces of equipment. We do have some thoughts about a smaller, older dredge that's foreign flagged, and we're analyzing that, but as I said earlier, we really at this point don't have any expectation for any domestic major pieces of equipment, but we're certainly looking at support equipment.

And to be fair, the one dredge we're talking about, it would not have anywhere near the price or the gain.

No, it wouldn't have -- that's right. I mean it wouldn't have the $6 million price tag, and the gain would probably be slightly less than what we saw with the Victoria.

Yes. And then last question for me. In the past, you've talked about possibly building a new dredge. Is that something you're still considering, or are you kind of reconsidering that given where the market is right now?

Well, we -- where the market is right now, we think that it's a pretty decent market for a market that doesn't have the kind of events that Jon alluded to in '09 and '10. But as we think about the oncoming coastal restoration, as we think about the Harbor Maintenance Trust Fund, the deepening of a canal, thereby deepening of some of the port, we have continued to move forward to think very strongly about whether we should build a new piece of equipment. And as we've said in the past, there isn't -- there's never a time when we don't have something on the drawing board, and usually at an advanced-enough stage that we can -- we're close to being able to push the button.

But we at this point have not pushed the button, but we -- I can tell you that we are headed toward that mindset if we continue to see positive development in those three markets that we've identified.

Yes, and I would suggest to say that there's nothing that we've seen in the last quarter that changes our mindset or gets us less excited about building something new.

Yes, okay, great. Thank you very much.

Yes.

[Steve Howard], Fundamental Equity Advisors.

One quick question on the capital win rate. It's nice to see the seven-month average at 44%. What has that particular business averaged? I know the overall's been about 40% over time. What has the capital win rate been, about the same historically?

Well, I think a little bit higher, actually.

Yes, that is so dependent on the total amount of work that comes out. We had a very low percentage actually in the first six months but because very little work came out. So as that work increases, it tends to work more in favor of our equipment fleet than others, and so we typically see that percentage rise, and you look at six months and then what happened in the seventh month, and you see it go up to 44%. We expect that that percentage could well increase in the coming months.

I see. So a small denominator really affects the (inaudible).

And capital tend to be chunkier projects.

Right. Okay. Then also I believe you said that you were pleasantly surprised by a New York capital project recently, right?

Going to be coming out to bid?

Yes, there's another New York project that's coming out to bid in the next, I guess, six weeks.

Yes, and it's part of the deepening that's been going for years in New York.

Right. And so the one that I think late last year where you were underbid by just a slight amount and they weren't in your view qualified to continue the whole thing, how is that playing out?

Slowly. They've started the project. They did build a drill boat, but that's not a major piece of equipment. And so I don't think that we've seen enough yet to know how that plays out, although we -- our feelings have not changed about that project.

Yes, I think two things. I think, one, they first worked on what we thought was the easier part of the project, not the digging of rock and blasting of rock, and two, I think they're performing probably at our expectations of how they would perform.

Right.

So it's not as if we're seeing them perform tremendously above our estimates of how they would perform, and we told you what our estimates we thought of their performance would be.

Yes, okay. And then as far as India is concerned, that's a nice long-term goal because you read about all the dredging sites and thing, what the opportunity is. I guess it's one of those things that'd be nice to have, but is it a little early? I mean I guess you want to announce your intentions, but without anything concrete in hand, I guess the timing -- do you have a number of people you're already talking to there?

Well, yes, we are talking to a specific company. I met with them when I was overseas a week-and-a-half ago. We're in deep discussions with them. We're looking at a couple of projects to bid to get started.

You know, doing business in India is complex, as you go into any of these new countries, and so there's some structural things we're working through from a tax perspective and also from a bidding in India, but like you said, we think it's a long-term interesting opportunity. We think there's some projects out there in the near term that fit our equipment that we have in the Middle East well. And I think the more important thing we need to discuss, it's a little bit of a change in strategy of how we deal internationally.

