Great Lakes Dredge & Dock Corp (GLDD) 2013 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the first quarter 2013 Great Lakes Dredge and Dock Corporation earnings conference call. My name is Ashley and I will be your coordinator for today.

At this time, the all participants are in listen-only mode. We will be facilitating a question and answer session towards the end of today's conference, and instructions will be given at that time. As a reminder, this conference is being recorded for replay purposes. I

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

Thank you. Good morning. This is Katie Hayes, and I welcome you to our quarterly conference call. Jon Berger, our Chief Executive Officer, and Bill Steckel, our Chief Financial Officer, will discuss the operational and financial results for the quarter ended March 31, 2013. Following their comments, there will be an opportunity for questions.

During this call we will make certain forward-looking statements to help you understand our business. These statements are of 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 2012 Form 10-K and subsequent filings.

During this call, we will also 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 posted the our IR website along with certain other operating data. I would first like to turn the call over to Bill Steckel, our CFO.

Thank you, Katie. Revenues in the first quarter were $188.8 million, and increase of 22% from $155 million in the first quarter of 2012.

Revenue was higher in coastal protection in both domestic and foreign capital dredging, partially offset by declines in maintenance dredging and in the demolition segment. Our dredging segment revenue of $174 million was near the record level set in the fourth quarter of 2012. We worked safely and efficiently on approximately 20 projects in the quarter.

Total Company gross profit margin for the quarter improved to 13.7% compared to 12.9% for the first quarter of 2012. The dredging segment improved gross profit margin from 13% in the first quarter of 2012 to 18% in the first quarter of 2013. This year we experienced higher utilization of our dredging fleet, and we also executed on higher margin projects.

In addition, the dredging segment encountered significant offshore weather conditions that negatively impacted gross margin in the first quarter of last year. Gross profit margin was negatively impacted by the demolition segment. During the first quarter of 2013, the demolition segment experienced unexpected costs on a large project and three other projects were delayed, shifting approximately $7 million in revenue to later in the year. However, demolition was able to recognize revenue on $2 million of pending change orders written down in 2012.

Demolition segment revenue also includes $6 million from the Tara Contracting acquisition completed at the end of 2012. The domestic dredging bid market for the quarter ended March 31, 2013 totaled $229 million, which is flat compared to the $230 million in 2012. The Company won 52% of the overall bid market during the quarter, which is above our prior three-year average of 37%.

Please remember that variability in contract wins from quarter to quarter is not unusual and the win rate for one quarter is not indicative of the win rate the Company is likely to achieve for the full year. Through the first quarter Great Lakes won 65.8% or $109.7 million of the capital projects awarded, and 8.8% or $3.9 million of the maintenance projects awarded. There were no rivers and lakes projects bid in the quarter and only two small coastal protection projects were bid.

Dredging backlog in pending domestic awards at March 31, 2013, reached $379 million, which is less than the $470 million at December 31, 2012, primarily due to the high amount of revenue that was generated in the first quarter. The Company's contracted dredging backlog without pending domestic awards was $361 million at March 31, 2013 compared to $389 million at December 31, 2012.

In April, the Company was low bidder on a $30 million coastal protection project in New Jersey. The demolition segment backlog was $57 million at March 31, 2013 including $3.8 million from Tara compared to $60 million at December 31. Demolition backlog includes a $23 million brownfield development project in New Jersey and the large demolition project we have spoken about in Columbus, Ohio.

Our investment in working capital largely remained in place during the first quarter. We were able to collect over $20 million for the Scofield project in the first quarter, which represents about half of the working capital we have invested. We will continue to recover our investment as we finish Scofield and as we execute on the next project at Shell Island.

Wheatstone working capital investments exceeding $40 million will begin to be recovered after dredging begins, which is currently planned for late in the second quarter. In addition, we spent $16 million on equipment this quarter, including $6 million on the ATB vessel. We he also paid the note related to the Tara acquisition in the amount of $19.6 million from cash.

As previously disclosed, the Company received a waiver for financial covenants under our revolving credit facility. We are currently in compliance with all of our ratios on this facility. At this point, I would like to turn the call over to Jon Berger, who is going to discuss some of the initiatives we referred to as well as strategic planning and growth considerations for moving forward.

Thank you, Bill. First, I would like to address our demolition business. We obviously had another disappointing quarter.

As Bill l Stated, three projects in backlog could not be started in the first quarter and will be made up during the fiscal year. We have turned a significant amount of our energies in the last three months into developing better controls and more focused reporting lines to deal with the issues we encountered in 2012. This has taken and will continue to take a significant amount of management time with the demolition division and our corporate the accounting department.

While we are instituting new project management software and working to bring divisional financial accounting back to corporate, leaving our existing staff in Waltham to focus on project accounting. Additionally, we are working hard to work through the significant pending change overs and Claims we discussed previously. The opportunities for the business are out there.

