Great Lakes Dredge & Dock Corp (GLDD) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Great Lakes Dredge & Dock Corporation's first quarter 2015 earnings conference call. (Operator Instructions)

I now like to welcome our host for today's conference, Ms. Mary Morrissey, Investor Relations. Please go ahead.

Thank you. Good morning. This is Mary Morrissey, and I welcome you to our quarterly conference call. Jon Berger, our Chief Executive Officer and Mark Marinko, our Chief Financial Officer, will discuss the operational and financial results for the quarter ended March 31, 2015. Following their comments, there will be 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 earnings release and in filings with the SEC, including our 2014 Form 10-K and subsequent filings.

During this call, we will also refer to certain non-GAAP financial measures, including adjusted EBITDA from continuing operations, 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.

Now I'll turn the call over to Mark Marinko, our CFO.

Thank you, Mary. And good morning to everyone joining us. I'd like to start this call by discussing the fiscal year 2015 guidance that we provided earlier this morning in our earnings release. We are expecting this year to be a significant improvement over 2014, with estimated adjusted EBITDA expected in the range of $97 million to $107 million.

It is not common for us to provide guidance, but we wanted to reassure our shareholders and our other stakeholders that management is confident that the first quarter results are not indicative of the rest of the year. We expect several positive factors to differentiate the remainder of the year from the first quarter.

Our dredging sector is very well positioned to have a strong year, buoyed by an expected improvement in fleet utilization, having just started two major Sandy related projects in New Jersey. The $135 million Savannah Harbor entrance channel deepening that we were awarded during the first quarter is obviously a great addition to the backlog.

During the first quarter, our environmental and remediation business was in a cyclical low point. With the Magnus acquisition in November of 2014, the impact of this seasonality was magnified during the first quarter of 2015 compared to last year's first quarter. Now that spring is upon us, we expect this segment's performance to improve.

Finally, for both segments, the vast majority of backlog has been secured at margins that we believe will enable us to achieve adjusted EBITDA of $97 million to $107 million.

And now I'll review the first quarter results. Total company revenues in the first quarter of 2015 were $175 million, on par with the first quarter of 2014. Our dredging segment revenues were down 5% in the current quarter, at $154 million. With lower coastal protection and rivers and lakes dredging revenue, partially offset by higher foreign, domestic capital and maintenance dredging.

Our environmental and remediation segment's revenue increased 69% to $22 million for the first quarter. Keep in mind that this was the first full quarter that Magnus' results are included in this segment, adding $8 million in revenue.

The total company gross profit margin for the quarter decreased to 6% compared to 12% for the first quarter of 2014. Our dredging segment's gross profit margin slightly declined from 13% in the first quarter of 2014 to 12% in the most recent quarter, with project mix and improved utilization of our fleet in the Middle East being the primary factors.

The environmental and remediation segment had a loss for the first quarter this year, compared to breakeven gross profit margin in the first quarter in the prior year. Negative gross profit for the quarter was $7.6 million compared to being breakeven during the first quarter of 2014. The drivers include $3 million in project losses and approximately $3.6 million related to higher overhead costs. I will break both of these down in further detail.

The $3 million decrease related to project losses can be broken out as follows. Terra accounts for $2 million of the loss, primarily driven by a $1.4 million loss at the land development project. Cost overruns occurred due to material disposal costs that were higher than the original estimate, due to the material being classified as hazardous; higher than expected costs associated with transportation disposal of battery casings; and a change in scope.

Magnus had $934,000 in contract losses for the first quarter. Magnus had a contract loss of just under $1 million on a project. Work on this project has been completed. In addition, Magnus had change orders and a claim on other jobs. It is more customary for the environmental and remediation segment to have change orders than our traditional dredging business.

The $3.6 million increase in overhead costs in the first quarter of 2015 compared to the first quarter last year, is detailed as follows. Terra accounts for approximately $1.6 million of the increase, primarily due to increased labor and other costs. And Magnus accounts for approximately $2 million of the increase. Again, this is the first quarter that Magnus' results have been included in this segment.