We built up the Middle East over time significantly to we're an individual player. Brazil, we tried and have had some limited, limited success. It's been somewhat frustrating getting into Brazil on our own, and we're starting to make some small strides there. But we've taken the strategy, I think, that to get into India, we would like a partner.

So I think strategically it's just -- we bring it out because I think it's a different thought process, and we hope our experience in Brazil will be expedited tremendously by having a partner like the one we're talking to.

Yes, and it seems like the Brazil discussion this quarter is far ahead of where you were last quarter in terms of you were hoping for some things, and you actually have the license now, which is -- it's not dropping to the bottom line, but at least you have kind of the door open now.

Well, yes, we're on the playing field now.

Yes.

Where for the last couple years in Brazil we were an outsider looking in, now at least we're in the game, and we'll see how we can do there.

All right.

Long time coming in Brazil, and we hope that this strategy in India will accelerate that process.

All right. Thank you very much.

[Kenneth Wilminson], JPMorgan.

My question's actually been asked and answered. Thanks.

Okay.

[Dan Lazard], Harvest Capital.

I see the disclosure now in the Q for the March and April subpoenas, but I can't recall it was discussed on May's call. Can you just provide some color on what business that relates to? And I think you hinted that there was some impact beyond just the legal expenses to the business?

They all relate to NASD, our construction demolition business. There was a New York subpoena that, the best we can tell, it was one of our subcontractors did not pay some union fees, so we're getting dragged in there. And then there's a Boston subpoena having to do with some stimulus projects, and that's what they pertain to.

Oh, okay. That's helpful.

And then can you just -- your approach towards guidance and more towards just the margins -- I'm just looking at in the last two years you had very solid margins with the berm and stimulus activity, but prior to that, the previous five years were [weller], and it seems like your guidance implies kind of still elevated margins. Maybe you could just -- what's kind of changed post-berm and stimulus that allows you to get higher margins, and just the outlook on that?

Yes. First of all, don't forget we did an acquisition at the end of last year that I think we told you we budgeted about $9 million of EBITDA.

But even with that, we think our core business is -- if you add the 9 or subtract the 9 from our guidance, puts us right around where we were in '09. I think we continue to see projects come out that fit our equipment very well, and I would point out that we've also seen that with a degradation in our international business that we see to be coming up.

But, additionally, I think we spent a lot of time over the last year-and-a-half, two years to drive cost efficiencies. This is a business that you can, even with older equipment, continue to find ways to be efficient and to drive costs, and since Bruce and I came in, we've made that a top priority, and there's no stone unturned to try to find ways to reduce our costs, and I think that's shown very, very well over the last year or two.

Yes, I think we're trying hard to look at every cost line item, and I think we've made some considerable progress, and I think we have a ways to go. I think there are more things to look at as we continue our analysis and more opportunities ahead.

Okay. And I think you included the gain on asset sale and EBITDA. I mean is there any other gains contemplated or asset sales in your EBITDA guidance for the second half?

There are not, although as we said, we are looking hard at a piece of equipment, foreign-flagged vessel, and that is an initiative, too, to take a look at equipment that we have, what it's costing to maintain, what it's contributing. So those would be upside to our guidance.

Yes. I think one of the things that Bruce and I did was to really challenge our operators to look at every piece of equipment, both our major pieces and our minor pieces of equipment, and other assets and say if they're not fully utilized, if they're not long-term players here, and especially with older piece of equipment that drive down to the maintenance costs, that we should look at finding better homes for them.

We have not included, as Bruce says, anything else in our guidance, and we are in discussions with one smaller overseas dredge, but if we -- if and when execute on any additional transactions in the second half of the year, we'll clearly announce that to you all.

Okay, great. Thanks.

I would now like to turn the call over to Katie Hayes for closing remarks.

Thank you for joining us today. We look forward to speaking with you at our next quarter conference call. Thanks.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.