Great Lakes Dredge & Dock Corp (GLDD) 2015 Q4 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Great Lakes Dredge & Dock Corp. Q4 2015 earnings conference call. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Mary Morrissey, ma'am you may begin.

Thank you. Good morning, this is Mary Morrissey and welcome to our quarterly conference call. Joining me on this call are: Jon Berger, our Chief Executive Officer; Mark Marinko, our CFO; and Chris Shea, President of our Environmental and Remediation Segment.

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. Forward-looking statements can be identified by, among other things, the use of forward-looking language or the negative of these terms or other variations of these terms, or comparable language, or by discussion of strategy or intentions.

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 10-K for the FY14 and subsequent filings. During this call, we also refer to certain operating data along with non-GAAP financial measures including adjusted EBITDA from continuing operations, which is explained in the net income to adjusted EBITDA reconciliation attached to our earnings release and posted on our Investor Relations website.

Jon Berger will comment on the Company's financial results and operational performance. Mark will then provide a detailed review of our results for the quarter and year. Chris will then discuss the Company's initiatives and goals for the environmental and remediation segment and John will provide commentary on Dredging's outlook.

Jon?

Thank you, Mary. I would like to start off by commenting on the Board's strategic review of alternatives. As we announced in early November, we have retained Greenhill & Company to serve as financial advisor in connection with the process of reviewing the strategic alternatives.

The Board and Greenhill are working together at a deliberate speed, and rest assured this process has significant attention of the Board and all of my Senior Management, including Mark and myself. We are committed to evaluating all the alternatives in order to maximize shareholder value. Since it continues to be ongoing, we will not provide further information on this call, and we cannot speculate on when we will provide another update.

Now let me briefly comment on the fourth-quarter and full-year results. Our dredging segment delivered a solid quarter, finishing off what was an outstanding year by the team. I would like to highlight one project, certainly not our largest, that we worked on that included rebuilding a wetland habitat at Jesuit Bend in Louisiana.

This wetland reclamation was our first mitigation bank project that we participated in. It was unique in that the mitigation credits generated will be sold to entities in need of them to offset marsh destruction elsewhere in the region and we will participate in the credits when sold. We are pleased to participate in this important marine infrastructure project that will help save and restore the Louisiana coast.

This type of infrastructure work is a natural fit for GLDD. An example of private industry doing public infrastructure work, and I expect more of these types of opportunities to emerge in the future. In the environmental remediation segment, the fourth quarter continued to bring challenges, adding to an overall disappointing year for the segment.

Over the course of the year we took significant measures to mitigate risk to exposure and reduce cost. Project controls from bid to award and to execution have been implemented. As we announced late last year, Chris Shea joined the GLDD team as President of the E&R segment, which will provide a dedicated oversight and experienced industry leader.

Chris expedited the initiatives we began earlier in 2015, reconfirmed our strategy and added significant management experience to the team. I will ask him today to share his observations on his first 90 days with us and why he joined. But let me take a moment to say, I firmly believe that with the experienced leadership and enhanced controls and oversight in place, the environmental and remediation segment is positioned for substantial improvement in 2016.

With that I would like to turn the call over to Mark to provide more detail on the Company's financial results.

Thank you, Jon and good morning to everyone joining us. Recapping the Company's consolidated results, we posted $223 million in revenue for the fourth quarter, which is a 9% decrease compared to the fourth quarter of last year. The Company's consolidated gross profit margin for the quarter was 13% versus 8.5% in the prior-year period.

Operating income was $7 million for the quarter, compared to $3 million in the fourth quarter of 2014. Net loss from continuing operations was $835,000, compared to income from continuing operations of $20.3 million in the fourth quarter of 2014. Adjusted EBITDA from continuing operations was $22 million in the fourth quarter of 2015, down from $32 million in the fourth quarter of 2014.

With the 2014 results impacted by the $15.1 million gain on the sale of the Amboy land, which was recorded in the dredging segment. For the year, the Company's revenue was $857 million, a 6% increase over annual revenue in 2014. Gross profit margin remained in line with the prior year at 11%.

Operating income was also in line with 2014 at approximately $23 million. Net loss from continuing operations was $6.2 million, compared to income from continuing operations of $20.7 million in 2014. And adjusted EBITDA from continuing operations for 2015 was $83 million, up from adjusted EBITDA from continuing operations in 2014 of $77 million.