Total company operating loss was $7 million for the quarter, down from operating income of $3 million from the prior year quarter. Operating income in our dredging segment increased to just under $8 million for the quarter, up 6% from the same period in the prior year, with lower G&A expenses, as a result of lower incentive paid legal expenses, partially offsetting the decline in gross profit margin.

The environmental and remediation segment reported operating loss of $15 million, a decrease of almost $11 million compared to the first quarter 2014. Terra's operating loss for the quarter was $7 million and Magnus' operating loss was $8 million. As I stated previously, given the seasonality that the environmental and remediation segment faces during the winter months, we budgeted for an operating loss in this segment, but not of this size.

In addition to the factors discussed previously, Magnus added $4 million in incremental G&A expense during the quarter, including $1.6 million of amortization of intangibles related to the acquisition. Terra's G&A expenses were flat year-over-year.

Turning to the drudging segment, the domestic dredging bid market for the first quarter of 2015 was $249 million, down compared to the first quarter of 2014 of approximately $376 million. The first quarter last year included the $90 million award in our rivers and lakes division and also the $32 million option on the Port Miami deepening project.

In total, the company won 84% of the overall domestic dredging bid market during the first quarter of 2015, which is above our prior three-year average of 43%. It is mainly due to the $135 million Port of Savannah deepening award.

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.

In the first three months of 2015, Great Lakes won 94% or $136 million of the capital projects awarded; 100% or $23 million of the coastal protection projects awarded; 60% or $46 million of the maintenance projects awarded; and 100% or $3 million of the rivers and lakes projects awarded.

Contracting dredging backlog at March 31, 2015 totaled $637 million compared to backlog at December 31, 2014 of $594 million. The environmental and remediation segment backlog was $104 million at March 31, 2015, a $29 million increase compared to year-end backlog, with Magnus making up $75 million of the backlog and Terra accounting for the remainder.

At March 31, 2015 we had $31 million in cash on our balance sheet, compared to $42 million at the end of last year and had drawn $20 million on our revolver. During the quarter, we took out a $16 million note to purchase one of our vessels that was being financed through an operating lease, bringing our net debt to $334 million. At the end of the first quarter, our coverage ratios were within our covenants.

Total CapEx for the quarter was $18 million, with $6 million in maintenance CapEx and $12 million in growth CapEx, including just under $7 million for the ATB build during the first quarter. For the year, we expect to spend $45 million on the ATB.

Now I will turn the call over to Jon Berger, who is going to discuss some of the highlights of the quarter, as well as considerations that may affect our business moving forward.

Thank you, Mark, and good morning everybody. Thank you for joining us. To echo what Mark said at the beginning of the call, by no means should our first quarter results cast a shadow on the rest of the year. We are confident that we will deliver a strong year and wanted to demonstrate this by providing guidance on our expected adjusted EBITDA.

Before discussing the first quarter results, I'd like to point out that we celebrated our 125th year anniversary of dredging during the quarter. Few companies achieve this milestone and I am very proud to be part of an organization that has successfully delivered results for over a century. I'd like to congratulate all the Great Lakes employees, past and present, particularly those in our dredging division, for contributing to the success of our company.

Let's turn to the first quarter results. The dredging segment performed as we had expected in the first quarter, with revenues down almost 5% and operating margins flat at about 5% compared to the first quarter of 2014.

As you are aware, the mix of projects that we are working on varies from quarter to quarter, which can impact revenue and margins in any particular quarter. In addition to project mix, the segment benefited from having significantly more of its Middle East based equipment utilized on the Suez Canal and East Hidd projects during the first quarter, compared to last year's first quarter. Not only generating higher revenues, but also covering more of our fixed costs.

We completed the East Hidd project in February and we are ahead of schedule on the Suez project, with the estimated completion date moved up to mid to late summer, compared to its original completion date in October.

I just got back from the Suez project, late last week and the project is going very well, with production levels higher than anticipated. With the Suez project wrapping up earlier than expected, we are actively pursuing several opportunities in the Gulf region. We are hopeful that we'll find for the Middle East fleet for the rest of the year good work. But as we have indicated, we are exploring all opportunities to optimize our international fleet.

