Great Lakes Dredge & Dock Corp (GLDD) 2015 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Great Lakes Dredge & Dock Corp. Quarter Three 2015 Earnings Conference Call. (Operator Instructions) As a reminder, this call may be recorded. I would now like to introduce your host for today's conference, Ms. Mary Morrissey. Please go ahead, ma'am.

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 and nine months ended September 30th, 2015.

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 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.

On today's call, we're changing the format just a bit. Jon Berger will begin by reviewing the recent developments and providing some high level commentary on the company's performance. Mark Marinko will then provide a detailed review of our results for the quarter. Jon will then conclude with commentary our third quarter results and outlook going forward.

With that, I'll turn the call over to Jon Berger.

Thank you, Mary. Before I comment on the results of the quarter, I'd like to address a few points related to our recent announcements. As most of you know, we announced last month that the board of directors initiated a process to review potential strategic alternatives to maximize shareholder value. To assist in this process, the board has retained Greenhill & Co. as our financial advisor. Notwithstanding this announcement, we remain committed to leveraging our strong position in the dredging business and improving the performance in our E&R business to drive better financial results and shareholder value. Now I know a lot of you will have questions related to the strategic review, but I want to be very clear that we won't be commenting on or speculating about the timetable or potential outcomes.

In terms of the recent changes to our board and management team, let me provide a bit of perspective. In mid-October, we welcomed Bob Uhler to our board. Bob brings tremendous experience in engineering and construction. We are confident his experience and expertise will be invaluable across our entire business line and particularly in relation to our E&R operations as we adjust to challenges we faced in this segment.

We also announced the appointment of Major General Michael Walsh as Chairman, replacing Nathan Leight, who stepped down. Since joining our board last year, Mike has been a valuable contributor and we look forward to benefiting from his continued guidance and leadership as chairman.

I'd like to take a moment to thank both Denise and Nathan for their service on Great Lakes' board. The company benefited from their insight and guidance over the years. I also want to reiterate that we -- what we stated in our filings. Neither Nathan or Denise's resignation resulted from any disagreement regarding the company's operations, performances, policies or financial reporting.

In addition to the board changes, Maryann Waryjas stepped down as Chief Legal Office to pursue other opportunities. I want to thank Maryann for her many contributions to Great Lakes and wish her well in her future endeavors.

Finally, with regard to the announcement of my plans to retire by April 2017, the board and I want to be transparent regarding succession planning. A board committee has been formatted to assist in the evaluation of internal and external candidates and I have committed to stay on until the board decides that a transition is appropriate.

Now let me give you some commentary on the third quarter performance. We continued to deliver strong results in our dredging division. We significantly built our backlog, which grew 43% compared to last year. In addition, operating income for the quarter increased approximately $13.9 million to $19.6 million, resulting in a corresponding increase in operating margin from 3.4% to 12.1%.

During the quarter, we executed on work internationally, which has been extremely strong for us over the last three years, especially the Wheatstone project and more recently, the Suez contract. We are currently pursuing meaningful opportunities internationally that would utilize a significant portion of our Middle East fleet. We expect these opportunities to provide us with very stable utilization for the next few years.

The project demand for all three dredge types appears stronger in 2016 than at any point in the last five years, which will lead to higher overall domestic fleet utilization. As we've said, backlog is at record levels.

Our new dredge, the ATB, is well on its way to completion and we believe the market could not be in a better position to support this significant increase in supply when it comes on line in the beginning of 2017. Clearly, the dredging business is much stronger than it has been and we are well positioned to continue to build on that momentum going forward.

Conversely, we are disappointed in both our execution and overall performance of our environmental & remediation segment. Our performance has not been acceptable and we are continuing to take steps to realign and rationalize our operations, improve our execution, and deliver more consistent results.

As part of our efforts, we announced in our press release earlier today that Chris Shea had joined our Great Lakes team as President of our environmental & remediation segment. Chris joins us from CH2M Hill, where he was most recently the president of their environmental and nuclear business group. He will be a driving force as we work on our realignment initiatives in delivering improved results to this segment. With over 25 years of experience in the environmental remediation industry, Chris' expertise and leadership will play a critical role as we move forward. The bottom line is we recognize we need to do a much better job with execution and we are relentlessly focused on that effort.

With that, I want to turn the call over to Mark to go into detail about our financial results.

