Great Lakes Dredge & Dock Corp (GLDD) 2013 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2013 Great Lakes Dredge & Dock Corporation earnings conference call. My name is Mary and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session toward the end of today's conference. (Operator instructions). 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 and six months ended June 30, 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 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 2012 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 posted on our investor relations website, along with certain other operating data. I would first like to turn the call over to Bill Steckel, our CFO.

Thank you, Katie. I hope you all had a chance to review the press release we issued this morning. The release contained a great deal of information and I will cover the highlights.

After six months of near-record revenue, dredging activity slowed in the second quarter as several vessels were off-line for scheduled maintenance and some projects expected to contribute to revenue were delayed into the second half of the year. Minor delays were experienced at the Wheatstone project, where we started dredging in the first week of July, and in the Gulf, where flood levels on the Mississippi River delayed the start of a project.

Positively impacting the second quarter results was the receipt of $13.3 million for the settlement of our dredge New York loss of use claim. We were pleased to receive payment on this judgment more than five years after our dredge New York was struck by a cargo vessel in Port Newark, New Jersey.

As we look forward, dredging has nearly $460 million in backlog and another $143 million in low bids and options pending award. We currently expect an increase in activity in the dredging segment for the remainder of this year and into 2014.

Operationally, the Demolition segment benefited from the addition of Terra in 2013 with this business contributing $10 million of Demolition revenue in the second quarter. There were, however, two significant items that impacted the second quarter results for Demolition. The first was a non-cash write-off of $21.5 million of goodwill. Continuing losses and declining expected cash flows prompted us to accelerate the test for goodwill impairment into the second quarter. As a result of this testing, we recorded an estimated charge in Q2. We will complete an analysis of the NASDI goodwill and finalize the impairment amount in the third quarter.

We also identified certain pending change orders for one demolition project which no longer qualified for revenue recognition according to the Company's accounting policy. New developments in June included filing a lawsuit against the project's general contractor to preserve our contractual rights, and we received additional communication from the general contractor and the owner. Our accounting policy allowed us to record revenues in early periods. However, as a result of these new developments, we appropriately reversed revenue of $5.6 million in the current period. We continue our efforts to achieve a favorable outcome related to these change orders and are currently working with the general contractor and the owner in this regard.

General and administrative expenses increased by approximately $6.9 million from the same quarter last year, related to certain legal and professional expenses related to the revenue recognition issues discovered at year end, bad debt expense as well as the addition of Terra Contracting with $1.8 million of G&A expenses.

The Company recorded an operating loss for the quarter of $21.4 million, primarily due to the write-off of goodwill and a reversal of revenue noted above, as well as the quarter slowdown in Dredging, which was partially offset by proceeds from the loss of use claim.

The domestic Dredging bid market for the six months ended June 30, 2013 totaled $558 million compared to $353 million in 2012. The Company won 62% of the overall domestic bid market through the first six months, which is above our prior three-year average of 37%. This win rate, driven by the award of the first phase of the Port Miami project and by capturing 63% of the coastal protection market, sets the stage for a busy second half of this year and into 2014. 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 second quarter, Great Lakes on 77% or $232 million of the capital projects awarded; 63% or $81 million of the coastal protection projects awarded; and 24% or $29 million of the maintenance project awards. There were two rivers and lakes projects bid in the first six months, and we won one of them.

Dredging backlog and pending domestic awards at June 30, 2013 reached $602 million, one of the highest levels the Company has achieved. Comparatively, this amount was $470 million at December 31, 2012.

The Company's contracted Dredging backlog without pending domestic awards was $458 million at June 30, 2013, compared to $389 million at December 31, 2012. Since June 30, the Company was low bidder on $110 million of work, including an $81 million coastal restoration project in Louisiana.

Demolition segment backlog was $92.9 million at June 30, 2013, including $33 million from Terra compared to $60 million at December 31, 2012. Demolition was also awarded two projects in July totaling $25 million, including $20 million of Demolition work associated with razing the Bayonne Bridge.

Our investment in working capital largely remained in place at June 30. We have collected approximately $36 million from the Schofield project since the start of the year. We will continue to recover our investment as we finish Schofield and as we execute on the next project at Shell Island. Wheatstone working capital investments exceeding $40 million will begin to be recovered now that dredging commenced in the third quarter. In addition, we spent $28 million on equipment in the first six months of 2013 including $13 million on the ATB vessel. As we progress further with the ATB build we will complete construction financing and ultimately execute a long-term lease for the vessel.