We see better bidding opportunities focused on the type of clients we want to have going forward. Again, these include governmental agencies, utilities and Fortune 500 clients, all of which better align with our value proposition. However, we must ensure that we are executing on the working backlog and targeting the right projects for this business.

With regard to our ATB build as previously announced, we have decided to move shipyards. We think this change is for the best and will not significantly impact the timeline of delivery. Our current plan is to finalize negotiations with a new shipyard in early summer.

We he continue to work with the architectural and engineering teams that have been working from the beginning to finalize the detailed drawings to actually construct the vessel and are in the process of assuming all major component part orders that were placed by the previous is shipyard. We continue to be excited about this vessel, and look forward to the introduction of this vessel into the market.

Let me now turn our attention to our markets and updates from our call in March. The dredging market. As Bill mentioned, we put a strong quarter in the books for dredging and maintain a very strong backlog entering the second quarter. We like both the size of our backlog and the mix of work in our backlog.

Additionally, we see strong bidding opportunities for our markets in the remainder of the second quarter. Finally, we are all waiting for the announcement on the Miami Deepening Project, which we are told should occur within the next ten days. Let's talk a little bit about Sandy funding.

Since March, two projects for coastal protection needed as a result of Hurricane Sandy have been awarded. We were awarded one for are $30 million. In addition, there are 11 new projects to bid in the price range of $130 million to $290 million as advertised by the corps to bid in the next eight weeks.

Coastal restoration. Many of you have probably seen that the state of Louisiana announced that BP agreed to fund approximately $340 million in restoration projects in Louisiana. Louisiana specifically identified four major projects they very been planning to put out to bid that have been waiting for funding. These projects have been on our radar for some, time and though the timing of when they will come out to bid is not known we he look forward to bidding on each of these opportunities.

In late April, Phase I of the BP trial ended. Phase I, just to remind everybody, is assessing blame between BP, Transoceanic and Halliburton for the deadly blast that occurred off the Louisiana coast. A second part of the trial starting in September will consider how much oil escaped the well, and finally, a third phase which might begin in early next year, the judge will rule on negligence that led to the offshore spill.

So the upshot of all this is that there really isn't any new news on what BP funding might occur and when from the trials but just to give everybody an update there. Internationally, as we have mentioned, we are diversifying our base of business with our work in Australia and more work in Brazil. Our dredges in both locations should begin working by the end of the quarter and we expect them to be productive for the rest of the year in each market.

In the Middle East, we are waiting on a few tenders outstanding of significant size, and are in discussion on potential variation orders on two existing projects that would increase backlog to a level of comfort we would like in the region. In Brazil, we see many opportunities for our dredge package now that it is in market. As we have previously discussed, we believe now that the dredge is in market, it can be a productive tool since it will not have to bear the cost of an international mobilization.

Let's spend a moment on Washington. As many of you have been tracking, the Water Resource Development Act has passed Committee and was introduced to the Senate floor yesterday. The Cloister Cote was canceled by a unanimous consent as the Senate has agreed to proceed today to a bill that would authorize levels of infrastructure projectsto the Army Corps of Engineers including flood management, environmental restoration navigation, and storm and hurricane reduction.

It is supposed to be on the floor today and there should be a vote. As many of you have followed, there is concern and been battling between PEW and the appropriators. We understand there is some sort of compromise agreed. We haven't seen the language yet, but we do believe it will be some sort of step-up of on spending on operations and maintenance over the next five years, so we will just have to wait and see what actually comes out on that.

As many of you know, this is the Senate version. It then has to go to the house. Congressman Schuster has been making the rounds,and has talked, significantly, about a house wordier. But he is talking about coming out with a House worder either late in the year or maybe even working off the Senate version.

Even though this is very good news that we would have a worded bill coming out of the Senate today or tomorrow, potentially it is a long way from being negotiated and voted on by full Congress and then approved by the President. So work to be done, but I think this is very positive.

Finally, we have also heard very good talk coming out of the White House on infrastructure spend in general. So I think that is a potential positive. We are not giving guidance at this time. For those that might question, will assess this again at the end of the second quarter, as been our historical policy. With that, I would like to open it up to any questions.

Thank you. (Operator Instructions). Our first question is from Andy of Barclays. Your line is open.

Hi, guys. Good morning. It's actually Mark Mahalo on for Andy. Thanks for taking my questions.

Sure, Mark.

Hi, Mark.

The first question I had was just around the gross margin for dredging. In the quarter, obviously very good. I guess what is the sustainability the of high-teens gross margin going forward in 2013, and in terms of Wheatstone ramping up, could that be a potential boost to margin from this 18% level?

Let me take those in reverse order. The Wheatstone -- you know, the -- really it is a matter of the mix of projects in any individual quarter. And Wheatstone I don't think it would be appropriate going forward to just layer 161 Jon Berger And Wheatstone I don't think it would be appropriate going forward to just layer Wheatstone on top of where we are now.