In Brazil, we also worked on a small project and added two additional small projects to backlog during the first quarter. We continue to see Brazil as an attractive niche market opportunity for us and are tracking several opportunities in that market.

Turning to backlog for a moment, as you may recall, during our 2014 annual earnings call, I stated that we were entering 2015 with significantly more of our fleet committed than in each of the last five years. With nearly $250 million in additional awards in the first quarter of this year, we are even better positioned.

Including the $200 million in Sandy related coastal protection work, we didn't begin to work off a lot of our backlog we had at year end until the second quarter. As a result, you should expect to see an uptick in our dredging utilization in the second quarter compared to the first quarter. We already have mobilized dredges to the Jersey shore and work is underway to rebuild the coastline and help mitigate the risk of damage that future storms may bring.

Part of the $250 million in awards during the first quarter, includes the first phase of the Savannah Harbor expansion project, which I am very pleased that we have been awarded. This is a $135 million, multiyear project that will begin later this year, with completion targeted for the summer of 2018. Similarly to what we saw in the funding in the Port Miami project, the State of Georgia took an early and active role in bringing this project to fruition, having committed $266 million of the total project costs.

As the Panama Canal deepening project continues to near 2016 completion, ports are becoming even more aware of the need to have a port deep enough to accommodate post-Panamax vessels in order to stay competitive. We remain confident that this competitive pressure will lead to potential major port deepening projects over the next decade, with projects continuing at a measured pace.

Looking ahead to future bidding opportunities, we remain optimistic. The Corps delayed some projects that we expected to be tendered in the first quarter, but we believe these projects will be bid later in the year. Generally speaking, we are optimistic that bidding activity will begin to pick up in the second quarter compared to the first quarter and will accelerate in the second half of the year.

In the Gulf, some of the early NRDA funding that BP set aside, has been released and the states impacted by oil spills are moving forward with major restoration projects. Longer-term, we remain encouraged that there will be an even greater opportunity in the Gulf, once the BP trial concludes and the RESTORE Act fines are paid, however, the timing of this is uncertain.

And despite the changes in the energy markets, some of the LNG projects in the Gulf that we have been tracking, still appear to be moving forward.

On the East Coast, we also anticipate seeing some Sandy related coastal protection work to be tendered in the second half of the year. As we have previously stated, approximately $5 billion in funding was appropriated after Superstorm Sandy. Approximately $1 billion has been spent to date. There is no time limit on using this funding.

Earlier this year, the North Atlantic Division of the Army Corps, published the U.S. Corps of Engineers' recently completed report, detailing the results of the two-year study to address coastal storm and flood risk in the region affected by Sandy. This report will set the foundation for future work.

Let's turn to Washington for a moment. Investment in domestic maritime infrastructure continues to win more attention and appropriations. As we all know, the federal budget process is quite complicated. But, we are very encouraged that the House, Energy and Water Development, EWD Appropriations Subcommittee approved its spending bill for the Corps' at its earliest stage in 40 years, thanks to the leadership of House Subcommittee Chairman, Mike Simpson.

Supported by a House Amendment by representatives Hahn and Huizenga, the bills' fiscal year 2016 appropriation of $1.25 billion hit the HMTF spending goal established in WRDA. This amount is a record and is 14% higher than last year's $1.1 billion and well above the $915 million that the Administration requested from the HMTF. The budget discussion now moves to the Senate and we are working very hard with others in our coalition that the final budget will maintain those levels.

We also continue to be encouraged at the high level discussion and knowledge in Congress concerning the Harbor Maintenance Trust Fund. We note that Congressman Charles Boustany continues to lead and articulate the Harbor Maintenance Trust Fund reform message and is pleased with the success of his initiative.

Now let's turn to the environmental and remediation segment. As we discussed, the environmental and remediation segment had a challenging first quarter. As Mark stated, we budgeted a loss for this business segment, but the actual loss was greater than anticipated. Despite being based outside of Sacramento, California, Magnus' business experiences cyclicality during the winter months, with the cold, rainy and damp weather affecting the business. California actually has restrictions in place, prohibiting work on the levees and dams during this time of year. Magnus therefore, in a sense, magnifies the impact of seasonality in this business segment.