We also paid a note in the first quarter related to the Terra acquisition in the amount of $10.5 million from cash.

We currently remain in compliance with the covenants on our revolving credit facility. We are mindful of our investment in working capital and we are actively working to increase our free cash flow and pay down our revolver over the course of the second half of the year.

I would like to now turn the call over to Jon Berger, who is going to discuss some of the initiatives that we referred to as well as strategic planning and growth considerations for moving forward.

Thank you, Bill. I would like to start by highlighting for you our backlog and low bids pending award as of June 30 and our recent bidding success up to the call.

As Bill has stated, the combined backlog in our Dredging and Demolition segments is up over 23% since last December 31. Importantly, the mix and quality of work in backlog is encouraging. This includes significant capital work in our Dredging division and larger, better-quality customers, which have been a significant focus of our Demolition segment.

Now let's turn to our markets and any update since our May call. In the second -- Sandy funding, let's start with that. In the second quarter, five projects for coastal protection needed as a result of Hurricane Sandy were bid. We were awarded three of them totaling $75 million. Additionally, we won one in July, for $19 million. We foresee a shift of Sandy projects to the southeast in the coming months. Over the longer-term, we expect more funding for projects in the Northeast that will be critical to rebuild and fortify the Northeast coastline.

Coastal restoration -- this week, we were low bidder on an $81 million coastal restoration project in Louisiana which will commence dredging in the first quarter of 2014. This is another significant project in the long-term rebuilding of the Gulf Coast of Louisiana and will be executed with funding from the [CWWPRA - sic "CWPPRA"], the Coastal Wetlands Protection and Restoration Act. So this is actually not funded from the BP settlement, just so everybody is clear. Additionally, this is a project that will not use our Empire Pipeline that we bid, so it's in a different area of Louisiana.

We were pleased last quarter when the State of Louisiana announce that BP has agreed to fund approximately $340 million in restoration projects. Louisiana specifically identified four projects that had been planned and put out to bid which they were waiting for funding. These projects have been on our radar for some time, and though the timing of when they will bid is not known, we currently expect them more than likely to bid in the early part of next year.

Let's turn to port deepening. As was demonstrated by PortMiami deepening process, it is a long and arduous process to get these projects to bid, and the states and port authorities are increasingly getting more aggressive in looking at alternative funding mechanisms than the traditional wait for Washington route. As all of you know, the president has spoken numerous times about speeding up the process for approval of major infrastructure projects, and state governments are speaking regularly about alternative funding mechanisms.

So we expect this market segment to continue to support capital dredging in the years to come. Our expectation is that Savannah is the next major port deepening to bid, and our expectation is that that will happen in 2014.

One last note on our Dredging segment -- we are expected to have shipyard quotes in for our ATB in August and quickly negotiate with the selected yard. As you are aware, we separated from the shipyard we initially selected but we have not slowed down on the detailed engineering work that was scheduled to be done and have maintained the order for critical components for this important addition to our fleet.

Although clearly behind schedule from where we initially expected to have this vessel in production, we are moving ahead and we expect delivery in the late [2005 - sic "2015"] or early 2016.

Let's switch to Washington for a moment. The President's budget as well as the House and Senate have presented include an increase for navigational funding. This is very good news considering the difficult funding process in Washington. We continue to feel good about the focus on navigational spending and the resistance to cuts in that area of the budget.

As I had mentioned earlier, the President has also spoken numerous times about investment in infrastructure and focused his discussions on investment in infrastructure as a way to quickly deal with the high rate of unemployment and, therefore, jobs creation with the significant benefit of very long-term benefits to the economy for investment infrastructure.

As we are all aware, the Senate passed their version of WRDA in May. The House, under the leadership of Congressman Schuster, has worked through the spring and summer and has a House version of the WRDA almost complete and ready to be released after the August recess. Although the House has been very good at not leaking many details on the bill, they have demonstrated significant bipartisan behavior in the closing days prior to recess. This hope is that it will be released in early September and brought to the floor of the House in the fall.