2015 results include the $7 million reduction in the seller note associated with the Magnus Pacific acquisition that the Company recorded in the second quarter, while 2014 results include the $15.1 million gain on the sale of the Amboy land. Taking into account these one-time adjustments, our adjusted EBITDA increased by approximately $14 million, or 23% from FY14. Now I will walk through the business-segment results to clarify what is driving our financial results.

The dredging segment recorded revenue of $175 million in the fourth quarter, down 17.5% compared to the fourth quarter of 2014. Fourth-quarter revenue of the prior year included several large capital projects, including the Port Miami deepening, the Suez Canal widening, and the Wheatstone LNG project. Fourth-quarter 2015 includes several large coastal protection projects in New Jersey and New York, capital projects in the Gulf of Mexico, and the commencement of the Savannah port deepening job.

For the year, dredging recorded annual revenue of $681 million, a slight decrease over the last year. Major contributors to revenue include several coastal protection projects to New York and New Jersey, capital work in the Gulf of Mexico and on projects on the East Coast, the completion of the port of Miami project in the first day after the year, and the completion of the Suez Canal widening last summer. The Suez Canal widening was truly a unique contract, with the participation of the world's largest dredging companies necessary to complete the project in a mandated 10-month schedule.

Contract margin on this project was higher than is typical, due to the client's compressed timeline, strong productivity and overall excellent execution. Compared to the fourth-quarter 2014, the segment's gross profit margin improved to 19% from 14%, largely driven by strong performance on several domestic coastal protection projects and work on the Suez Canal project. For the year, Dredging's gross profit margin improved to 16%, compared to 13% in the prior-year period.

The main drivers to the improvement in gross profit margin are strong project margins, particularly on the Suez project and on several coastal projection projects along the East Coast, as well as increased utilization of our fleet. Dredging's operating income improved to $18 million from $17 million in the fourth quarter of 2014, primarily driven by the higher gross profit margin. Last year includes a $15.1 million gain on the sale of the real estate owned jointly by our Amboy aggregates and lower main-joint ventures.

For the year, operating income was $64 million, compared to $42 million, again primarily driven by the improvement in gross profit margin. In our environmental and remediation segment, the inclusion of Magnus led to increased revenue in the fourth quarter and for the year. The segment recorded negative gross margin of 10% for the fourth quarter, an improvement compared to the negative gross margin of 23% in the fourth quarter of 2014.

In the fourth quarter of 2015, the segment experienced $4.6 million in losses on three projects. One project remains in backlog but is substantially complete. For the year, the segment's negative gross profit margin was 9%, compared to gross profit margin of 2% in 2014.

The main components driving the loss for the year were, first, project losses totaling $20 million with losses at five projects accounting for most of the losses. The largest of the three losses was $7 million on a landfill project. With the exception of the one project that is substantially complete, these projects are now complete.

Second, the negative gross profit margin was also due to a decline in the amount of work executed. And third and final, increased operating overhead costs, including $6.5 million in increased labor and benefits costs, primarily due to the inclusion of Magnus for the full year, also negatively impacted the gross profit margin as compared to the same period in the prior year. The segment recorded an operating loss during the fourth quarter of $12 million, versus a $14.8 million loss in the fourth quarter of 2014.

The fourth quarter of 2014 included a reduction of $1.1 million in the Magnus seller note which had a positive impact. For the year, the segment recognized a $40.1 million operating loss, versus $17.8 million loss in 2014. The loss in 2015 was negatively impacted by a $6.4 million charge for amortization of intangibles, and a $2.8 million goodwill impairment, but was positively impacted by the $7 million reduction of the Magnus seller note that was taken in the second quarter. In 2014 $1.5 million in amortization of intangibles was recorded.

Now moving to the bidding market in 2015. For the full year, the annual domestic dredging bid market in which we compete was $1.3 billion, a 15% decrease compared to the $1.5 billion domestic bid market in 2014 during which several large Superstorm Sandy-related projects were tendered.

Great Lakes won 57% of the domestic dredging projects at which we bid, valued at $738 million. A couple of jobs were quite large, meaning over $100 million in contract value which impacted our win-rate percentage this year. Please remember that variability in contract wins from year to year is not unusual and can be impacted by the award of one or two large projects.