Wheat stone is a good margin project, certainly, but as you look at the margins there will be other things moving around underneath that Wheatstone project in our margin calculation so I wouldn't just layer it on, okay. And that is true, really, in all of the quarters going forward. Certainly i twas a good quarter.

Certainly that is the kind of quarters we will have when we have good capital projects and we are utilized like we are. But I don't think it is something that you would want to necessarily bank on every quarter, quarter in and quarter out.

Okay, understood. Then second question for me is just around the coastal jobs. That is great to hear about the $30 million job in New Jersey. In terms of kind of the remainder of those projects, of those that you actually win, when do you think the bulk of those projects could begin to ramp up?

I mean good question. We would hope very soon.

All right.

I mean they should bid out now you. We have some, you know, some dredge availability.

We would like to get them in the market. We think that, honestly, it has been a little slow coming out. But we would hope that we can, you know, if we can win these things, get them working during the summer. So, you know, maybe even late second quarter but certainly third quarter really be churning on them.

Okay. Great. And then just one final from me. In terms of your conviction level now and eventually recognizing the change orders you discussed in 4Q, are you more are or less optimistic now versus then?

I don't -- I don't think we really can speculate on that right now. I mean we are working very hard on it. You know, it is good to see that we have made some progress, but we said we believe we could collect a substantial portion of that and I think that is where we are at this point.

Okay. Great, guys. Nice quarter.

Thank you.

Thank you. Our next question he is from John Tanwanteng of CJS Securities. Your line is open.

Good morning, how are you go doing?

Good, John.

Can you quantify the impact of the legal actions that have come up in the past couple of months, and any other expenses related to the demolition segments, including accounting, forensic, or otherwise?

I would think that our G&A certainly ramped up tremendously in the first quarter associated with the forensics and things like that. And I don't believe we should have any more on the demolition forensic side. We certainly have incremental costs as we are moving through to remediate those.

But I don't think they are anywhere near the same volume or are velocity that we saw because we will be hiring some incremental staff and bringing them in. As for our other legal actions, we will have higher level of G&A throughout the year. You know, we do believe we have some insurance to cover some of that but we haven't filtered through that all right now.

Okay. And then I guess on the revenue side for demolitions, not including Tara. Revenues down about 75% year-over-year. Do you expect that run rate to continue? I know you pushed out some projects, but how should we think about it going forward?

It will certainly pick up. You know, I think they have about $50 million, $53 million in backlogs themselves.

$53 million.

And a good bit of that should work through during the year. They are negotiating another very nice contract that we have been told we are part of one of the bridge demolitions. We haven't finalized negotiations with that,

which will be both a 2013 and 2014 project. Certainly it will pick up more towards, you know, probably closer to our standard kind of quarterly numbers, especially in the third and fourth quarter.

Got it. Thank you. And then on the dredging side, nice win on the New Jersey project.

Thank you.

Is there any kind of guess as to what portion of the outstanding, you know, I think you said $230 million, $290 million that is left out there that you might win? And what are the marings? are the margins on that kind of coastal restoration work?

And don't forget the government estimates are $130 million to $290 million. So it's a pretty wide estimate and it'll really depend on the projects and where the market is. We think we are shaping up nicely for that business.

So we hope we will win, you know, our fair share and [beat nourishment] has historically been a nice margin business and I think what you are seeing is in general. There is a lot of work throughout and when there is more work margins tend to be a little better. We are optimistic that we will get our fair share of that and it will be middle to higher middle kind of margins from our historical basis.

Great. Thank you very much.

Thank you. Our next question is from Trey Grooms of Stevens Incorporated. Your line is open.

First question is on demolition. You mentioned the lower gross margins were impacted the by cost overrun in the quarter. Is that first off, can you quantify it? Secondly, is it associated with, you know, some of the old projects that you had issues with in 4Q or is this something new?

One, on a specific project I don't think we quantified but the biggest overrun was honestly a missed estimate on a significant job. And it was a new one. It was not the projects that we had our revenue reversals on that we talked about significantly. You know, the ones in New York and that, Trey.

Okay. And you know, the some of the things that you guys are putting in place the controls that you guys are putting in place I guess with that would you expect, did this surprise you? Would you expect to see more of this going forward or is this -- are we at a point where we can start to kind of think about this type of thing kind of being a thing of the past or at least not coming up as regularly?

We certainly put in significantly more controls. And I assume that as a regular thing we will control and have second and third reviews on estimates, but it is a contracting business.

You know, and we will have ups and downs. But I sure hope that we don't have the magnitude of these going forward.

Okay. And I guess one other question on -- and forgive me if I missed this. But on the SG&A, Bill, can you kind of go through what a decent run rate for us is?

Because it came in higher than we would have thought and I know there was some kind of maybe nonrecurring type of things in that number but can you give us kind of a rough guide as to how to think about SG&A and a run rate going forward.

What I would say, Trey, is that there is about $5 million of costs this there related. A fair amount for severance related ed to our COO. There was an extraordinarily high amount for legal consulting and audit work related to year end that was part of that.