Okay, thank you, Jon. Moving to the 2015 third quarter financial results, total company revenues in the quarter were $221 million, which is a 9% increase compared to the third quarter of last year and was a result of increased revenue in our environmental & remediation segment. Total company gross profit margin for the quarter was 11%, flat year over year. Total company operating income was $10 million for the quarter, up from operating income of $8 million from the prior-year quarter, with dredging operating income more than tripling, offset by a loss in the environmental & remediation segment.

At the segment level, as Jon noted, dredging had an excellent quarter. Revenue was down slightly by 3% in the current quarter at $163 million, with lower foreign, domestic capital and maintenance dredging, partially offset by slightly higher coastal protection and rivers and lakes dredging revenue. The dredging segment's gross profit margin improved to 18% compared to 11% in the third quarter of 2014, with improved utilization of our fleet, favorable project mix, and strong current track margins, particularly the Suez Canal project being the primary factors. During the same quarter last year, we also had two dredges in dry dock and lower utilization in the Middle East, which adversely impacted gross profit margin. Operating income in our dredging segment more than tripled compared to the same period in the prior year, increasing to just under $20 million for the quarter, primarily driven by the gross profit margin improvement. To reiterate Jon's comment earlier, we are pleased with the dredging segment's performance and we are confident that we are well positioned for the fourth quarter and into 2016.

Switching to environmental & remediation, segment revenue increased 63% to $60 million for the third quarter with Magnus adding a significant portion of revenue in the third quarter in 2015. As a reminder, we acquired Magnus in November of 2014. Negative gross profit was 9% in the third quarter of 2015 compared to gross profit margin of 18% in the third quarter of the prior year. Compared to the prior-year third quarter, gross profit declined $12 million to a negative gross profit of $5 million in the third quarter of 2015. Project delays, project losses, and lower levels of new work in this segment are the primary drivers for the negative gross profit.

Drilling down a little more, Magnus' two largest projects, which we discussed during our second quarter earnings call, were delayed during the third quarter, pushing the work into the fourth quarter and next year. As a reminder, the mine reclamation project in Washington State was delayed due to the Wolverine forest fire. During the third quarter, we demobilized over 160 people for more than 6 weeks. Additionally, we had over 200 individual pieces of equipment, which needed to be secured and left on site during this time. Approximately $15 million that was expected to be worked off in the third quarter was pushed out. We remobilized to the site in September, but with the winter approaching, we are demobilizing and will complete the project in 2016.

The segment's second largest project, which is the levy project in the Sacramento area, was delayed due to the discovery of archeological grave sites. Approximately $12 million of work was pushed out as a result. We have recommenced working on this project, but again the delay means that some of the backlog will be completed in 2016.

Gross profit was also negatively impacted by a $4.3 million project loss during the third quarter. Part of this loss was caused by cost overruns as a result of delays and deliveries of key materials.

Finally, a decline in the amount of work executed and an increase in operating overhead cost, primarily due to unallocated personnel costs, also contributed to negative gross profit in the third quarter of 2015 versus the third quarter of 2014.

The environmental & remediation segment reported an operating loss of $10 million compared to operating income of $2 million for the third quarter of 2014, primarily driven by the segment's negative gross profit for the quarter. $2.1 million of amortization of intangibles also impacted the operating loss. Clearly, the environmental & remediation segment's performance did not meet our expectations. As we discussed during the second quarter earnings calls, we are diligently moving forward and executing our realignment plan, reducing costs, and improving the performance of this segment.

On the balance sheet, at September 30th, 2015, we had $9 million of cash compared to $42 million at the end of last year and had drawn $28 million on our revolver. Total CapEx for the quarter was $19 million, with approximately $12 million for the ATB during the third quarter and the remainder spent on maintaining our fleet and other equipment additions. We have approximately $60 million left to invest on the ATB, which is expected to be completed by the end of 2016 and operational in 2017.

Turning to the dredging segment, the domestic dredging bid market for the third quarter of 2015 was $587 million, which is $24 million higher than the third quarter of 2014. In total, the company won 37% of the overall domestic dredging bid market during the third quarter of 2015, modestly lower than our prior three-year average of 43%. Year to date, the company has won 53% of the domestic dredging bid market. 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.

During the third quarter of 2015, Great Lakes won 96% or $156 million of the capital projects awarded, 7% or $11 million of the coastal protection projects awarded, 20% or $51 million of the maintenance projects awarded and none of the rivers and lakes projects awarded. Contracted dredging backlog at September 30th, 2015, totaled an impressive $645 million compared to a backlog at December 31, 2014, of $594 million. The environmental & remediation segment's backlog was $112 million at September 30th, 2015, a $37 million increase compared to yearend backlog.