Compared to its historical first quarter performance, Magnus' first quarter results are in line with expectations and we expect to see a marked improvement in the next two quarters, similar to its historical performance, with the business peaking in the third quarter.

Over the last couple of years, we have made multiple investments for growth in our environmental and remediation business. The combination of investing two rapidly in our previously acquired business and the slowdown in the oil and gas end market, contributed to not capturing anticipated revenues from these investments. We recognize that the investments we made, need to be rationalized over the combined business and we are working aggressively to identify areas where costs can be rationalized.

As Mark discussed in great detail, some of the change was in claims in this segment and I'd like to briefly comment on it. Unlike the dredging segment, change orders in the environmental and remediation business are expected and routine. We will do our best to minimize them by ensuring that contracts are negotiated in a fair manner and that we receive acknowledge from the client when a change order is necessary, so that we have an opportunity to be paid promptly for our work and to be fairly compensated when a change in conditions arise.

As this segment is fully integrated, we expect to manage the change order process in the segment. However in the interim, they may have a meaningful impact on the variability of quarterly results.

Finally, I want to take a moment to discuss the segment's backlog of $104 million at March 31. Both Terra and Magnus increased their backlog by more than a third compared to year end. And while Magnus is still continuing to finalize an agreement on the last two years of a significant mine remediation project, it has already received a $17 million work order to begin mobilization and early work for this large scale project.

Once this contract is finalized, Magnus will have over 90% of its budgeted revenue in backlog in 2015. Terra's backlog puts it in a stable position as it moves into the second quarter. Terra is bidding on several projects that would grow their backlog significantly, of which some need to be captured to hit our 2015 plan. I am very encouraged that Terra and Magnus are pursuing some considerable opportunities jointly at this point.

Our expectation for the segment's annual performance and long-term outlook is positive. We are confident that diversification is critical to smoothing out the volatility in our dredging business and profitably growing the company. And the environmental remediation business is an attractive, complimentary market that will create value for the company. We will build on our 125 year tradition. We are committed to being a successful land and water based environmental dredging and remediation provider in the United States.

Finally, as Mark indicted, we expect 2015 to be a significant improvement versus 2014 results and are confident in the guidance we shared in the press release and earlier remarks. To conclude, we would like to take this opportunity to thank our stakeholders for your dedication and commitment and I'd like to reiterate our steadfast commitment to delivering a strong performance for the rest of the year.

With that, we'd like to open it for questions.

(Operator Instructions) Scott Levine, Imperial Capital.

Just want to dive down on the remediation business a little bit more. I think you had indicated, Jon, that there was a little bit bigger loss than you anticipated in the quarter and that these contract charges are routine in the business. But really just trying to get a little bit better sense; was it much below guidance? And is your outlook for this year much different than what it would have been, in theory, if you'd issued this guidance on the fourth quarter earnings call? Just looking for a sense of how these results are coming in, relative to your expectations.

Great question. When we did the transaction, we actually bought a few claims. We need to work through them. We have a couple of contracts that we've picked up some claims, I believe. On the Terra side, those will be negotiated out, because the project is coming to conclusion in the second quarter.

I don't believe our guidance would have been tremendously different. We knew Magnus was coming in the year with significant backlog, as Mark said, margins that are consistent with where we expected them to be. Terra has a little bit of work they have to book to get us where we want to get them. And they've had some slowness in the oil and gas segment, both in the work they do in upper Michigan and the locations that we opened in Cushing, Oklahoma, where there's obviously the big oil and gas storage, where they do a bunch of tank cleaning work, with the record amount there.

I don't believe we'd be tremendously different in our guidance today where our guidance is for the full year now.

Turning to dredging, you pointed some positive developments in the budgeting front for the Army Corps. You had a strong first quarter for bookings but are guiding to part of the back end of year for the Army Corps. Can you characterize how you see the full year bid market in 2015 and could it be better than 2014, given the strength in Q1 with the huge win rate coming off of Savannah?