Now, some of that will continue on going forward. It is a little hard to predict exactly how much. But I think that is really about the best I can say on -- in terms of run rate going forward is that we were $5 million to $6 million kind of higher than we would normally expected to be the to be but some of that is going to continue on going forward until we get through these problems.

Right. No way to kind of gage roughly how much to bake in for those ongoing issues?

No, not -- you know, no.

Okay. All right.

And then on the new dredge, postponing that, I guess, or finding a new builder there, is there any costs that are lost there or is the -- I can't remember the exact number, I think it was in the high $90 millions, $96 million to $98 million of CapEx associated with that new dredge. Is that still a good number or are there going to be some additional costs as a result of having to along there?

It was $96 million to $100 million -- it was $96 million to $100 million was our estimate. We haven't gone out to final bid. There probably will be some. We are still, you know, in arbitration with the older shipyard.

And we will just have to see how things come quoted. But we also think that with the once the plans are done and the equipment is bought we hope it won't be a tremendous increase in costs.

Okay. Thanks. I will jump back in queue with that. Thanks.

Yeah, thanks.

Thank you. The next question is from Jack Kasprzak of BB&T. Your line is open.

Can you talk about when you think demolition might return to at least kind of gross margin or gross margin break-even? Is that is 2013 event, do you think?

I think later in the year that is what we expect. I mean as we get a couple of these larger projects going and if we execute on them, you know, with the additional emphasis we are placing on that operation I think late in the year that is our expectation.

Jack, you know, actually the new contracts booked in backlog have reasonably nice margin. Now, we have to, you know, avoid the slip and of margin that we have had but we think that, you know, that is one of the reasons why we are moving our client mix to something that we think is a more reliable -- a better scoped out kind of client mix. But, as Bill said, that process of moving through is certainly more painful than I think we realized six months ago.

And so based on the some of those changes you give it some time to see how it plays out but I mean which I guess is reasonable but given the kind of deer deteriorating condition in demolition is there an amount of time that passes where you guys step back and say, we made these changes and they just don't seem to be working. You know, maybe isn't the kind of business we should be in.

Is that something you would be looking at undertaking at some point?

Yes, absolutely.

Can you guys give us some guidance on what you think D&A will be for the full year?

G&A.

D&A.

Depreciation. D&A.

I apologize. I thought you said G&A. I mean individual items like that, Jack, I really, you know, I don't think it is really something that we want to be narrowing down quite that much.

First quarter run rate there which I think was around $13 million. Is there any reason to think it would be terribly different going forward? Can you at least --

Well, due to that accrual deferral we have of some expenses that is not necessarily a number that you can take and multiply by four. So -- I guess there is nothing further we can say to that.

Jack, let us look at it and Katie will get back to you.

That's fair. Okay. I think that's it. Thanks very much, guys.

Thanks.

Thank you. Our next question is from John Rogers of D.A. Davidson. Your line is open.

Hi, good morning.

Good morning, John.

Just a couple more follow-ups on the demolition business.

The $2 million of deferred revenue recovered. How much is left out there?

Well, we wrote off about $14 million at year end and --

Sorry, go ahead, Bill.

Well, that is it. I mean, we wrote off close to $14 million at year end and we are working to recover that. That is not necessarily, you know, the amount that is out there, because part of that is margin that we never recognized and we don't want to comment about those details.

But order of magnitude that is what we wrote off at year end and got $2 million of it back.

But presumably -- you will be in negotiations for that money this year in 2013. Is that correct?

Both this year and next year.

Okay. And then the $7 million of revenue that slipped in the demolition business in this quarter, is -- were there costs associated with that?

Costs associated with that?

I mean was it just deferred work or is it similar to change orders that you didn't get signed off on?

Mostly was deferred work we couldn't get started, either to weather or the customer was not ready for us yet.

Okay.

That we had scheduled to be out there.

It would be pretty minimal. The one delay was a project that was underway so certainly, you know, there might have been some minor --

Stop and start.

Stop and start kind of costs, Jack, but that is really -- it is pretty limited.

Okay. And then the $13.3 million for the or orange juice tanker will you recover that this quarter? Will you book it this quarter?

Interesting question. They are -- they still have the ability to go back to appeal to the full second circuit. It is a very difficult and high bar to get. If it they -- if they don't do that appeal I think that we very well could recognize it in the second quarter but it is really not in our hands at the this point.

And then, lastly, in terms of capital spending this year, what is your estimate?

We generally spend about $30 million, $35 million a year on capital.

And that ex-includes.

Maintenance. That is the maintenance which is a little higher than it has been last couple -- prior to 2012 but you right now estimated between $30 million to $35 million for maintenance CapEx.

Right. And then we have already announced the two [Scouts] which I think are about $17 million. That, I guess, the vast majority of that is in this fiscal year. About $6 million last year?

Right, but we are financing it.