Before I wrap up, just a word about guidance. As you know, we withdrew our guidance in mid-October based on the ongoing uncertainties we face in the E&R segment. While we are hard at work to improve our performance in that segment, as we stated in our press release, we do not intend to reissue guidance for the year.

With that, I turn it back to Jon to discuss some of the developments that may impact our business going forward.

Thanks, Mark. First, let me talk about the dredging segment. On the east coast, we successfully executed on several of the Sandy-related coastal protection projects in New York and New Jersey. Given our fleet and years of experience on these beaches, these are excellent projects for us. We still have Sandy-related work in backlog and importantly we expect to see additional Sandy-funded projects tendered over the next 12 months.

Let me turn now to some capital work. We worked on three port deepening projects during the quarter. The Arthur Kill channel in the New York port, the Miami Harbor deepening, and started on the next major port deepening project, the first phase of the Savannah Harbor entrance channel project. We are about two-thirds of the way through the $25 million Arthur Kill job and we completed the Miami Harbor deepening project during this quarter. The $135 million Savannah project will be completed by summer of 2018. Do not forget that there are environmental restrictions on when we actually can dredge. So we will not be dredging throughout the process.

Additionally, in the fourth quarter we will start work on the Delaware River deepening project, a $76 million project awarded to us in the late third quarter. Completion of the Panama Canal expansion is on track to be completed next year, which will continue to put pressure on the ports in the east coast and the Gulf to continue with their studies and plans to deepen and widen in an anticipation of the post-Panamax vessels.

Now let's turn to the Gulf. Towards the end of the quarter, we began mobilization of a $77 million Shell Island West Barrier Island restoration project and dredging commenced on a marsh restoration project at Jesuit Bend. Subsequent to the end of the quarter, we were awarded $103 million Whiskey Island restoration project on the Gulf Coast, which is being funded by the Deepwater Horizon NRDA early restitution funds. In October, the long-awaited Deepwater Horizon oil spill sediment was finalized, totaling $20.8 billion, including the NRDA early restoration funds that BP already paid. The dredging industry will benefit from this settlement for many years to come as funding is now available for many projects the states in the Gulf region have been planning to rebuild, restore, and to protect their coast line. I cannot speculate, however, on how much funding will go towards dredging projects or over what timeframe, but it is clearly a major opportunity for us in this region.

Let's go internationally for a moment. Internationally, we completed the Suez Canal project that we worked on with our joint venture partner. The strong production rates enabled us to complete the project ahead of schedule, leading to higher-than-estimated margins. We demobilized our fleet off the site in October and are in contract negotiations on a project that would utilize a significant portion of our Middle East fleet for an extended period of time.

During the third quarter, we were awarded several new contracts, resulting in our record backlog. Some of the larger wins included Delaware River deepening and the Corpus Christi LNG project, a sizable job for a significant private client. As I said in the beginning of this call, we believe that the fleet is in a better position to be better utilized over the longer term than at any point in the last five years.

When we substantially built up our backlog during the fourth quarter of 2014, a lot of this work was for our hopper dredges and we still had softness in our utilization schedule for our hydraulics mechanical dredges. With our current backlog, we have significantly more of our mechanical and hydraulic fleet in addition to our hoppers scheduled out into 2016. It is an exciting time for the dredging industry and with our diverse fleet and focused business strategy in dredging, we are well positioned to take advantage of the surge in demand in the markets in which we compete. Finally, with the addition of our fleet of the ATB expected in 2017, we have continued strong and incremental growth in revenues and free cash flow.

Now let me turn to the environmental & remediation segment. Fortunately, we believe the two project delays in our largest jobs are behind us. Going forward, we will continue to take steps to rationalize our operations, improve our execution and deliver more consistent results. With the hiring of Chris Shea to lead the business, we are confident that we can continue to implement our initiatives to improve performance on the E&R business, which will ultimately drive value regardless of the outcome of our strategic review.

Chris most recently was president of CH2M Hill's remediation and nuclear business. His background includes significant hard bit contracting experience in our markets and is a well-known professional with deep expertise and contacts in this business. We are also extremely pleased to have Bob Uhler join our board to help provide guidance to us with special emphasis in the E&C space. Bob had an illustrious career that included running MWH Global, a very significant environmental engineering firm with a specific strength in water projects.