Now let me turn to the Demolition segment. As we have said, we are making structural changes within the organization to bring more operational skills into executive leadership. We continue to focus our NASDI subsidiary in our -- focus on our NASDI subsidiary in our Demolition segment. We are upgrading our project management capabilities and we have dedicated significant resources at corporate and in the field to improve execution and internal controls, and we have made strides since the beginning of the year. We are also evaluating opportunities to combine operations to reduce support costs and focusing on improving margins through more selective bidding and better project execution.

As Bill has mentioned, we have been getting more aggressive in the process of working through pending change orders and collections of work under dispute in this division. We expect to see improved results in the segment in the second half and are working on alternative structures for this segment if we are not successful in our execution during the third and fourth quarter.

As Bill discussed earlier, we have had too much capital tied up in our balance sheet -- some intentionally, such as the known investment in inventory to allow us to win key projects in the Gulf and the known investments required to make for the Wheatstone project, however, such as long-term AR collections in the Middle East and the potential change orders in the Demolition division have the full attention of our senior management. Turning this around is a key focus on our management team in the second half of the year.

Finally, we will not be giving formal guidance at this time. With recent events and results in our Demolition business, we feel it is not prudent to issue forward-looking guidance. We appreciate the support of our shareholders, employees and business partners, and we thank you for joining us to discuss the important elements and initiatives in our business.

With that, we would be glad to open up for questions.

(Operator instructions) Cory Mitchell, D.A. Davidson.

Well, I've got a few questions. First, how much of the gross margin decline was from lower utilization, or was there a higher competitive environment? Was there any cost increases associated with that?

And then, with [Ictus], has that started? If so, is it proceeding as planned?

Lastly, how should we thinking about your cost structure associated with the structural changes at corporate? Is the 10% to 12% for SG&A as a percentage of revenue a new run rate, or you do you expect that to revert back down to like the 7% or 8% range?

Now, so you have three questions; Bill and I will try to get to all three of them. On the second one, I think I had trouble understanding.

The first one was the question of any significant structural issues in our lower gross margin in the second quarter. And I don't think we are seeing anything from a contractual bidding process in projects and backlog margin that is concerning to us at all. I think the margin stayed positive. And Bill, help me out, but I think that it's really just a reflection on lower utilization.

Yes, if you take out the Demolition segment and the issues we had there, if you look at the Dredging business, the contract margin is holding and actually is a little bit better year-over-year.

The phenomenon that takes place, though, is, as we earn credit for fleet utilization, we had a little bit less of that in the second quarter because we had vessels off-line. So there's an element of earned plant that is definitely than it was a year ago. And it's less favorable this year. That eventually comes through work in process and gets billed, and that flows through. But when you look at the P&L for the quarter, the earned plant part of it is definitely different than it was a year ago. But from a competitive and a market standpoint, the margins are holding up fine in the Dredging side of the business.

Yes, and to remember, the fourth quarter and the first quarter of Dredging were at exceedingly high utilization, and so we had some work we couldn't do in the second quarter, so we took some of these dredges off what we had and did some work on them.

Now, your second question, Cory, I don't think any of us really got clearly. Can you state again?

Yes. It was just on Ictus. Has that started then how is it proceeding towards your expectation?

How is what proceeding?

Ictus.

I'm confused. What is Ictus? You mean the Wheatstone project?

Yes, yes.

Okay. The Wheatstone project has obviously started slower than we expected. We expected to be dredging really by March, and we really didn't start getting out there until toward the end of June. We had, certainly, some complaint, some delay claims and other things that worked in. But the margin is holding solid right now, as we've forecast, and we did a deep dive in the end of the second quarter, where we basically reestimated the whole project from our standpoint. And the margin has stayed consistent, the way we like it to be.

So other than starting out slow and ultimately with the main contractor who we are working for, it's a $1.2 billion project. So there is a significant amount of work and you always expect ups and downs. But the margins did stay where we expected it, which is a very good sign, with all the stops and starts of getting it started.

And your third question was on G&A, and I will have Bill address it. But obviously, we have significant one-time G&A costs that we don't think will be a continual run rate.

Yes, we had $6 million more this quarter than we did a year ago, and a large portion of that was for legal expenses. We took some bad debt write-offs this quarter also. We have some consulting that is related to the efforts that are underway. So we have clearly got a few million dollars per quarter in that number that is one-time expenses.