I think 2014 was an exceptional year. We've seen the Army Corps push back a big beach job in New Jersey and that's probably a nine-digit kind of project. So, we think it will be a good year for bidding. We expect to see some things coming out in the Gulf, but I don't think it's going to be a "better year" than 2014.

But somewhat comparable all-in?

Yes, I think plus or minus, that's probably a fair statement and then it's just will we see any private work in the LNG or work like that coming out.

Ali Hemming, DA Davidson.

I was wondering if you'd talk a little bit about the timing you expect for the environmental segment, in terms of potential ramp up of margins?

I think we mentioned that they really see the peak in Q3 for the environmental business, really for both pieces there it's very similar. So see a ramp up in Q2, with Q3 peaking and then Q4 kind of similar to Q2.

We've talked about this before and I want to be clear, one of the long-term goals we have is to smooth out this revenue, so we have got to do a couple of things and most importantly is build work outside of the geographic regions they are. Because in California and the Pacific Northwest, where Magnus has real strengths, you just can't do their typical work during the winter months. And then obviously the Midwest, where historically, Terra has done most of their work, again, it's very hard to work during those months.

So we're working real hard on integrating them and as we integrate them with some of the opportunities on the water, we think long-term we'll be able to balance that out a little bit.

(Operator Instructions) Rick D'Auteuil, Columbia.

Last quarter you had a number of contracts and change order issues, I think primarily in the E&R business, you layered on some more this quarter and I believe you thought you would have some recoveries as you negotiated and maybe one was going to require litigating but can you bring us up to date on the status of that?

And then I'd love to hear how much of that is in your EBITDA guidance on the recovery side versus that being upside, if in fact it happens?

Very good question. We really haven't realized anything yet. The big change orders or claims at Terra should be negotiated in the second quarter, because that project is coming to conclusion and the expectation is that the land will be sold. So I expect in the second quarter, that one will get resolved.

And in Magnus, we are working through the change orders and I hope they'll get there in the second quarter. But to answer your guidance questions, none of that was included in our guidance range. We did not forecast any of that. So if we receive those and we don't have major claims coming out of the back end, it potentially is upside.

It sounds like there was at least some talk about recognizing that the NR business has systemic change orders as part of its business line. Is there a way, internally, procedurally to address those proactively so we don't get caught in this catchup phase?

Let's not forget that all construction really has change orders. The luxury of dredging is your client is the Army Corps of Engineers and it's so prescribed that there's a very clear process and there isn't significant change orders there, because we've been doing it 70, 80, 125 years with the Army Corps. Whether it's us, whether you're a road builder or anyone else, there is always change orders in construction.

But, absolutely. We've spent a significant amount of time since both acquiring Terra and Magnus, of instituting from a contract management standpoint, from inserting our internal legal department in the process that we will speed up the process in claims and at least have it very well documented. And actually part of our ERP system and all the systems we're putting in place is to also help with that so that we capture the cost much more quickly than we have in the past.

One of our strengths, we believe, will be our ability to manage that process better than they did as individual companies.

The one that could potentially go to litigation, is that still on that track?

Yes.

And that is highly unlikely to be resolved this year, right?

I would say that, yes.

Rick, I do want to point out that at the end of the day, most of these don't go to trial. Some you negotiate some things because it's pretty cut and dry. Others, you go through a process but very rarely do you actually go to trial. I will tell you, the best companies, change orders could and should be good things for the company. You tend to get additional income at higher margins, so we just have to make sure that we become one of those companies that manage through this change order process profitably.

From past experience, it sounds like when you quantify a number and you put it out there to us, you end up expecting $0.50, $0.60 on the dollar on the recovery side; that probably isn't great margin business if that's the case.

That's claims versus change orders; two different things. You have to separate the two of them.

On the diversification effort, I think utilities were one of the targeted end markets. Do you have any successes there yet?