Despite the disappointing performance in E&R, we are focused on executing our base plan to deliver improved results and drive value. With the growth in our backlog, stronger positioning in larger markets, as well as the fact that we have important new equipment coming on line in the near future, we are confident in our ability to continue to capitalize in opportunities that lie ahead in dredging. On the E&R side, with the addition in new leadership and continued focus on realigning the business execution and reducing costs, we are committed to improving our performance.

With that, I will open it up for questions.

Thank you. (Operator Instructions) Jon Tanwanteng, CJS Securities.

Good morning. Thanks for taking my questions.

Sure, Jon.

Given the strong backlogs and your comments on expected utilization, can we assume that total dredging revenues and more importantly operating income are going to be directionally higher next year? Also, is that dependent on winning those international projects you're talking about?

As Mark said, we're not going to give guidance yet, but certainly our domestic fleet, we believe, will be better utilized and we are a fixed asset business. So you'll make that conclusion. The project that we need in the Middle East that we've been talking about, we need to get that signed up. When we do, we think we will have a significant portion of our equipment scheduled out and give us added flexibility internationally for a good period of time.

I do want to point out, though, that the Wheatstone and the Suez contracts were exceptional margin contracts. We can't always expect to have those exceptional margins. But the projects we're bidding are solid margins internationally.

Okay, thanks. From a historical perspective, you weren't able to receive much when you guys disposed of the demolition assets. How should we think about the value of E&R on a standalone basis, if you do decide to sell that?

You know, Jon, I just think it's too early for us and we don't want to comment on the strategic alternatives.

Okay, fine. Mark, just from a line item standpoint, SG&A has been around $15 million, $15.5 million for the past two quarters. I assume that's because of the issues you had in E&R. What should be a more normalized rate look like?

So if you look at it on a year-to-date basis with the G&A, you can -- we obviously have some cost reductions in there and maybe I should comment a little bit about that. Cause I think this question will come up and it does have an impact on G&A. Related to our efforts in the realignment on E&R, we've identified $3.6 million in annualized expense reductions in the E&R segment annualized. But additionally, we have identified areas that we need to make investment for opportunities there. That totals about $1.6 million annually. So, this results in kind of a net annual savings of $2 million.

Okay and just on the interest expense, which stepped up quite a bit quarter over quarter, what went into that and what should the quarter --?

Yes, we had a catch up entry of about $900,000 in interest in the third quarter that should have been there in the second quarter. So, you can look at the year-to-date number and that should extrapolate out to an annual number. It's all caught up year to date.

Okay, great. Thank you very much.

You're welcome.

Thank you. Matt Duncan, Stephens, Inc.

Hey, good morning, guys.

Hey, Matt. How are you?

Good, thanks, Jon. So, look I certainly understand why you wouldn't want to give guidance, sort of it's difficult to predict what happens with E&R right now, but I would think that dredging you've got a pretty good idea what that business is going to do. Would you care to sort of share your thoughts on what revenues and profits might look like there? Part of what I'm getting at here is the 18% gross margin you had in this quarter in that business was exceptional. Year to date, you're running quite a bit higher than where you've been from a margin perspective, gross margin, the last three years. I just want to make sure we don't extrapolate if we shouldn't. Just talk a little bit about sort of what you're expecting out of that dredging business both for this year? You know you've talked, Jon, about a strong bid market there, so just sort of thinking big picture in the next year?

Yes and it's safe to say that -- and I think we highlighted that the Suez Canal project was a very significant project and I think we will in next year replace that revenue but probably won't be at the same margins. Domestically, I think we're going to have more of our fleet busy for the year than we've had in the last few years and we're a fixed asset business. So, we're looking for encouraging results in 2016 on our domestic side. But the one caution I want to give you is that international project was a very good margin project but you know we expect to perform well in 2016 on our dredging side and we expect to have more of our fleet busy. In a fixed asset business, that's extremely important for us. Mark, is there any other--?

No, I think that -- I think the big thing is, yes, what you mentioned about Suez was an exceptional project in the quarter. So, we need to factor that in when we talk about the operating margin.

Well, Mark, let's just be clear here. How much did the close out on a good performance job help gross margin in this quarter? What would it have been if not for that?

Sorry, we don't talk kind of individual projects, a lot for competitive reasons. So, I can't give you that number.

Okay, but the point is, we shouldn't assume this 18% gross margin level is going to continue?