Now, the legal things, with what is going on, we will continue to incur a little bit of extra expense there. We will still have some extra effort going into some of our remediation efforts, but that should ratchet back a little bit in the second half of the year.

And I think you may have also asked specifically, with some of the structural changes we are doing at NASDI -- ultimately, I think when we are all done with them, they should be -- our G&A should ultimately be lower there. We are bringing some work back, some staff functions back to Great Lakes, such as purchasing, financial accounting, HR. So we expect that we will get some economies of scale. We are looking at doing some other structural things associated with them in our Terra to take advantage of people that are in similar markets. So, ultimately, I think we will be able to, once the dust settles, reduce some of that G&A also there.

Okay, great, thanks, good luck in the second half.

Trey Grooms, Stephens.

I'm sorry; I got on the call a little bit late. If you addressed this, I'm sorry. But can you talk about what you guys are going to have to see in the market? How much tighter do things need to get before you guys can really start pushing pricing here and really moving the margins up over and above just what we could expect from utilization?

Yes, good question. We have been very disciplined in our bidding in the last quarter and a half. After the Sandy work came out, we have held margins. We didn't chase a lot of work. The real determinant of our margin is going to shoot up, I think, is will the Army Corps let more contracts, or are they just keeping it very kind of close to the vest? But I think, as Bill just said, I think our margins actually ticked up in the second quarter. We just had on the Dredging side, at least, we had just a -- not as strong a utilization after those two quarters where we really worked hard.

So I'm not unhappy at all. I think our margins and backlog are solid on the Dredging side. But it is project-specific, and if we saw a little bit more in the Northeast come out on some of the big projects that are expecting, I think you could see situations where margins could tick up a little bit more.

And just on backlog, did the -- so you said that they are solid. Is that relative to last year, relative to the most recent quarter? How do we think about that?

I think it's really both. I think it's strengthened over the course of this year, and certainly compared to last year we are measurably ahead.

Okay, and looking -- I guess, looking at the Demolition business, you mentioned making a decision on something by year end. What are the different options you are looking at here?

Sure, and fair question. Maybe I could take this opportunity to step back and give you a little bit more color on how I see the Demolition business. And I'll give you this based on my experience of 30 years and a reasonable amount of work in reshaping companies that have gone through significant issues.

It's kind of a three-step process, no different than someone in a car accident. You triage, you stop the bleeding; you diagnose the problem; then you treat the problem. And I think we need to remind everybody that situation where we've had management for over 10 years in that company that was acting in a matter that we certainly could not operate under.

So we turned over almost all the executive management, a significant portion of the operating management. And this occurred in April 2011. And we are still chasing down issues left by prior management, and I think most of those from an operating perspective are close to done. And now it's just the cleanup. And that includes more internal controls, many telling legal issues and the culture that needs to be changed.

So we have focused tremendously in the last six months, but what do we have to see? We have to see minimal slippage in contract margin. I think we are bidding work. We are getting the type of work we like and we see very good opportunities, and we are getting margins that are acceptable to us right now. But I have to see us operate without slippage in margin and I have to see us operate in a way that we'd manage the change order process.

What are the alternatives if we don't see demonstrable success? It would be some sort of significant reduction in that business, potentially combining it totally with our Terra business that does a little bit of demolition; to ultimately shutting it down and winding down or trying to sell it to somebody. Everything is on the table. If we don't see, as I said, significant signs of improvement by the fourth quarter, in good conscience we cannot operate the way we are operating it. And we have too many other things that are going on in our business that are actually good, and our backlog is tremendous, that we will not operate at the way we are operating it.

Thanks a lot for that color, Jon I appreciate that. My last question is, in your comment earlier about will the Corps of Engineers start to let more projects or will they keep it close to the vest -- in your experience and given where the budget is and the situation there, what would cause the Corps of Engineers to loosen the purse strings, I guess? What would drive them to do that?

Let's not forget, we are talking about money that's allocated separately for all this Hurricane Sandy. I just think it's more an issue of they are dealing with some tremendous one-time things. And to get these things structurally ready to go out to bid takes a lot of time, takes a lot of effort. And I don't think any organization can ramp up as quickly to do that as they could. So we have seen some things get postponed, pushed back, and this is not at all a negative comment on the Corps. I think they have done a tremendous job of addressing this. There's just a lot of projects that, to be out there and to put it bid at once is a significant endeavor for them. And so I think it's just them doing their diligence. I don't think it's a funding issue because this funding is separate and distinct from the regular Army Corps budget.

