Great Lakes Dredge & Dock Corp (GLDD) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the second quarter 2016 Great Lakes Dredge & Dock Corporation earnings conference call. (Operator Instructions) As a reminder, this call is recorded. I would now like to introduce your host for today's conference, Mary Morrissey, Director of Investor Relations. Please go ahead.

Thank you. Good morning. This is Mary Morrissey and I welcome you to our quarterly conference call.

Joining me today on this call is Jonathan Berger, our Chief Executive Officer and Mark Marinko, our Chief Financial Officer. They will discuss the operational and financial results for the quarter and six months ended June 30, 2016. Following their comments there will be opportunity for questions.

During this call we will make certain forward-looking statements to help you understand our business. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in our earnings release and in filings with the SEC, including our [2015] Form 10-K and subsequent filings.

During this call, we 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.

I will turn the call over to Jon Berger to provide commentary on the Company's announcement regarding the conclusion of our review of strategic alternatives as well as a quick update on our second-quarter results and our outlook going forward. Jon?

Thank you, Mary. And thank you for joining us on the earnings call today. Good morning, everybody. I would like to start out by giving everyone a forward view of the strategic alternatives process and why we have concluded at this time.

As most of you know, on October 16, 2015 the Company's Board of Directors initiated a process to review potential strategic alternatives for the Company.

Since that date, the Board undertook a deliberate and comprehensive evaluation of potential alternatives. When we started the process we were clear to our advisors that we would execute the transaction only if it provided for the value we saw in our investment in the AT base, into which we have already invested approximately $102 million; and, secondly, if we could receive appropriate value attributed to our turnaround of the environmental and infrastructures segment, which is still underway.

The Board and management considered a full subset of alternatives with our financial advisors and engaged in a comprehensive process, talking to strategic acquirers, financial sponsors and alternative investment platforms. Prior to engaging in a more traditional broad market test, a financial advisors, Green Mill, undertook an intensive process, meeting with many of the potential investors to gauge market appetite.

We had many firms interested in our story, validating our strategic direction and believing in turnaround steps we are taking our E&I segment.

At the conclusion of this thorough analysis, the Board in conjunction with our advisors can do that we would best serve our stakeholders by maintaining the course of having the ATB join our (inaudible) in demonstrating its expected returns and also completing the E&I turnaround plan.

Where we stand today, we are confident this decision is in the best interests of our stakeholders. I understand that many of you have questions on the details of the process and I want to let you know that, due to confidentiality constraints, we will not be providing additional details regarding the process during the Q&A portion of this call.

As far as executing our strategic plans, including our effort to turn around the E&I business, we announced this morning that we are divesting the services portion of our Terra Contracting Services LLC business. We determined that these services lines are not in our long-term strategic interest of being a leading provider of remediation and geotechnical construction on large-scale contracts.

These business lines are more regional in nature and best operated at their current size by private local ownership.

In exiting the business we will recoup a minimum of $11.5 million of asset value from the sale and we will additionally run off approximately $5 million of working capital retained in the sale. Just as important, we will [stand] significant operating losses under our ownership structure, allowing us to focus on our core competencies in remediation and geotechnical construction.

Regarding the CEO search, as stated in October 2015 I announced my intention to retire by April 2017 with the intention giving the Board significant time to evaluate strategic alternative review process and provide consistent leadership through any transition. The CEO search has been ongoing alongside the strategic alternatives' review process. But as you can imagine, it has somewhat hindered by it while the Company's future was uncertain.

Up until this point we interviewed several candidates but did not identify one with the desired background and experience. As a result, we recently hired Heinrich & Struggles, a firm with significant reach into qualified candidates including those with construction or contracting experience. We are reviewing a set of resumes that have been prescreened by Heinrich, and we are confident that, now that we have determined the strategic direction the Company is taking, there will be no impediments to the CEO search.

Interviews will begin in mid-August, and my expectation is that we will find a qualified candidate in the coming months.

Now let's turn to the financial results. The dredging segment domestically has a good second quarter, primarily as a result of strong project execution, offset by the slowdown in work internationally. We executed well in some of our coastal protection and river and lakes projects, keeping margins in line with our second quarter last year but on lower revenue. Domestically, we executed on the mix of coastal protection jobs on the East Coast, including some of the large Sandy-related projects such as the $92 million Great Egg Harbor and $160 million Long Beach Island project, both of which are on the Jersey coast.

Work continued on $77 million Shell West and $27 million Cheniere Ronquille coastal restoration project in the Gulf of Mexico as well as Corpus Christi [LNJ] project in Texas. On larger projects we worked on, we performed the annual Baltimore Harbor Maintenance project, valued at $28 million.

Finally, our rivers and lakes division had a very strong quarter with highlights including exceptional execution on the multiyear Lake Decatur project, that included a first phase executed by our E&I segment, and also on the John Redmond Reservoir project in Kansas.

With the rivers and lakes operations fully integrated within our domestic dredging division, we have been pursuing opportunities in a broader region and exploring more complex projects that our (technical difficulty) dredging up rations is experienced in estimating and executing.