I think that's fair to say that that, in the quarter, that project and very high utilization in the quarter, you could make that assumption, yes.

Okay. On the E&R side, hoping we could dive a little deeper into sort of what's going wrong there. Is this business just broken at this point or is it really suffering from the timing of work primarily?

So, this is Mark, so yes, we mentioned the two project delays were big factors in the quarter and they are the two largest projects in E&R. These projects are profitable but now they get pushed out into a little bit of work in fourth quarter but then they have to demobilize related to where they are for the winter and it gets pushed to 2016. So you have that factor. Secondly and that is behind us. We're working there, both working there in September and October on both of those jobs. But you also had a project loss in the quarter and that was -- again that should be behind us now but that was a large loss. It was $4.3 million in the quarter. Then the other piece, the third piece, is we weren't getting the additional new business that we anticipated. When that happens, you have higher unallocated costs. Again, that kind of goes back to -- related to some of the cost reductions we need to make to realign that business.

Okay, so Mark that last piece then that carries forward from here until we see some of those larger projects get awarded. What are your current thoughts on the timing of those?

The timing of what?

Of some of the bigger projects that you were expecting to maybe add to backlog that you haven't yet. Are those still out there? If so, when do you think they may be awarded by the customer?

I mean we are -- one project we did anticipate on has been out for -- we didn't lose. It went out for rebid but I -- or will go out for rebid but I don't have a timing on that yet. So, but we are actively bidding a lot of jobs right now.

Matt, this is Jon. It's an extremely active bidding market right now for us and certainly one of our strategies was to bid some work down where we can utilize and maybe balance our seasonality a little bit we are doing. Fundamentally, we have a lot of work to do to get this business back to where we expect it to be. We've spent a lot of time doing that and realigning that business. We think we're in a much better position. Additionally, I think bringing Chris on was the final piece of that game plan. Chris has extensive experience in these businesses, actually running a business that was significantly larger than our business is right now and is a very well known commodity in our business. So, he's extremely going to help myself, our Chief Operating Officer and we thought it was very important to get him on. So, do we have work to do to get this business performing better? 100%. We're not happy about it but we think we're pulling a lot of the other levers to create shareholder value here.

Okay, got it. Thanks, guys.

Thank you. John Rogers, D.A. Davidson.

Hi. Good morning.

Morning, John.

Couple of just follow-up things. First of all, I guess maybe for Mark. The equity income line in the quarter, what is that -- is that tied to the environmental business?

No, the most -- well no, that's actually mostly tied to a joint venture that we have on the dredging side of the business.

Okay and which joint venture is that, Mark?

TerraSea.

Okay.

Yes, we do have a pretty fulsome disclosure in our 10-Q.

Okay that's what I wanted to make sure. Okay. Then on the pending awards, you've got the $103 million that subsequently awarded, but what was the total at quarter end?

What was the pending awards at quarter end?

Yes. Usually you give us that number. Where you've been low bid but it hasn't been awarded yet.

I have that number.

You know I don't think it was -- it was. I don't think it was that much. My guess is -- well the Whiskey Island that was -- was that awarded after the quarter end, but we were low bid before then or it was bid after? We were low bid in September but it wasn't a Army Corps project. It was a state of Louisiana project. So we probably didn't emphasize that as much just cause, you know, the Army Corps you can pretty much bank on them.

Sure.

So it was really only like $16 million. Yes.

Okay.

(inaudible) the Whiskey cause we really only include the Army Corps projects.

Okay, fair enough. Jon, is there -- was there another piece of the or of the Suez project, cause I'd seen your name mentioned with that?

Yes, there is [either] a modification order that our joint venture is looking at doing. We're negotiating cause it's not going to be our equipment on it, but it is the joint venture.

How much is that worth?

We're still negotiating so I can't really give you that number and it wouldn't be prudent as we negotiate.

Okay, but I mean scale wise, it's not as big as--

It's not material for us to be fair.

Okay. That's just wanted to understand.

Yes, absolutely, John.

Then in terms of the capacity utilization that you're looking at in 2016, as you've got it scheduled out now, are there significant dips or transitions in there through the year that we should be aware of?

There's always --

Yes.