And we are financing that so that wouldn't be in there and then the ATB similarly.

Right, yes, the ATB is included and our cash flow right now is operating equipment but you once we finance that.

Yes, Um-h' m.

All right, great. Thank you.

Thank you our next is from Philip Volpicelli of Deutsche Bank. Your line is open.

Good morning. It's Phil Volpicellli.

Hi, Phil.

My questions were actually about CapEx. So the two [Scows. When will they come in, and when will that financing -- it is going to be an off-balance sheet if I remember correctly. When does that all happen?

They should be ready to go in August. August, September.

Mid summer, yes. And we he already have construction financing in place and we will roll that into a lease that is already arranged on scows not on the ATB yet.

That will be a footnote in the Qs and Ks in terms of the government balance sheet there.

Yes.

Okay, great. And then with the ATV, are you starting to, I guess when you build that is that going through CapEx or is that going through a separate vehicle also off balance sheet?

Right now it's going through CapEx. We have not putting the financing in place yet. We are working on that. And once that does go in place, then construction financing will be reimbursed for the moneys that we have already paid, and then that money will get paid directly. So we will have increasing construction in progress in the offsetting liability.

Great. What was the actual CapEx spent in the quarter? I don't think you guys released that?

I think we said in the call $16 million.

$16 million. Yeah.

And $6 million of that was the ATB.

Sorry I missed that.

No problem.

Thank you.

Thanks, Phil.

The next question from Rick D'Auteuil of Columbia management. Your line is open.

Just I think you guys laid out a little bit of your game plan on the demo side, but I would love to hear are a little detail because it is clearly not firing on -- I'm not sure I could say even firing on one cylinder. So you talked about putting in place some technology, new software, that will help you on the bidding side. Is that what you expect?

It is a combination. You know, we -- we use a software to do our bidding that we are adding the project management software so it will be a much cleaner smoother hand-off between bidding to project management. And one of the problems we clearly had is in our ability to account for all of the costs on a regular basis to allow us to make adjustments and manage those projects better.

We are putting in that software are but software is just a tool. We are also realigning the project managers separately from operations and estimating so they -- we have elevated at that role to give more focus onto the projects. And we are clearly, you know, focusing our wealth of accounting on project management also.

So we have better controls. We are clearly putting in more checks and balances on the bidding side. And the estimating side. So from the bidding to estimating to entering. And, you know, probably most critically, we are looking to move our client base from a much more stable, stable client that, you know, values I think our value proposition.

So you talked about that last summer, too. But I guess we are stuck with the Legacy issues until it runs off. The poor construction customers that are in the backlog now. Do you expect that to be mostly cleaned up by the end of this year so that, you know --

I think so. And we won't get out a hundred percent obviously we kind of had a run rate of about $100 million in that business for the last three to four years, so what we are going to try to do is weed down the better part of those customers and replace them with, you know, the other type of customer we talked about.

But it is a process. And we hope we will make the right, you know, we are comfortable and make the right selection of the better, the better kind of contractor business and then moving to the government business. But, you know, I think our Legacy contracts with the Legacy team should flow through and be done by the end of the year.

You haven't said so far is that we upgraded our project managers, we let go some people that were costing us a lot of money, is that --

I apologize for that. Over the last year and a half, we have probably turned over 80% of the top level organizational chart.

But a lot of that was done, you know, my recollection was back in a more like 15-18 months ago. And we were still making mistakes and you know, I guess how much of that is more recent, Jon?

I think our two lead estimators are new over the last five or six months. We have brought in new project managers. Our head of marketing is new in the last 12 months.

The Capture team. We have brought in another senior project manager in the last six months to handle big projects. So no, I think there is a lot more there than just the top level.

Is there -- have you gotten -- based on Tara's track record they didn't have these kind of problems historically.

That's right.

Is there somebody there that is kind of looking over the shoulder to help you guys out?

Can you leverage off that team a little bit because of their good track record, I guess? Hopefully.

Are we leveraging off that team? We are certainly trying to integrate their team well and we are certainly leveraging off the project management skills and knowledge and infrastructure process that we have had in dredging, because we he certainly haven't had those in dredging and with putting those controls similarly to controls we had here.

Okay. When I look at the numbers, the revenue in the quarter the organic number taking out the acquisition and demo was down 73%, you know, I -- what clicks with me is that there is probably way under utilization of equipment. As you improve your mix, do you think you get decent utilization as you try to upgrade your client mix to the end markets that you discussed earlier?

Certainly we are. And one of the tasks we are undertaking, actually, is looking at the utilization of our yellow equipment among -- among Tara, even rivers and takes, and demolition. And we think there is some opportunity there's that we have redundant equipment where we could eliminate some of that equipment and certainly Tara having access to some of [Nazi] that equipment will also put it into a different situation when they look be at bidding projects.

The upside is you are absolutely right we think there is some efficiencies in our equipment. We have had meetings to address that, and we do hope to get some better utilization out of our construction equipment.