Breaking it down by work type in 2015, Great Lakes won 94% or $501 million of the capital projects awarded, including the $134 million Savannah, and the $77 million Delaware River port deepening projects. The $103 million Whiskey Island and $77 million Shell Island West restoration projects in the Gulf of Mexico and a large LNG project in Texas. 25%, or $67 million of the coastal protection projects awarded, 37%, or $165 million of the maintenance projects awarded and 11%, or $4 million of the rivers and lakes projects awarded.

Contracted Dredging backlog at December 31, 2015, was $678 million with an additional $83 million in options and low bids pending award. This is record backlog for Dredging and is 14% higher than the backlog at December 31, 2014, positioning us well to meet our revenue expectations for 2016. Subsequent to year end, we were awarded three additional projects valued at $58 million.

The environmental remediation segment finished the year with $73 million in backlog, slightly below backlog at year end last year and 2014 of $75 million. With our primary focus in 2016 being to return this segment to profitability, we believe this level of backlog positions the segment well to meet its financial targets. On the balance sheet at December 31, 2015, we had $14 million of cash on our balance sheet, down from $42 million at the end of last year.

We had $20 million drawn on a revolver and $82 million in letters of credit outstanding, leaving us with $108 million of availability. During 2015 the Company used $34.5 million of cash off our balance sheet on construction of the ATB. Since construction began, we have invested approximately $90 million in the vessel.

Construction is on schedule and we continue to expect it to be put in the water for testing with the Coast Guard in the fourth quarter of 2016, and to be working on a project in the first quarter of 2017. Over the course of 2016, the final ATB payments will be made, utilizing our cash from operations.

With that I will turn it over to Chris to discuss his observations on the E&R division, why he came to GLDD, and his first 90-day accomplishments.

Thank you, Mark. I will begin by providing a brief background about myself. I have almost 30 years of experience in the environmental and remediation space, and most recently was President of the Environment and Nuclear Business Group, a 5,000 person business unit at CH2M Hill, where I oversaw major projects, major programs, program execution, risk management, people management, business development and P&L.

Prior to my almost 10 years at CH2M, I've had increasing leadership positions at remediation contractors that compete in the very same space as our E&R segment. I joined Great Lakes because fundamentally, these businesses represent an opportunity to diversify into the attractive remediation and geotechnical markets, which are adjacent and complementary to the Company's core dredging expertise. Once right-sized, and focused on targeted market sectors, the addition of these entities will be beneficial to the Company.

The market for environmental remediation and specialty civil and geotechnical services in the US, is in the billions of dollars, and competition is fragmented with no clear self-performing construction leader that dominates the space on a national basis. Our target clients will be attracted to our value proposition, our focus on safety, being a large Company with a successful history, and our ability to compete nationally. In addition, our comprehensive service that makes us unique among service providers in this market sector. No other company in the space has the unique in-water and upland capabilities offered by us, with a focus in the emerging geotechnical infrastructure market.

Heading into 2016 as an organization, we are continuing -- we believe we are continuing in the right direction and have created a strong foundation on which we can return to profitability and growth in the future. Central to our strategy has been expediting initiatives underway in 2015, including the completion of the E&R integration and the implementation of a robust risk management and controls plan which includes processes around project and client selection criteria.

We established a process for elevated review of high-risk projects and created an enhanced approach for managing risks on projects from cradle-to-grave. We have also chartered highly qualified team members, including a Chief Operations Officer and Chief Contracting Officer, in order to have dedicated management focused on ensuring our additional risk-management controls are consistently utilized and maintained. A re-commitment to safety has also been brought to the forefront which is critical to being a best-in-class service provider. In the third quarter, we expanded the Loss Prevention System, LPS as it is known, to Magnus, a comprehensive management system designed to prevent or reduce losses using behavior-based tools and proven management techniques. We will continue to focus on safety going forward.

We also finalized the organizational restructuring and rebranding of the business segment to Great Lakes Environmental Infrastructure Solutions, or GLEIS, which allows us to align our management resources, build on our core competencies and leverage Great Lakes' name and strong reputation as we selectively pursue clients. Organizing our business units into GLEIS benefited the Company in 2015 and is expected to generate $2.7 million in net cost reductions in 2016. Leveraging our brand, we will focus our business development and marketing efforts on positioning ourselves for larger projects and programs that have potential for repeat business with customers who are culturally aligned with GLEIS' business model and values. In summary, I'm committed to leading our team in returning this business segment to profitability, rationalizing overhead to revenues and building a strong market presence.