Holes in our schedule as you can imagine. I will tell you that we're sitting here today with more of our fleet scheduled in 2016, especially in our cutters and our hoppers, or our hoppers are so significantly and it's been a very strong hopper market. We've talked about that for some time. But our big cutters, especially down in the Gulf, some on the beach than in the past. These are big projects and they have long times to work. So don't forget that gives us flexibility when other projects can come out to bid that, you know like the Savannah project. Obviously there's some windows, but with that flexibility we will continue to bid good projects and be able to move around our schedule. But as we sit today, we are extremely encouraged by where other parts of our fleet that probably were not as utilized in prior years are today for next year.

Okay and I guess I'm asking, Jon, also in the spirit of you know what sort of weather and seasonality risks are we going to have, especially first quarter?

You know there's always weather. We're doing a lot of work in the Gulf. You know the northeast is obviously a weather issue for us in the winter. But there is a lot of work in the Gulf right now.

Okay. Then on the delayed environmental projects, are these, the delayed the costs associated with that, are those being reimbursed? Have you taken charges for that?

It depends on the project.

Are they still profitable projects, I guess?

Yes, the projects are fine.

Okay.

It depends on the project. Don't forget even if you are, you're reimbursed for costs. You're not reimbursed for profit and things like that. But these are still profitable projects. Not an issue with them. Just pushed them out and any costs that we would have incurred would have occurred during the quarter.

Okay. Then lastly and I know you don't want to comment on the outcome of the review or guidance. But can you at least comment on why you're doing the strategic review? I mean what was -- what prompted the decision to look into this?

We just want to -- we want to be sure that we are maximizing our shareholder value. So, I think I should just leave it at that.

Okay, okay. All right. Thank you.

Thank you. Scott Levine, Imperial Capital.

Hey, good morning, guys.

Hey, Scott.

Morning.

So firstly, you know you talked at length, Jon, about the fact that you're -- you based on the projects that you've won that you expect the dredge to be -- the dredge fleet to be highly utilized in 2016. But focusing on the bid market, specifically, preliminarily what are your expectations there for 2016 and you know we likely looking at a comparable level of award activity? How does the current budget situation in Washington affect the outlook there for the Army Corps?

Yes, I think we expect the bid market to be consistent with this year. There's some nice Sandy work that'll be bid. There was some really good Gulf work that was bid. I think the Gulf States are just trying to get a game plan now that they got their money. Certain states are further ahead of each other. So our initial expectations are it'll be a similar market to this year.

Got it. Then trying for maybe a little bit more, a follow-up to earlier question on G&A. I think Mark you indicated what $2 million in net savings in E&R? Is that all on the G&A line or is that OpEx or maybe just looking for a little bit more color on G&A into some of these professional fees drive the number up there or is that not meaningful?

Well it's a split between overhead and G&A.

Okay, so I mean basically said another way, is 3Q indicative of what to expect going forward? Should we expect a little bit of an uptick there or down tick based on your best guess right now?

Well, I'm not going to -- I really don't want to talk about what's going forward. I don't want to -- so we're kind of not talking about the guidance and future. So, just from the cost cuts we talked about and it's also obviously impacted by some of the things that have -- what will happen in the fourth quarter related to some of these changes. So I can't speculate on what that number is right now.

No, I'll try a different way then. 3Q, the last couple quarters have been relatively consistent. Was there any like reversal of bonus accruals or anything unusual impacting results in G&A in the third quarter or is that kind of a just a--

Yes, we did do some -- sure talk about the third quarter there. You need to look at the G&A on a year-to-date basis. We did do some re-classes between G&A and overhead in our E&R business to consistently report G&A and overhead between Magnus and TerraSea. Should really look at that number more on a year-to-date basis.

Okay. Got it. Then lastly, could you tell us where you stand right now with respect to the covenant and maybe an update on your total CapEx plans for the year? I think you gave the rundown for the ATB but just trying to get a better sense of where you stand on the balance sheet and capital investment plans for the year, if you can provide?

Yes, so we're in compliance with our covenants at 9/30. So you know the main one we talk about usually is net debt to EBITDA. We're at 3.9 times. We have a covenant maximum of 4.5 times. CapEx, we talked about the ATB spend so far this year. We have some additional ATB spend in the fourth quarter but it should be consistent with what's been going on in the prior quarters this year. So no big movements compared to what we've done over the quarter or the other quarters this year. As I said earlier, we have about $60 million left to spend on the ATB going forward.

Do you have a total liquidity number as well currently or not?

I don't have that number with me.

Okay. Will follow-up afterward, thanks.

Yes.

Thank you. Rick D'Auteuil, Columbia.

Good morning.