Yes, I understand. Thanks, John, and good luck as we get into the back half of the year.

Andrew Kaplowitz, Barclays. Your line is open.

This is Vlad Bystricky on for Andy. So when you say you're looking at opportunities to combine operations to reduce support costs, is there any way that you can help us scope out the potential cost savings that you think you might be able to find in terms of annual dollars that you think you might be able to save?

Not yet, unfortunately, but we are very -- the answer is not yet. We are very cognizant that we have got to get our operating and G&A costs down in our Demolition business to a level that supports the run rate in the marketplace that we believe we will garner from the type of clients we want.

So I can't give you that number yet, but that's stuff that we have teams working on with each of those businesses. So I guess I will have to say you will have to maybe check back with us in a certain period of time.

Okay, and just as a follow-up, given the ramp in dredging activity that it seems like you are expecting in the back half of the year here, is there a way to think about how utilization, how positively it should impact gross margin going forward here? Can we get back to 1Q levels of gross margin or better in the near-term?

I think you could look at the past couple of quarters that we have had, and those have been good utilization quarters. I think that's about all we can say about that, in terms of how it might roll out going forward, is if you look at our historical performance and look at quarters where we had good utilization, look at those P&Ls and see what you see there.

Okay, great, that's helpful, thank you.

Scott Levine, Imperial Capital.

I can appreciate the reasons that you wouldn't provide fiscal 2013 guidance here, but I'm going to try for maybe a little bit more clarity on the Dredging side of the business and the outlook there. So it seems like contract pricing is consistent, but utilization rates down here in the quarter. Would your expectation be, given your projection for burn rates in these projects, that we would see a quick return to utilization rates you guys posted the preceding two quarters? Or does it take a couple quarters to get there? Maybe a little bit more color on how you see utilization trends impacting margins in that business over the next few quarters.

As we've said, we started dredging in Australia in July. There was a delay in the Gulf. We expect the second half to be busy, and that is really all we can comment on as far as forward-looking.

Okay. And then turning on the Demolition side, this one project that you cited the reversal on -- is that a new issue, or is that one of the other projects that you guys had flagged as being problematic in that business the last couple of quarters?

It's related to the project that we have been talking about since our year in the numbers. There have been new developments related to the project.

Just to be clear, this is a project that, Bill, I guess we started late 2010?

In 2010, yes.

In 2010, so it clearly is a project that has been around for a while.

Okay, so have the been any new projects that have surfaced as -- call it -- I don't if you want to call it a trouble project or what have you. But have there been any new projects that have become more burdened during the last quarter, or is it still the same legacy type projects that just need to burn through to completion here?

Yes, the issues that we are discussing and the issues we are dealing with are related to the projects that we have been talking about.

There hasn't been any project that we have bid and started work on in the last probably six or nine months that we have had -- that are burdensome, like you've said.

Got it. One last one, if I may. On the outlook for the Army Corps, I know that the fiscal year ended September 30 and there's a fiscal 2014 budget proposal. How important is that issue and whether you get a convenient resolution and the length of that CR as opposed to a fiscal 2014 budget in terms of what you foresee from the Army Corps in terms of lettings?

We are talking -- the president's budget, I think, had $1 billion in for O&M basis, and I think that the House was similarly. So, clearly, if they had to go under a CR, I think last year's was something like the 820, 830 or something like that?

Yes.

So it would slow down. It would slow, but a lot of that is the maintenance work. And it wouldn't slow down Sandy relief work; it won't slow down the Gulf Coast restoration work that we expect to see. And I think Bill went through some of our bidding statistics. As we have always said, when we trade up away from that O&M business to capital and beach nourishment work, coastal protection work when those markets are there, so -- and I think the statistics show it out. I forgot what Bill quoted, but we won 29% of the maintenance work and we really traded up into coastal protection and capital work. So if we run on a CR, I'm not terribly worried that it's going to hurt us for a while.

Understood, thanks.

Jon Tanwanteng, CJS Securities.