Okay. And then just on the Miami. You expect -- we had heard that maybe by May 10 so at the end of this week they may have a decision. If you do win that, what would you expect the start time to be?

You know, at this point, that the point I don't -- you know, we have, you know, some revenue built into our model. If we win it is not a tremendous amount for 2013. Because a lot of it is soft costs with mobilization, getting the team in place, getting people, you know, organizing the schedule, getting the field office set up. I don't think at this point you would see tremendous dredging by -- in 2013. And we are saying the same things you have.

We are sitting here, as you are. Every day changes. It could have been last week and now heard it is the 10th and now may have heard it is the 15th. It is a little bit of a tennis ball.

Okay. On the beach work in the Northeast, is that still ongoing?We are about to about to enter the beach season in another month.

So what is the status of that work? I thought they wanted to have that all done by Memorial Day?

Again, you know, like we said I think there is 11 projects on the radar to bit in the next eight weeks. The Army corps and I think we have certainly and I think the industry he has been a little frustrated they couldn't have gotten the work out there quicker.

And, you know, it is -- go is it is going to be ongoing throughout the year. Government estimates are of $130 million to $290 million on those 11 projects themselves.

So in fact those communities are going to let the restoration work go on in right in the middle of the summer.

Well, they have no beach otherwise.

All right. So a little later than you expected. All right.

I'm all set. Thank you.

Thank you.

Thank you. Our next question is from AJ Strasser of Cooper Creek. Your line is open.

Hey guys. How are you?

Good, A.J.

Good. Thank you for taking my question. So, I guess first off I want to just congratulate you.

I think that the dredging segment is, by my math, had you not had the losses in demo you would have had a $30 million EBITDA number so your -- the business, you know, at least, I mean, the core is doing phenomenally. I just wanted to just focus in a little bit on the demo side. Could you share with us how you much of the

$12.5 million operating loss or so came from that missed estimate that happened in Q1?Can you frame it for us, at least?

No, are we try not to comment on individual projects.

Okay. I mean what we are trying to, and I think what the market is trying to understand here, is just you know again, I don't think anybody is sitting out there and expecting you guys to get to even normal gross margins when it comes to the demo side. But just, you know, bring us to the point where we can see is be break-even and I guess how much of Q1 was sort of anomalous so that when we look to Q2 and Q3 we can say we will be at least approaching a break-even level if nothing else goes wrong.

That is sort of the clarity we are trying to understand it here.

Right, and we think, Bill, help me if I'm wrong, because I have the numbers, but we think the true operating was probably about half of that. About $5 million loss for the quarter. And we believe that we should, second, third, and fourth quarter, our expectation is for it to be -- is to step up and get break even the rest of the year or maybe even a little better.

That's great. So based on the sort of rolloff of legacy margins with the combination of [inaudible] Q1 maybe being anomalous, is it possible that Q2 and Q3 could be break even? Is that sort of the goal here?

I think that might be that is certainly on the aggressive end. Certainly the wild card in that is any of these recoveries that we get. That will certainly help. But I think on an operating basis, I don't think it is realistic to expect that Q2 we are going to be back to that kind of a performance.

So I would just be a little bit cautious about the speed of it.

We do believe, especially with our operating EBITDA, that we should get close to about break-even, and that excludes the recoveries, as Bill said, and we are working hard on those recoveries. And if we get what we expect to get, we should be, you know, on for the next three quarters in total we should be a positive -- a positive EBITDA for the rest of the year. But, as Bill said that requires us to you get these big recoveries, which we know we are entitled to, and we are working really hard on.

Okay. And then in the past you guys have been kind enough to share with us shooter of utilization and weather quarter to date and obviously that is probably the biggest agreements to having a strong gross margin in the dredging business. Can you maybe share with us as we stand today how utilization and weather have been to you guys, just kind of broadly speaking.

I think we had no real anomalies in weather. Utilization we need, you know, until kind of the short-term we need these Sandy projects to get out. We have positioned ourselves very well for those Sandy projects.

You know, we have availability. We have watched the bidding market very closely because we think those are going to be very nice projects, very suited to our equipment. But we need those to come out as scheduled, as the latest schedule, and we need to be able to mobilize to get them out there.

Okay. And then just lastly, John, kind of high-level here and I know it has been alluded to before but I think the market could use your perspective on this. It certainly has been holding back the stock.

I mean, could you just give us your, kind of, confidence level or at least your sort of thought plan here as what do you see in the demo side in terms of potential margins? And if you can't capitalize on this business, is it fair to say that at some point in order to create shareholder value, you will let it go or prune it to the point where we are no longer seeing the losses.

Yeah, let me -- yes, I think that there are ample opportunities for that division to operate at margins that are acceptable to us. And we think that there are ways to incorporate that with Tara and even with the rivers and lakes in our core dredging business. But if we cannot get this thing operating at a level that is acceptable to us, we are go going to cut it down and/or we will figure out a way to generate shareholder value for us.