Hey, Rick. How are you?

All right. So, the Middle East business, you have any sense of the timing of that? Cause we probably have some idle equipment there post Suez, right?

Yes, our expectation is before the end of the year. Just to be sure, we moved some of our equipment closer to the project to get it in country and not back to Bahrain. So, that should give you an indication that we feel pretty good that we'll get that started.

Is this the one that was contingent on finding the right sand or something?

Yes, yes. We've cleared that hurdle. Yes.

Okay, okay, good. So, you know I know you guys point out that this Suez and Wheatstone were strong margin business. But you don't point out some of the larger things that weren't as good. I think Miami fell into that category and presumably Savannah was bid better than Miami was bid. So I just wanted to at least get -- is that -- is my statement accurate in that?

I think -- yes I mean, I think you know we don't go into tremendous detail other than -- to get that. I think certainly the supply and demand at the time we bid Miami is way different than the demand now. So with higher demand and higher backlog, we obviously move up the margin curve on how we bid and the market allows you to take higher margin.

Right.

So there's no question that if you look at our backlog when we bid Miami, it's nowhere near what the backlog is now. So that should give you an indication of --

You know a fairer comparison would be, there's puts and takes in the year-to-date margin including some sub-margin business too, right?

Absolutely, but I think our margin in backlog has with our backlog growing as a percentage basis actually up ticked also.

Okay. Just going back to history a little bit, any progress on any recoveries from prior problem contracts on any of the businesses including the one you sold?

So we've been stating on change orders and claims in particular in the E&R business, no we don't -- we have not received any yet. We have $9.2 million of pending claims and change orders at 9/30.

Any prospect of collection this year or not likely?

It's difficult to say but they are being actively worked.

Okay and the business you sold, I assume you still had the opportunity to recover something from past problems. What's the status of those?

Yes, so, yes we have, as part of the business we sold, we did have some receivables that are still out there from the business we sold that we kept as well as potential claims. We have received some small dollars on that but not anything of significance.

Is there significance pending still?

Not on the claims side. We still have final -- you know as they close out the projects, final receivables that need to be there. But those are all on our books and so I don't see any material change to the P&L related to that.

Yes, to be clear. We took significant reserves against those. So, clearly I don't think any of us feel that we have any risk on our balance sheet from them.

Or upside.

Yes.

Okay. When you guys, I think it was a couple of quarters ago, we talked about a post the second acquisition in E&R, we talked about needing to reduce the seasonality and the plan was to open a bunch of offices in more temperate climates. Presumably, you went ahead with that and probably increased the overhead related to that on that business. What's the status of that and are we unwinding some of that expense or--?

The truth of the matter is, yes, we certainly have opened certain offices. They aren't that expensive actually. You know they're small, suburban offices with two or three people. We've certainly gotten some work. In the south, clearly the offices I'm thinking of in Florida to at least pay for themselves. So we haven't unwound that. What we've really looked at is redundancies between the two operations and how do we reduce those? As Mark said, we also took the opportunity to identify what I'd call weaker performers and got them out. So, we're continuing to execute on the plan to make it more consistent but it is important for us to drive work south of the Mason-Dixon to deal with that seasonality. I don't think that's -- I don't believe that's what's really hurt us in this operation.

Okay, is Christopher Shea on -- what does he bring to the table on bringing in new business, I guess?

Yes, I mean listen, he is a known commodity in this industry. He has deep relationships. Obviously, work is distributed both directly from clients and he had client relationships and from big influencers and he ran one of the biggest E&C remediation environmental businesses. So I had dinner with him last night and fully expect that given a little bit of time, he will be able to help us on the business development side in addition to the operations and the operation management side.

Okay. Then the project loss, I guess -- I first thought that was you didn't win a bid. But it sounds like it was business that you had internally and it came up for renewal and you lost it. I'm scratching my head on the unanticipated project loss, what that meant?

Yes, so no, it was an existing project in E&R. It was already actually in a loss position before the third quarter. We took additional losses in the third quarter. The big factor to that was there were delayed deliveries of our -- of bentonite, which is what we use to solidify our walls in that. But that's like a critical path piece of supply chain for us. When that happens, the project obviously has to materially slow down. But addition -- so that kind of impacts the quarter. But additionally, as we look at the estimate of that project going forward, we also have to finish by a certain time. So we have to put in additional costs to finish that project on time. So kind of has two increases to costs that weren't there prior to the third quarter.