Jon I will turn it over to you.

Thanks, Chris. I want to congratulate the Leadership Team for the improvements we have implemented in the environmental remediation segment during the last 90 days. I truly am optimistic that 2016 will be a marked improvement over 2015.

Our dredging segment delivered outstanding performance in 2015 and I want to congratulate the whole team. The continued success of our incident- and injury-free safety culture resulted in 25% fewer incidents compared to 2014. Two exceptional bidding results: project execution and overall performance across both our domestic and international operations with 2015 earnings; and year-ending backlog at record levels.

With the Panama Canal opening this summer, we continue to expect port deepening projects to occur along the East Coast in order to accommodate post-Panamax vessels. As we have already mentioned, we were awarded the first portion of the Savannah port deepening, which is valued at $134 million, as well as a $76 million Delaware River deepening project. The Delaware River is the maritime avenue for the Delaware River ports, including the port of Philadelphia. We'll be working on both projects in 2016, with the Savannah project being completed by the summer of 2018, and the Delaware River by the end of 2017. As a side note, our new ATB is currently booked to perform work on several projects in backlog once it is operational.

We continue to monitor developments in Washington in the various port cities and expect either Jacksonville or Charleston to be the next port to be deepened. Both ports, and many other, have benefited from the Corp.'s new planning process, which is expedited project review and approval.

Regardless of which port is ready first, the 2016 WRRDA, Water Resource and Reform Act, must pass in order for these projects to move forward. The bill is moving along in Congress and we continue to actively monitor its progress. Federal funding is necessary for these projects, and while we are disappointed that the President's 2017 budget request, which cuts Army Corps funding, we are hopeful that members of Congress will continue to support maintaining our nation's waterways and ports by increasing the Corps' budget like they did last year.

Similar to Miami and Savannah, we also continue to expect state and local port authorities to fund and execute the deepening projects ahead of the Federal Government schedule. On large Sandy-related coastal protection projects, approximately $107 million remain in backlog at December 31, 2015, and we expect we will be working off this year. Looking forward, there are several additional projects that we expect will be funded with this special appropriation.

Based on the Corps' advertised bid schedule, we expect one or two of these bids to be tendered this year. But the bid schedule is fluid and currently -- and consistently has changes, changes are frequent. Regardless, over the next couple of years, we expect to see Sandy-related work to be tendered.

Winter storms that occurred in December and January may create additional coastal protection opportunities on the East Coast. As you may have seen, the storm caused the flooding of rivers in Missouri and surrounding states, including the Mississippi River. The Louisiana office of Homeland Security and Emergency Preparedness activated its crisis action team to monitor requests for state assistance from parishes and is closely monitoring river levels and levees with the Army Corps.

Additional dredging work may arise on rivers in the region as a result of this. Any work we take on this assistance in emergency situations, will be at prescribed rental rates, which are typically lower margins than our more complex projects. In the Gulf of Mexico in 2016, we will be working on restoring three barrier islands.

A $103 million Whiskey Island project, the $77 million Shell Island West, and the $27 million Cheniere Ronquille contract, all of which are in Louisiana. The Cheniere project was in low bids pending award at December 31, 2015 and was subsequently awarded in 2016. The Shell West and Cheniere restoration projects will be completed this summer, while Whiskey Island project will be completed in 2017. We also will be working on the Corpus Christi LNG project in Texas for a private client in 2016 and expect it to be complete in the third quarter.

In the Middle East, we are continuing negotiations on a multi-year land reclamation contract that is expected generate over $200 million in revenue. We are optimistic that the contract will be finalized by the end of the first quarter, and are looking forward to working with our client on this development project. It's important to remember that this project is not being completed under the tight time constraints that we were required on the Suez and Wheatstone projects. As a result we do not anticipate generating the same elevated margins internationally that we had over the last few years.

Across our entire fleet, there are fewer gaps to fill in our fleet utilization schedule than in past years. Work is more evenly spread between these three equipment types, and we have a significant portion of our backlog work to fund our budget in place, so we believe that we are very well-positioned to meet our revenue expectations in 2016. In dredging and the environmental remediation segment, our focus in 2016 will be on safe and efficient execution of our work.