I also joined a bit later, so I apologize if any of these have been covered already. You guys obviously won a lot of the Hurricane Sandy restoration work. I'm just wondering how far that extends into 2014 and if restoration is likely to be higher or lower year over year, given that?

I think, certainly, there will be additional contracts for Sandy work into 2014, no question about it. I think what we are seeing now is the next projects to come out to bid are some of the damage on the southeast seaboard. But there's still a lot of work to be done in the Northeast that will come out to bid, probably back later in the fall, to be done in the wonderful winter months and early spring up in the Northeast.

But I think we are -- certainly, some of that backlog we are doing will drift into next year right now.

And then just back to the pricing question -- is there actually a lack of dredging capacity in the Northeast at all; and does that give you an opportunity to move pricing?

Is there a lack of dredging?

We just noted that some projects didn't get any bids. So --

Oh, the Delaware project didn't get any bids because they just re-scoped -- they scoped it --

They postponed the bid.

They postponed the bid because I think the dredging industry feels that, the way it was quoted, there was significant more risk put onto the dredger. So we understand that it's coming back out in a more what I will call equitable bidding structure. There is dredging capacity, but I think, depending -- there will be certain people that will shy away from Northeast work that probably gets bit late in the fall that has to be done during the winter. It's rougher out there. And there's certainly some capacity to execute still in the marketplace, and certainly we have some.

Okay, got it. And can you just clarify on Wheatstone -- was that a delay on your part or something that was outside of your control?

Wheatstone, it was really --

It was just part of getting up and running.

It was getting up and running, but it wasn't necessarily -- it wasn't us or the main contractor we are working for. And then it's not unusual, especially when you move into a different country, and the truth is Australia is a tremendously interesting place to work; the environment is very important to them. So it took a while to get all the vessels through and approved. But the initial delay was associated with actually the ability to have housing for the workers.

Got it. And then finally, just any update on the status of the ATB? Have you signed a new contractor? Is there an impact from arbitration or anything like that?

Yes. We are in the midst of rebidding. The ATB, we expect to have bids in, in the next couple of weeks. We will sign a new shipyard right after that. The arbitration is ongoing so I would rather not comment much about that, but the process is moving along.

Okay, thank you very much.

Philip Volpicelli, Deutsche Bank.

The first question is with regard to working capital. How much do you guys think you can get out by the end of the year, and what would that bring your revolver balance down to by the end of the year?

Bill, do you want to talk about the working capital?

I'm sorry?

Phil asked about the working capital and how we are going to drive it down.

Oh, yes. Well, really that is driven mostly by the execution of the projects. We've got the Wheatstone, which has now started dredging. The recovery of this working capital basically comes as we do the dredging, and it comes back to us incrementally as we do all that dredging. So in the Gulf and at Wheatstone, we've got significant amounts that will come back to us as activity levels pick up. We do have a couple of receivables in the Middle East that have aged that we are in active discussions to collect. And we are continuing to work on those, and that is really the biggest (multiple speakers) and then we have got the ATB.

Yes. I think, as we said, we spent -- we probably have, I think, $15 million or $16 million on our balance sheet on the ATB.

Yes.

And -- $16 million -- and once we get a new shipyard, we believe we will be able to quickly turn that into a construction build lease and we will recover that money.

Okay. Are you willing to quantify how much working capital you guys hope to get out before the end of the year?

No.

No.

No, we wouldn't publicly disclose any of those numbers.

But I will tell you, just to be sure, both our executive management and our next level of management have all had detailed discussions, and everybody's eyes and pulling all the levers are in place.

Okay. What is the revolver availability at the end of the quarter?

It's over $60 million -- around $60 million, I think. We've got a lot of it tied up in letters of credit, which reserves some of our $175 million.

I will just wait for the Q to come out. And then lastly, the down time that you experienced during the second quarter in some of your dredge ships, can you give us a schedule of is there a lot more in the third and the fourth, or is it mostly all taken care of in the second? I'm just trying to get a sense of what can surprise us. Obviously, weather we can't control, but are there other dredges that need to go into maintenance in the third and the fourth quarter?

No. We are going to have -- we are going to be working a lot in the second half of the year. Look, with our equipment, there's constant maintenance going on with the fleet. There are certainly periodic maintenance schedules that are built into what we do. But the bottom line is that the fleet is going to be very, very active in the second half.