Yes. We are doing some work. We had one joint project for a major utility that included both our dredging and environmental work. That got put on hold, because they found a mechanism to short-term deal with the problem they have. But we're going to redirect that with them in the fall. It was a pilot project and actually we produced at a higher level than we were supposed to and it was successful. But they had a short-term way to do it cheaper.

But we think long-term, they're going to have to come back to us. Our rivers and lakes division is starting a project in the fall for a lake. It's a dredging project but it really involves providing water for another nuclear power plant in Arkansas. So the answer is, we're making some headway there.

We are focusing some of our sales and marketing people on the environmental side specifically on that. We're doing a project right now for the TBA and I believe we have some of our environmental people meeting with them later this week. So we are making some progress and long-term, we like that marketplace.

Xu Tang, Morgan Stanley.

Can I just clarify a couple of questions? The contract scope change in Q4 with the brownfield redevelopment project in New Jersey, is that Magnus or Terra?

That's Terra.

With this quarter, with the $1.4 million contract loss at the (inaudible) redevelopment project, is that Magnus or Terra?

That's Terra.

Can you provide a breakdown of your long-term debt between your revolver and the senior unsecured debt? And as you said, you want to implement some initiatives to smooth out the volatility of revenue, when you do that, how much CapEx do you think you'll be incurring on an annual run rate basis.

I'll let mark address that question in a second, but the smoothing out of revenue is really not a CapEx issue; it's really just better utilization of the assets we have in both the physical and the intellectual and people assets throughout the year. So it's not a CapEx. We don't see it as an investment to be able to smooth out revenues.

We have, as I mentioned, $20 million on our revolver at 3/31/15. We have $275 million in our senior notes. We have about $45 million on our loan for the ATB that we took out end of last year. So it should be the big pieces.

And our revolver is really a working capital line and used for our line of credit for project support, so that really isn't long-term.

Looking at your senior notes, it becomes callable and thinking of the capital structure going forward, what are some of your thoughts around that timing?

The notes, obviously you can call them at any time now, but I think the premium is about 3 and change and [1.03] plus something. We spend time looking at that. I think it steps down in January of next year to [1.01]. They come due in 2019, so we'll do something before then. We spent a little time last fall looking at it at 1.03 and it didn't make any sense. We'll do that same analysis again in late fall here, when it steps down to 1.01 and just depending what the market is like. I think that gives you a different view just because of the premium to fall back on.

We'll continue to monitor it; we do. We're certainly not under any pressure to do it, but when the time is right, we'll do it.

Stephen Hansel, Eclectic Investment Partners.

I think you all have done a wonderful job in obtaining work but a much less wonderful job in making it profitable over the years that I've followed the company. I'm curious in terms of who you're looking to, within the contracting industry, generally has models for how to significantly improve that performance?

Let me take that in two segments. I'll start with the dredging segment. Domestically, we are the best performing dredging company and we're the only one that works internationally and we spend a good bit of time working with three out of the four, at least of the big Dutch an Belgium companies. We certainly work with them and we do joint ventures with them. We do projects with them So we certainly look at them.

One of the things that we have been wrestling with for a very long time is we have a set of equipment that is old, getting older and cost a lot to maintain. We have tried to be disciplined over the last three or four years to get rid of equipment that we thought was not providing an adequate return on assets.

We've invested in some equipment that we think is going to have a meaningful change in our ability to generate return on those assets. But it takes a long time to move that ship. But over the last three to four years, this management team has gotten way more focused on return on assets and that's why we sold assets, which is a total change than people in the past have done.

On the environmental side and remediation side, it's a work in process, but our investment in that business is nowhere near the capital investment of the dredging side and the returns that it should provide will certainly support the investment from a return standpoint going longer-term.

The other part is that as a public company and one that works worldwide, we have a certain amount of capital overhead, G&A overhead, excuse me, that we have to spread out over a higher revenue base. We have to grow the topline revenue to be able to spread that over time. Those are the strategies we're doing.