With that I would like to open it up for questions for Mark and I.

(Operator Instructions)

Jon Tanwanteng, CJS Securities.

Good morning, thank you for taking my questions.

Sure, Jon.

The dredging backlog, including the recent wins and assuming you get the award in the Mid East, which is almost $1 billion, which is pretty impressive? Can you talk about the margin profile of that backlog in aggregate? And if we can expect year-over-year improvement, given some really nice projects in 2015?

So our, I think what is important to remember is the Suez project was one of our very high margin for us, not typical. So you would obviously see that level of margin in these projects that are in backlog, in particular we talk about the Saudi job, that would be at a much lower margin, so you should see a decrease there, when you talk about the Suez overall.

Okay, and on the on the announced $58 million that you won, that you were awarded recently, were all of those emergency projects or something that's been on schedule for some time?

The $58 million that we were awarded at year-end? It was -- Cheniere? Right?

So most of it was bid work. We did pick up some emergency work on the East Coast on the beach work from the nor'easter, that was just added to the contract.

Okay. Chris, it's nice to hear some confidence in improving the E&R segment this year. Do you guys expect it to break even or even be profitable on an EBITDA basis for the year at all?

And what is the path that you take to get there over the course of the year?

I can answer that. We do expect the EBITDA for the E&R business -- we believe going forward, that we break even and the path to get there, as Chris mentioned, we do two things. One, we have the projects that were problematic in 2015 are either done or the last one is substantially complete, and then -- now Chris has put in a robust review, as he mentioned, of these projects from the beginning to bid, I will call it cradle-to-grave.

So we picked the projects that are most in our wheelhouse, have reduced risk. And plus we reduced some cost as Chris mentioned -- the $2.7 million. So those are the items that we believe will move us back to kind of a break even from an EBITDA perspective.

Okay, great. Just one more. Were there or will there be any one-time expenses associated with reducing costs in that segment?

We had some small one-time costs at the end of 2015, in terms of severance and closing an office but they were pretty immaterial. A lot of those other costs have happened through attrition.

Great. Thank you guys.

We have not budgeted anything for 2016.

No.

Thank you guys.

Thank you.

Thank you, Jon.

Matt Duncan, Stephens Inc.

Good morning, this is Blake on for Matt today.

Okay, Blake.

I know you haven't given formal guidance, but I'm wondering if you could give us some initial expectations for jobs in 2016 like dredging segment sales and adjusted EBITDA growth compared to 2015, and kind of your initial thoughts there on what the growth you think could be?

Blake, we do not feel comfortable giving guidance right now. But, I think like we said in our notes, we have a significant part of our backlog in place to execute and it's focused on execution this year but we are not going to give guidance right now.

Okay. Understood. I know you mentioned your review is progressing well, can you give a little more color on any improvements, what improvements you are seeing with that process? What are your top operational priorities for coming out of that?

The strategic review with Greenhill, we really cannot comment on. I think coming out of the review at E&R, I think we laid in place, at the beginning, in the middle of the year, all the things that we have implemented over the last 90 days with our leadership team. I think rebranding, I think high-end selection of the clients we want to work with, I think much more rigor both on the front-end and project management, all things that we were designing, we fully believe that we have implemented over the last 90 days and will tighten it up.

We feel confident under the leadership team that we've put in place that we've got it in the right direction. And we feel good about the marketplace. Its important for us to get that back into productive and absorbing overhead and then in 2017, really generating good solid EBITDA.

Okay, thank you, that helps a lot. And then if I could one more. You got -- you mentioned a project in the Middle East. You expect it to be in excess of about $200 million, and lasting until at least the first quarter of 2018. Can you give a little more detail on the timing and the ramping of that project?

Yes. It's a project that if we put the resources on it, we'd complete in two years. We have actually four years to complete it. So it gives us good flexibility to actually go out and continue looking for other projects. So we hope that we will be working on it in the second quarter. We've got our equipment in place, we are finalizing things right now but we feel comfortable talking about it. We have our equipment in place to start working on it when everything is finalized.

Okay. I appreciate it.

Scott Levine, Imperial Capital.

Good morning.

Hi Scott.