And I think, to add just a little color, I don't think any scheduled maintenance on our fleet will reduce our ability to execute at the kind of levels we looked at in the fourth quarter and in the first quarter (inaudible).

So I am just putting words in your mouth. You guys basically pulled forward all the maintenance into the second quarter and got it all done so that you would have a strong fleet ready for the second half -- is that the way to think about it?

I wouldn't use the words pull forward. I would just say that the way the projects roll out, and you think about Miami coming on later in the year, some of the larger projects we've got going in various areas; really, you take the opportunity to do the maintenance in between projects more so than pulling forward. So it's the complex process of scheduling the fleet all across the globe, basically, and the second quarter is just a period where we were moving between projects and taking the opportunity to do maintenance work and getting ready for big projects that are coming down the road.

Okay, great, thank you, good luck.

Phil, the revolver availability was $60 million.

Thank you.

Rick D'Auteuil, Columbia Management.

I just have a few, two. On the issue that came up on the fourth quarter call related to the demo business and concentrated on a couple of the projects, I think you had some recovery in the last quarter. My recollection was $1 million or $1 million something. Anything in this quarter related to the hits we took? And then, at the time you said, you still expected to collect. Do you still hold that opinion?

In the second quarter, Rick, there was no activity related to the things that we reversed or wrote down at year end that came back into the financials. And in terms of moving forward, we still think we will collect a significant portion of this. It's a very arduous process, and we have forced the issue. As we've disclosed, we filed a lawsuit against the VC and we are doing some other things there. But we still expect to collect significant amounts of money from this.

Yes, the one thing I would like to highlight -- or two things, I guess, I would like to highlight -- one, with the one significant contract to help our demolition management, our corporate department is spending more time -- Bill, myself and our general counsel -- to try to help relieve their management time in trying to execute this. So we have stepped in to lead that collection effort with them.

Secondly, it's a project that is for the New York City Department of Transportation. And the process is just a very arduous, long-step process that you have to go through adjudicating with the department prior to even having to use your legal remedies. So I just remind everybody that this is a long dance that it takes when you are dealing with a city or state government on that process.

What inning are we in, in that long process?

That would be pretty tough to give you that kind of an assessment. It's really not something that you can look at quite that way.

Yes, but we are certainly not in a situation where we are bringing in our relievers and we are in the eighth and ninth inning.

How about the other one, then, the parks and rec or whatever that one was, where you actually were the prime?

That is moving forward and we are making progress on that one.

Do you expect a resolution this year, or that's going to be a multiple-year kind of collection?

I don't think we can speculate on just how quickly it will move forward. That one is moving forward, and it's a bit of a different situation than the other project that we are working on.

You said you expect a better half, the second half in the demo business? Obviously, it can't be any worse than what you guys have done so far. So with Terra, does that mean -- and the recognitions on all the identified bad contracts or projects, do you think we can approach breakeven in the second half if you throw in Terra and their contribution?

We've said we are not giving guidance, and that's really all we can say about it. We expect the revenue to pick up in the second half if you look at the backlog, if you looked at what we announced in terms of Terra and Rivers & Lakes joining together to start to work on that nice project up in Michigan. Those are all going to be good contributors, but that's really all we can comment on at this time.

Let me come at it from a different angle, then. If you have identified -- if there is no new problems going into the mix and you have identified all of the existing problems and business is picking up on the top line, how do we have significant losses with that being the scenario that you guys have painted?

Yes; I don't think that we would have significant losses. I don't think Bill or myself for the management at there expect anything like what we have gone through for the last year.

Well, if we are even looking at anything close to that, we should be folding our tent. Right? So -- okay.

How about on the insurance claims? I know you collected one this quarter, but it's not the one from the job that last year had the issues. What is the status of that?

Yes. Again, that is moving along. Our expectation is that we will resolve that before the end of the year. But, more than that, I'm told that we should just wait until we conclude it.

And then Wheatstone? Are your expectations -- we have fronted some capital there. What's the expectations for cash collection in the second half? And do we kind of catch up on things [that end]?

We will make significant progress on that project in regard to billings and revenue collections in the second half of the year. When the dredging starts, things really start to move completely -- you know, it swings in our favor significantly.