We -- I am -- right now, I'm committed to the business. And I'm committed to it until I'm not committed. But be sure we here to create shareholder value, and it has not gone unnoticed to us that we have got to get this thing to a position where it is productive.

That is great to hear. Following up on that. When you look at legacy margins in the demolition business and the margins that you are currently bidding, how you much of a gap is there between that so, we can get a sense there of what will happen once we are through you with these Legacy margin projects? What are we talking about here? Are double the margin? Is there is thousand basis point -- help me with that.

I look at the margins and backlog of the new work we are bidding and they are in those, you know, they start off in, you know, the 10% to 20% margin businesses, you know. Minimum 10%, probably up to 20%. But we have to be able to execute on that.

We haven't done a good job, we haven't proven to ourselves over the last two or three years we can, and we need to drive back to those numbers. And we need to drive back to being able to -- it is not acceptable be to me if we are waiting two years to collect on the revenue that we do generate, and it is a fight every time and I have to employ lawyers and outside accountants to be able to prove to our clients. We have got to drive it to, you know to a margin that could provide a good return on our assets.

Like I said, we see bidding opportunities out there. The big projects and backlogs start out at very acceptable margins to us. We have got to be able to manage through that with little slippage, and it is something that we haven't done.

I will also say, though, over the last three or four years backwards, our margin may have looked better but I think we probably -- the problems we are paying for now really were associated with those projects back then, and we just didn't, obviously, we didn't recognize that properly when we bid those projects and managed it. So that's a long way of saying we will either get it right, pare back to its productive, or we will find a way to create value for our shareholders in other ways.

Thank you for taking my call, and congratulations again for a good dredging profit.

Thank you for recognizing that.

The next question is from Jamie Yackow of MOAB partners. Your line it open.

Good morning.

Hi, Jamie.

Nice quarter on the dredging side.

Not to beat a dead horse but you on the demolition side, can you elaborate a little more specifically, what went wrong with the bid miss that caused the shortfall? Are the bidders still at the company?

Is this project completed? If it's not, when do you expect to be completed? What are the expenses going forward.

The project runs through the second quarter. We have certainly put way more better controls in the bidding process. The bid miss has to do with actually a recovery metals and we he and we certainly are shoring up our processes to make sure misses like that don't happen.

All right. I guess and then, just, can you quantify kind of the loss you expect going forward from this project for the second quarter?

No, I mean it -- I mean the worst -- the way percentage of completion works is we have to recognize the loss when you know it. So we have taken the pain, so to speak, already, and the project will run out now through the second quarter.

Basically the way of saying we have work to do which will be at zero margin but, you know, if we have done our analysis correctly we have take than loss in the first --

We recognized the costs, yeah.

And are the bidders still at the company?

Not exactly sure on that -- that one in particular he is, I think, yeah.

It was more of a systemic issue, I think, and other people missed it, too, and we put different brow is processes in place especially for projects of reasonable size.

And it is a bit of a unique project, too, in retrospect, I think probably could have been donor done better, is certainly could have been done better.

To your point, you really have to take these things back to the fundamental process of how you estimate them and getting that right. And then handing it off to operations, and operations then executing the project in a way that correlates to how you estimated it and having the controls and the reporting in place to manage that properly going forward. And that is, you know, that is what we are doing.

We are pushing the process review and the people review and the post-mortems of all these things all the way back to the fundamental process that starts a chunk of business for us. And that is -- that is what we are doing. And it does take some time. I don't think we say that it turns around magically just, you know, overnight. But it is -- you have got the to take it back to, how did we estimate it? Did we estimate it right? And how did we execute it?

Are those things aligned? And then managing the project properly. And we are doing training with project managers. We are doing training with the financial team. We are taking a hard look at where estimates went wrong or if we can learn from those things. It is a very root-level fundamental analysis and process review that we are going through.

Great. You spoke to the recovery in metals fort miss. Can you elaborate a little more on where the mistake was made on that front, and are you confident going forward that that won't happen again?

Well, on that particular project, it is a bit of a unique demolition because it is not just a total knockdown. It is a removal. A surgical removal.

And the effort that it takes to get the metals out is extremely challenging, and probably wasn't estimated as well as it shipyard should have been. So it is more a matter of getting the metals out as opposed to, you know, the metals not being there so to speak.

Right. Okay. And then, I guess, is there -- just lastly on that front, is there any recourse to recover some of these losses with the customer or is that --

Not in that situation. We certainly, you know, looked at the contract in great detail.

Okay. And I guess lastly, just switching gears, the asset sale that you guys had planned for the fourth quarter. Is there any update on that front?

That has not been executed yet. We are still working on that front with the folks in the Middle East.

All right, guys. Thanks a lot.

Yep.

Thank you. Our next question from Glen Primack of PEAK6. Your line is open.

Thanks. Good morning.

Good morning, Glen.