I appreciate that you're not providing guidance here but just trying for a little bit more color, you mentioned a revenue target which I'm guessing you guys have informally in your backlog and it's up nicely year over year. Is there anything we should take into consideration in terms of the project firm or some of the larger or longer-term projects that might cause the burn rate of backlog to differ from what it has been historically? Just trying to get a better sense of how to set numbers here.

We have not given that before.

We haven't given it and I did say our backlog is spread among all three segments of our equipment. So we think it is well-balanced and we think we have a vast majority of the revenue on our books that we need to execute this year which is different than in the past.

Got it. Nothing abnormal then, in terms of the revenue burn versus what is typical, it seems like is what I am hearing?

Fairly similar.

Yes. It will be similar.

Do you have some anecdotes about the outlook? Would you say the bid market you anticipate in 2016, based on what you see, roughly similar to what you saw last year up or down - maybe a little more color there?

I think the bid market will be similar. There are some big projects still left in Sandy. We have to see them get out. I think our belief is there will be one deepening let this year, sometime during the year. So we kind of expect it to be similar to last year's, where we were, domestically.

Okay. And then just two quick follow-ups. SG&A, I don't know if you went over this or I missed it, a little bit higher this quarter. There were some one-timers in spend, can you give us a sense of what we might look to use as kind of a good go-forward number?

This is Mark, sure. In the quarter we had a couple of one-times. We had about $800,000 of severance related to an executive that left the Company. We have some, also about $400,000 of accelerated stock vesting related to the announcement of an executive retiring, so we have about $1.2 million of one times there. You kind of take those out moving forward. And then going back to 2014, I want to remind people, we did have a $1 million credit in there that benefited 2014 and the fourth quarter related to the Magnus seller note. That's why you see the large move on the G&A side.

Got it. A little closer to $20 million per quarter going forward?

Yes.

Okay. And the last one I have really on E&R, if I recall correctly when you announced Magnus, you had indicated you thought if everything was humming right that the margins in that business could be comparable to dredging. Just wondering, Chris, take a shot at this as well, based on getting that business restructured and growth opportunities you see, do you think that business has the potential for that type of margin performance? Or a little more color on what type of margins you think are achievable when you have that business humming right?

Yes. And I will take that. We expect it to be high single digits, low double digits EBITDA margin. Not tremendously different than our dredging but also don't forget, significantly less capital expenditures on equipment.

Got it.

That's where we have to get it. Its our belief it will absorb a good amount of our corporate overhead this year in that EBITDA. Which is helpful for us. That EBITDA that Mark said about breakeven, includes corporate overhead allocations, which they did not have when they were stand-alone operations, and it's important for us and I'm not sure we really added significant overhead.

Do you think 2016 is more of a transition year towards that type of margins you're talking about?

Absolutely. If we can do what we want to do in 2016, 2017 will be the real year.

Got it. Thank you.

John Rogers, D.A. Davidson.

Good morning, a couple of things. First of all, can you give us the segment EBITDA for the quarter and year?

We don't give that information out, we just do it at the consolidated level.

Okay. I guess I'm just trying to get to understanding Jon's comments about the improvement in high single-digit, low double-digit for the environmental business. What about, Mark, on CapEx? Can you tell us what you're expecting for 2016?

Yes. So as I mentioned earlier, we will finish off the ATB payments, that's $140 million, we've done about $90 million, so we have about $50 million there of payments this year but then we will have our standard CapEx that we have had historically, no real change there.

Okay. That was because you had what, $83 million this past year? So is that -- ?

And 30 -- I think it was $34.5 million or $35 million was the ATB.

Okay. So it should be closer to $100 million this year, is that, my math correct then?

Yes, you are correct.

Okay. In terms of the lower margins that you are expecting in the dredging business, if I understand this right, given the balance of projects and the mix that you are expecting, I mean this is always a tough business in the sense that we go through these cycles every couple of years. Jon, are you saying that this is a sustainable level at this point, given the kind of balance, and 2015 was heavier on the capital projects and some great international opportunities for you? I'm just trying to understand how you're thinking about the dredging business now.

Listen, we had great margins, on a significant --

Yes.

For the last three years we have, internationally, and I think what we will probably be trading off is more robust work domestically, in the next year or two to balance that out.

Okay. But you do not see us going back to the low margins that we had 3, 4 years ago where you're dropping down into the single digits.