Certainly we need to do better. I don't think there's any argument, Steve, but we think we're getting closer and certainly getting rid of some joint ventures and recouping those investments and reinvesting them. Getting rid of NASDI, which was a bad performing company, getting rid of older equipment, are all geared towards us driving a better return on equity and return on assets.

I was going to ask if the equipment issue -- I knew the equipment was old, but it doesn't appear, just from the bid result, that anyone is coming at you with equipment that's materially better enough that they're winning bids that you would otherwise win; is that fair?

Certainly Weeks is making investments. They've made investments in a cutter. They're making investments in a hopper. The nice thing is we have the luxury of the market starting to grow for us nicely. We see a positive long-term market size.

Even since I've been here, we see the cost of maintenance is growing on this big fleet and our guys spend a great amount of time studying that and seeing how we can drive it down. One interesting thing I think you have to look at; we're seeing projects moving into our wheelhouse of bigger projects, longer-term projects, use of a bigger suite of equipment on projects. But the one thing that you have to think about there is you're only as good as your weakest link. So when you have a 6, 7, 8 key pieces of equipment on a project and especially long pumping and something happens, it affects a bigger suite of projects.

That's why maintenance and the work we've been doing on the maintenance and kind of focusing on that long-term, has to be part of our strategy and we have to learn how to do that better or we have to be able to rationalize some of our equipment.

But there is some building going on besides our ATB. Long answer to a short question. Weeks came out with a new cutter. They're building a hopper. They started before us but they've had some problems so their hopper is probably going to be out a year after ours. There is a couple of clam shells they even put into the market or are being put in the market.

The answer is, people are looking, but the market is also growing so that's a positive.

Thank you very much. We're rooting for you.

John Tanwanteng, CJS Securities.

I'm just trying to clarify, how much do you currently have outstanding in terms of change orders and claims, across the businesses and what percent do you expect to realize this year?

Mark tells me there's about $7 million or $8 million in the E&R business. We have not budgeted in our guidance any of that. I hate to speculate on what we'll get.

If it comes through, is that 100% operating margin or is there some other stuff that comes out of that?

Anything we pick up, the way we account for it, all the costs, we take when we do the work, so that all just drops directly.

I just wanted to touch on the dredge that you bought in the quarter. Can you talk about the motivation behind that?

It was just coming off lease and I think the economics of it were better to own it versus to re-lease it.

Going a bit further, spending, you obviously have the ATB that you're working on. What's the target for debt and cash levels through the next couple of quarters and maybe exiting the year? How are you managing that, including the revolver and everything else?

ATB loan, we make a principle and interest payment every month, so that will drop down through the year. With the improved performance of the company, we look for the revolver to be down close to zero, as it was at year end.

First quarter, with it being a little slow, we make a big interest payments on the notes. Expected to draw a little bit on the revolver, but we look for not much change in that.

Rick D'Auteuil, Columbia.

In your outlook you talk about on the environmental and remediation side of the business, rationalizing the overhead. What's the timeframe for that and what are you looking to take out in the cost side of that?

Good question. We obviously probably invested ahead of some of the markets in our acquisition from two years ago, in acquiring Magnus. The first integration we did was to get them on our systems to do some basic HR and do some planning. What we're looking to do now is to basically move towards fuller integration.

That includes all the sales and marketing. That includes equipment where possible, to get out of rental equipment when we can, even though during their busy season it's impossible not to, but to rationalize that. Also to better utilize project management staff, because the skillsets can go across both service lines.

But there is a set of costs, probably $1 million to $2 million from where we were on standalone entities that we expect to get out of that. And we're working on that right now. We've probably put in place, certainly in Terra, at least that already from our original budget and we think we should have our full line of sight in the next four to six weeks on the rest of it.

So even in the back half of this year, we'll see some benefit to that?

Yes, for sure.

I'm not showing any further questions. I would like to turn the call back to Mary Morrissey, Investor Relations.

Thank you. And thank you, everyone for joining us. We appreciate the support of our shareholders, employees and business partners. We're glad that we had this opportunity to discuss some important developments and initiatives in our business. We look forward to speaking with you during our next earnings discussion in August. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program and you may all disconnect. Have a great day everyone.