I don't have any questions regarding the demolition, you have already fielded some dynamite ones there.

Thank you.

Just going back into the K and the shareholder letter, you had a comment in there that the replacement value of your suite was worth a billion dollars. I'm wondering how do you get to that number? Is it there is split on that between dredging and the demolition.

That's primarily related to our dredging fleet as it is really a barrier to entry. That is kind of why we put that out there because if somebody came in and tried to rebuild our fleet as it is today, it would cost them over a billion dollars to do that. There is high barriers to entry in dredging and that is one them to rebuild our fleet and to try to compete with us is very difficult because of the size of our fleet.

That is just a really big number relative to your market Cap.

It is, but understand it -- you know, in fairytale land if someone gave us a billion dollars, our fleet and said you can reproduce it and have it here tomorrow our fleet would look totally different than it does today. It is a big number. No question about it.

So but you didn't do some work on that to come up with that? There is no schedule that supports it within the K?

No.

No.

Okay. That's it. Thanks. Thank you, Glen.

Thank you. Our next question is from John Rogers of D. A. Davidson. Your line is open.

A quick follow-up.

Okay.

First of all, in terms of your tax rate should that return to a normal rate mid 30%'s?

Yes, yes.

And then, secondly, just on the dredging business. As you kind of look at the first quarter and go back, I mean you mentioned the better utilization. Do you have any sense of how much of the margins were utilization versus pricing? What does that mean for what is embedded in backlog now compared to where we were a year ago?

I think our margin in backlog is better because, you know, and that is associated with the mix of business. And our belief is that we are entering a period of significant capital work and also the next couple of years expanding significant deep work.

I think both utilization and contract margin definitely contributed to the improved gross margin. I think it was definitely a combination of the two.

Absolutely.

Okay. Because the pricing or the contract margins are a little more sustainable or at least reliable versus getting better weather and equipment. But Jon, the market conditions that you are talking about. You are seeing that in the bid market. Is that fair?

Certainly we are seeing and our backlog maintained right now has some significant capital projects in it, and good beach projects and we also believe the Sandy projects coming out should be beach nourishment at solid margins.

I think we said before as we look at the Sandy projects we are as a matter of course maintaining some discipline here and not necessarily being the first to bid and a the lowest to bid. We are trying to look at, you know, the overall market, the overall utilization in the market, and bid those very wisely and that doesn't necessarily mean that you bid and win the first job. So I think that is part of what figures into how we look at this going forward.

Thanks.

Thanks, John.

Thank you. Our next question is from Rick Dassell of Columbia management. Your line is open.

From Australia it sounds like late Q2, I think last time we talked, you were expecting a start in April. Are the delays related to the housing infrastructure being built still for the workers or --

Yeah, and just the -- yeah, so we had to adjust our -- the dredge scheduling. Actually, the lead contractor on the business is dredging right now. Our equipment is mobilized right now to get there and should be there in May and we will start dredging. Don't forget, though, that we did have some revenue associated with Australia in Q1. Obviously, the people. We have had the big MOG from the US to Singapore in the second quarter. We will have a small MOG ongoing right now, in the second quarter from Singapore to the project site. So we did have revenue in the first quarter for Australia. But, you know, the big digging revenue will start kind of middle to I guess end of May the dredge should be on-site and ready to work.

But the revenue you got is low margin just, you know, to keep you in the game while the delays went on, right, is that, correct?

No, we he haven't dealt with the delays. We take the margin rateably over the whole project. The revenue we had was a the project margin. There clearly is a claim for delays and that is to be negotiated with our client.

Okay. Beyond the Miami port deepening objectives, is Savannah still out there? Is anything working its way through the pipeline that you are hearing that there might be RFPs out this year?

I don't know if this year, but certainly Savannah is working through the process, and probably will be the next one. We have heard some private LNG coming up. Also, those are clearly kind of RFP different speculation, but Savannah is clearly working through the process and probably a 2014 bid, I think.

Okay. And then as you look at the pipeline of opportunities within the demo side, for government, utility and Fortune 500 businesses, is there sufficient work out there that you guys are a good fit for to kind of fill your backlog back up?

Yes. Yes. We do believe there is. And we won't 100% get around -- we won't 100% get around leaving the contractor business, but we going to pick and choose and contractors we like doing business with who have a little different level. And Tara also has some very nice bidding opportunities. I think in our press release we announced a project they jointly are working with our rivers and lakes division which is a very, very nice remediation project that should go on starting in -- we will mobilize towards the end of the second quarter, third and fourth quarter and an opportunity to do work on it in 2014 also. We between them, we do see solid opportunities to maintain that level of business with a different client mix, yes.

That's all I he have, thanks.

Thank you. I'm not showing any further questions in the queue. I would like to turn the call back over to Katie Hayes for any closing remarks.

Thank you very much. Thanks for joining us today. We look forward to speaking with you in our second quarter conference call.

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may now disconnect. Everyone, have a great day.