No, I don't see don't see that. I think there is an elevated level of work, and an elevated level of work should help that, and I also believe in, when the ATB comes online it gives us a different margin profile, I hope, because of its productivity.

Okay. And then just on the environmental side of the business, the three projects -- I thought after the last quarter, you talked about the significant amount of work being -- ending up being completed in 2016, but now it sounds like there's just the one project and I assume it's the project up in Washington that you have to wait for the weather to improve

No, we actually worked there in January and February, just had to finish up that piece of the job. Just got substantial completion notice, actually, this week.

Okay. And in terms of the bid opportunities there, how do you think about that business now given that the struggles over the past year. What is your capacity in that business, given the people and equipment and expertise that you've got, to take on work?

We are, and there are segments within that work, and our real bread-and-butter work we feel very good about, we have real expertise and there is some nice bidding opportunities. On the services segment -- other than the oil and gas part of that, which has slowed down - we think we are in good position there and we actually executed pretty well on that.

On the pure remediation side, we have become very much more focused on selected projects and not getting beyond our skis and if we just stick to the selected projects we will be in fine shape. So we're not really looking to grow revenue substantially there at all. What we are looking to do is get back to that balance that we had before, and execute well and we will move from there.

Okay, Jon, of the approximately $180 million in work that you are doing and environmental business, how much of that is that bread-and-butter type work versus the discrete projects?

A little over $100 million.

About 50% or more is real bread-and-butter geotechnical and other stuff. And then there is probably another 15% of what we call services work which is really helpful into backlog. 15% to 20%, which is good, solid kind of work and so it is really that 25% to 35% that we are getting much more selective on. We are tightening up our bidding processes, our controls, we are looking to do some of that on a time and materials basis and that gives you a rough idea.

Okay. That's very helpful, especially with the project loss information. Gives me a better sense of where you're at. Okay, thank you, I'll get back to you.

Sure.

(Operator Instructions)

DeForest Hinman, Walthausen and Company]

Hello everyone, couple questions. Chris, you have a lot of experience in the space, could you kind of give us your thoughts on if you've executed a turnaround in the past, and if you have, generally how long does it take? And then when we look at that $73 million of backlog in the fourth quarter, how much of that has been bid within your 90 days there? Why don't we start with those?

Thank you for the question. When we look at the companies that I've worked for, they have been private, employee owned. But I have taken over division segments that were in need of turnaround. I've also been involved with integration of acquisitions, new companies, integration of business units so I feel pretty comfortable with that aspect of the job and what I need to accomplish here. We are focused on that, I think that is moving ahead well and to answer your question there, I feel very comfortable with that.

The second part of the question had to do with the backlog that we have, approximately $10 million of that was bid and won in the fourth quarter, during my tenure. We have instituted a very rigorous approach to review of bids, review of proposals, review of contracts, we elevated existing resources and focused them in these key elements of the capture of new work, so we're feeling optimistic about our ability to go forward and avoid these lossmaking projects. The other key element, last year the team was very focused on closing out and completing these challenged projects. With that getting behind us, like we've been talking about on the call, I am optimistic about our ability to find more opportunities to be more externally focused and selectively capture the right projects going forward.

Maybe just a little more clarity on the timing side. You have a lot of experience. It sounded like when you came in you were reviewing the bid book that we had.

And you've done this for long time, 30 years. Are you seeing some of those older bids that you weren't involved in, that could be problematic, bid too low? Didn't take into consideration some of the risks, and in six months can this thing really be improved or is it going to look pretty challenged the whole rest of the year and then 2017 we might see some better results?

When we break down that backlog, a significant chunk of it is time and materials and we would carry that forward. There are other elements that we are carrying forward that were delayed last year that are going to pick back up. And that work in particular is right in our wheel house. Some of the geotechnical construction work where we have historically done quite well.

Another portion of our business is the services business which is, for the most part, time and materials and has had a historic good record going forward. We will continue to focus on the higher risk projects as we go forward and make sure we have got elevated review and we've implemented a watch list approach for our top projects. And they get hit by various levels of management including elevated executive level review on a monthly basis.

We are optimistic. The best part is, we have worked off a number of those challenges and what we have in backlog, for the most part, is really good, but we still have to focus in on all of our work and all of our projects and this business, the remediation business is all about change management and managing unknowns. On a day-to-day basis we are focused on that, and need to be focused on that.