Okay. But did you lose the business or you're just losing money on the business?

Losing money on the project.

Okay. Okay that helps clarify. Thank you.

Thank you. Matt Duncan, Stephens, Inc.

Hey, Mark, I was just hoping to clarify something you said earlier. On SG&A expenses, you said basically used the annual run rate to give us some idea on the fourth quarter. Is that right?

Yes.

Okay. Then, Jon, on the strategic review, look I certainly understand you guys don't really know where this is going to go at this point.

Correct.

But I don't know if there's any way you can give us an idea, are all options on the table here? Is there a certain outcome that you seem most focused on or would you -- or just can't say?

No, I mean, listen. We really aren't going to comment. But clearly the board, everything is on the table for them. But I don't want to presuppose where this will take us.

All right and then last thing, just free cash flow, Mark, where was it in the quarter? Where do you expect it to be for the year?

Shoot, I didn't -- that number I didn't have right in front of me. Sorry.

Okay, we can get it off line.

We could get it off line, yes. Sorry about that.

All right. Thanks.

Thank you. Justin Tasso, Oak Hill Advisors.

Hi, guys. Thanks for taking the question. In terms of thinking through the segments and summarizing some of the comments that I heard today, is it a fair representation that the dredging segment is generating north of $100 million of EBITDA on an LTM basis? Again, that's using some estimations on the breakout in D&A. Has record backlog with margins at or above year-to-date levels? I think I just heard that in response to a previous question. That's all before the new ATB comes on line, for which you're spending $140 million and would love to get, just remind us what you were thinking as it relates to the ROI associated with that ATB? Then I just had another question on the E&R side of the business.

Yes, well I'm not going to kind of go forward and give us some EBITDA expectations for the dredging operation. I will say though that we expect the ATB to be meaningful step function growth in our results and our performance. When we did the analysis to go forward with the ATB in 2011, the market was not as robust for the hopper business as it is now. So, our expectations are that the ATB will be a meaningful, meaningful contributor and incremental step up in the supply to the US and for our revenue and EBITDA. Mark, any other comments?

No, I think -- yes, we don't -- in the past we haven't given EBITDA even by segment.

Segment, yes.

Just in total.

But I think you hear our comfort level with where dredging will perform for the rest of the year and next year.

Got it and I did hear correctly that the backlog, the margin inherent in the current backlog is at or above year-to-date levels? Did I hear that correctly?

Our margin in backlog, percentagewise, is better than -- I think that was a discussion that we had earlier comparing to where it was and I think it was Rick or whoever it was, in kind of where we were in 2011. Certainly, as our margin grew, as the supply and demand curve kind of changed, our margin and backlog as a percentage is better than it's been in other years.

Got it.

If that kind of points you in that right direction.

Understood, thank you for that color. On the E&R side of the business, in recognizing that you're not commenting on strategic alternatives, to the extent that one of the avenues was to pursue a wind down and again not that there's an expectation by any means of that path. If you were to run the business for a wind down would you actually generate cash? If you started that wind down today, would that business generate cash over the course of that wind down? Some of that question, inherent in that question, is as it relates to some of the equipment that's used. Is there an alternative use for that equipment? If there's any liabilities that we should be thinking about, again, to the extent, the off chance you guys pursue the wind down?

Yes, Matt, I just don't feel comfortable commenting on any of the alternatives. I will say that the equipment is good equipment. There's certainly value in the entity, but I can't walk you through that or feel comfortable doing that at this point.

Okay, fair enough. Thank you, guys.

Yes, no problem.

Thank you. Scott Levine, Imperial Capital.

Hi, just a quick follow-up. You guys introduced the share buyback in September. I was hoping you might be able to elaborate on that? I don't know if this has been addressed on the call, but did you guys repurchase any stock in the quarter and/or do you have any plans to do so? If so, just general thoughts about how you're thinking about that and what led to the introduction of the buyback?

Yes, so the board authorized the plan or authorized the share buyback plan. You'll see in our Q we did do some small buyback in the quarter, but at this point we're not doing any repurchasing now.

Got it. Great. Thank you.

That concludes our Q&A session for today. I'd now like to call -- turn the call back over to Ms. Mary Morrissey for further any -- for any further remarks.

Thank you. We appreciate the support of our shareholders, employees, and business partners and we thank you for joining us in discussion about the important developments and initiatives in our business. We look forward to speaking with you during our next earnings discussion in February. Thank you.

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