Have you encountered anything that wasn't anticipated in the one month or a little over a month that you have been dredging?

Any startup dredging operation has ups and downs. But like we said earlier, we re-budgeted the process in excruciating detail at the end of the second quarter, and the margins are holding for the project.

Okay, thank you.

Anthony Raab, Perimeter Capital.

We have a pretty rosy outlook for dredging projects in the next couple of years. I'm curious what the scenario is on the supply side. Do you hear of other dredges being built in the marketplace? What are your plans? Well, maybe a further discussion is, at what kind of margin do you typically see supply come into the marketplace?

Sure. Obviously, our ATB is, I think, the newest thing we have heard on the market. There is some clamshell building going on, retrofitting of an older piece of equipment, kind of not clear new builds, a significant amount anticipated on this -- the fact that we expect there to be significant capital work over the next 4 to 5 years on all the ports. And then I think the Sandy work has a three-year kind of forward look with all the various work they are looking for. I am not sure anyone says, well, when margins hit this, I pull the trigger on a new dredge. I don't think that's how people look at it. I think they look at both a combination of the demand going forward and also the fact that a new build should be significantly more efficient than the older portions of the dredging supply side.

And as we talked about the thesis of our ATB, even in a flat market, it pencils out very nicely because it is so much more efficient than anything else in the US fleet from a hopper dredge perspective.

So I think that's how people look at the market. And other than a few of our competitors, let's not forget building new dredges are very expensive endeavors. We have two or three competitors that I think would ever look at building a $100 million piece of equipment. The rest of them, being smaller private companies, tend to be retrofitters and bite along the edges. And I don't foresee any kind of new entrant in the domestic market starting from scratch to build a dredging company. I hope that's (multiple speakers).

Yes, that's helpful. What was the previous peak margin in the dredging business? And any reason to believe we cannot get back there? Or could we exceed the previous peak, based on the asset base?

Yes; I think the place to look would be our dredging performance in 2010, and I have full confidence that we should be able to get to those margins again, clearly. If you look at 2010, if we all remember back to 2010, 2010 was when BP happened initially and there was the working on the berm, so we had high utilization. But it was not tremendously high-margin business because it was rental rate, because no one knew exactly what the work was.

So I do feel good that we -- if you look at 2010, 2010 would give you a reasonable place in the near term where margins were when we had high utilization. And I believe we can hit that or above.

Just one more, if you don't mind. On demolition, since you have identified Q4 as the point in time where you decide which direction to go, what do you think the assets are worth? And is it such that you would have to split the business up in a sale, or do you think you could -- do you think there's a buyer for the whole piece?

Good question. The assets -- I would look at our balance sheet.

We disclosed some segment information.

Yes. I think we did.

That will be out in the Q.

That will be out in the Q to give you some idea of the book value of the assets. Would there be a buyer, or is this an asset sale, just a sale of the asset? Very good question. We have a lot of legacy issues that we wouldn't go to get rid of from a buyer. So obviously, I think any structure would be an asset sale. But I think there would be someone interested in the business as a business, because there is clearly -- you can operate a demolition business in a nonpublic market ownership differently than you can in the ownership structure of being a public company. So I would perceive that's the case. One of our alternatives is to shrink it down to a profitable core business and revenue and do something with it under a different structure.

So we are looking at three or four different paths, but I do believe that we are on our way to turning it around. So I don't want to give anybody the expectation that we are just flipping it in December.

Yes, sure, I appreciate that. So just as a follow-up, then, do you have -- what line are you looking at when you are going to make that decision? You said you have three or four different paths. But is it -- it has to make money, it has to be cash-flow break-even? What is the magic number so that you can (multiple speakers) that expectation?

Yes; there has to be an expectation going forward into 2014 that I can look my Board in the eye and say, guys, we can get a good return on this. If we can't, then we can deploy our money elsewhere. So we ultimately have to have a path towards getting a return for the investment we have in this business.

Okay, thanks very much.

I would now like to turn the conference back to his Katie Hayes for closing remarks.

Thanks very much for calling today. It's 10 o'clock, so we are actually out of time. I'm sure there are some of you that are still in there that may want you talk to us, and you can give myself a call if you would like. Otherwise, we will talk to you again after the third quarter is finished. Thanks very much.

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