Okay, thank you, Chris. This is a question now for the rest of the executive team. With the weak performance that we've had in the environmental services, and obviously we are doing the strategic review, has the Board given us any mandate in terms of how long we are willing to continue to generate losses in the environmental services?

That's the first part of the question. The second part is, if we had to exit the environmental services business, is there any legacy-type items in there that we'd have to address or is this just as simple as selling the equipment and being done with that business.

I will jump in. This is Jon. One, the Board is looking at all of our strategic alternatives, and as I said I don't think we could really comment on any specific segment. We do think we are doing all of the right things on the environmental business. I think the things we've executed over the last three months are all things we have been putting in place. We just probably sped it up a little bit now that we have a new leadership team.

Like any construction business, if we were to want to wind down a business, you have a set of contracts and people and things like that you have to deal with. So it is not necessarily very clean when you exit a contracting business. As I said, right now we think we have this under control, and it's gotten the Board's attention as part of the strategic alternatives. We are looking at everything, but we think we have the right answers to get it in place and we think we can get it in place quickly.

Your commentary on the call seems more of like a wait-and-see approach, where you've talked about -- obviously, you brought Chris in, and you have a new branding initiative, and you talk about how this business is going to benefit us going forward but at the same time we are doing strategic review. Should we think that the strategic review's conclusion is going to be, we just hold onto this business and see how Chris performs? Or do we still look to maybe potentially sell this business?

We are doing all the things to create value for the Company and for the division. So at this point I'm not sure I should answer any more than that.

Okay. My last question is on the ATB, you mentioned that it is already booked. Can you tell us how long it is booked for when it goes off on its first contract?

No. As you know we have significant backlog, we have places to take it when it hits the water. It can do work that other pieces of equipment do so we will just look at the schedule, and look at the work that comes out and determine the best place to put it. It's always important to know -- when you build a new dredge, it's important to get it in the water and get it working on a project first because you always have to shake it out so we know where it's going. But there is plenty of work for the hopper business and we don't think it will be a problem keeping it employed.

And versus our original expectations versus timing of completion and how it's performing relative to the budget? How is that looking?

It is where we expect it to be, and we expect execution of the rest of the construction. As of late last week when I got my last report is, we are on target to have it in service the beginning of 2017.

And on budget?

Yes. From construction? Yes.

Thank you.

Matt Duncan, Stephens Incorporated.

I have one follow-up. I wanted to clarify, you mentioned three E&R projects in the quarter that caused losses of $4.6 million? Were these the same three projects that were mentioned last quarter? I think two of which you said were delays and one was hurt by the delay of key materials? That was like a $4.3 million loss?

Yes. The one -- I'm just checking, but I think it's two of the three. We had a smaller loss on a project come up, but otherwise they were the same ones. Two of the three.

Okay. And so you only have one of these outstanding? You said its substantially complete, so it should be finished in the first quarter?

Correct.

Okay, and you expect it to have any more losses before closing it out?

No.

Great, thank you.

John Rogers, D.A. Davidson.

Just one quick thing. In terms of your deposition and cash burn, with your CapEx plan, and I know you're not giving guidance, but do you have sufficient capital? It sounds like you may have to dip in, and especially near-term depending on when payments are due, to expand the debt levels a little bit further?

Yes --

Is there anything we have to be to thinking about?

Yes. We will -- we always use our revolver a little bit so we will continue to do that. We believe in 2016, at $20 million at year-end, so maybe because of the additional ATB payments, a little bit of elevation there on the revolver. But as I mentioned earlier, we have a lot of availability on the revolver and we were, at year-end, within our covenants.

Okay. And Mark, that ATB, is it supposed to be in the water fairly early this year? Is that right?

No, it will go through, and really fourth quarter is when it does its sea trials.

And there are two parts. There is the barge, and there is the tug, and one will get in the water a little earlier and anticipated. And we will do the sea trials, but we expect it to be operational in -- late, at the end of the year or in the beginning of the first quarter.

2017.

The end of this year, but really 2017 is when we are expecting it.

Okay, great, thank you.

Sure.

I am showing no further questions at this time. I would now like to turn the call over to Ms. Mary Morrissey for closing remarks.

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

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