We are pleased with the progress that this division has made since it was consolidated in September of 2014 and look forward to bidding and running successful projects.

Internationally, we commenced work on two projects in the Middle East valued at $55 million. The international market has experienced a slowdown, but there are several attractive opportunities that we are tracking which are a good fit for our equipment based in the Middle East.

Due to the international slowdown and part of our strategic vision to modernize our fleet, which includes retiring older vessels that are difficult to consistently and profitably went to work, we sold the Reem Island, a dredge based in the Middle East, for net cash proceeds of $10 million. Although we recorded a book loss of approximately 700 we expect to save approximately $1.6 million in operating costs for the remainder of the calendar year.

As we continue to assess the market and execute on our fleet modernization plan, we will continue to take into consideration potentially selling or retiring other vessels.

Regarding the bidding market, it was in line with what we expected in the quarter. As we have stated during past several earnings calls, we entered 2016 with significantly more backlog in place than in previous years, meaning that we have been more focused on project execution then on securing new work.

Going forward, we expect bidding activity to accelerate, particularly for the hoppers and cutters.

The Panama Canal expansion project was completed in June, which was a truly historic event. With the success of its opening, we continue to execute, to expect to see ports along the East Coast pursue deepening projects in the next few years. Although we cannot be certain, it appears that Jacksonville has made the most progress in its plans for a port deepening and will likely be the next port that tenders a bid.

We continue to track the progress of the other ports along the East Coast and are making plans and funding for the sport deepenings, which are critical to remain competitive by having the depth to accept the newest generation of the most efficient fleet vessels.

In the Gulf of Mexico significant progress is being made of the project planning to utilize the $18 billion BP oil spill settlement. To remind you, the $18 billion will obviously not be used exclusively for dredging projects. But environmental restoration and protection projects are in the process of being planned and designed, and we are engaged in helping plan projects. While the plans are still in process, we expect to see some bidding opportunities funded by the BP money in the near term.

On the East Coast we continue to expect to see projects funded by the Superstorm Sandy appropriations. In Washington, D.C., despite the positive news earlier in the year that both the House and the Senate approved of appropriation bills with record funding levels for the Army Corps budget and the Harbor Maintenance Trust Fund, it appears that Congress is not going to pass a budget on time this year.

As a result, we expect a continuous resolution which puts the Corp's budget back at the previous year's level. We are disappointed with the outcome but are hopeful that an omnibus budget gets passed soon after the continuing resolution takes effect.

At this point, we don't know when it may be passed.

Turning to the environmental and infrastructure division, let me go through our outlook for E&I. As I already have mentioned, we think executing the definitive agreement to divest the services portion of Terra Contracting Services LLC business best positions us to return the segment to profitability. We will continue to diligently focus on the turnaround of this business, pursuing projects that are in our wheelhouse and will drive profitability.

We are pleased with the performance of GLEI, the entity we acquired at the end of 2014. They have had an excellent first six months with their business picking up in the second quarter as expected. Project execution was strong and exceeded our expectations.

With that I will turn the call over to Mark to review some of the financial highlights of the quarter.

Okay. Thank you, Jon, and good morning to everyone joining us. I'll move right into reviewing the nature results of the second-quarter 2016. The Company's revenues in the second quarter of 2016 were $192 million, which is a 20% decrease compared to the second quarter last year and was the result of decreased revenue in both of our business segments.

Total Company consolidated gross profit was $24 million, a decrease of 25% compared to the second quarter of 2015. Gross profit margin for the quarter was slightly lower at 13% compared to 14% in the prior year, with the dredging segments' essentially flat margin offset by a decrease in margin in the environmental segment.

Total Company operating income was $4 million for the quarter, down from operating income of $14 million in the prior quarter, driven by a decrease in dredging, operating income at a greater loss in the environmental and infrastructure segment.

Drilling down to our results by segment, the dredging segment's revenue was down [19%] in the current year quarter at $154 million with lower foreign and domestic capital revenue partially offset by higher coastal protection, rivers and lakes and maintenance revenues. Dredging's gross profit margin was for the most part flat at 16%, with strong contract margin on some of our domestic dredging projects offsetting the absence of the strong performance we had during the second-quarter 2015 at the Suez Canal project.

Operating income decreased to $11 million for the quarter, a 41% decrease from the same period in the prior year, driven primarily by lower gross profit on lower revenue. Our E&I segment's revenue decreased 20% to $40 million for the second quarter, primarily as a result of not replacing several large remediation projects that were awarded to our Midwest-based operation. The segment's gross profit margin was essentially breakeven in the second quarter of 2016 compared to 4% in the second quarter and the prior year, with improvements in project execution at our Great Lakes environmental and infrastructure division offset by increased overhead, underutilized equipment and an additional loss of $1.8 million at the one remaining legacy project that entered into a loss position during the first quarter.

We continue to act to recoup part of the losses on this project, once we finalize the pending change orders and claims, with some of the smaller ones expected to be finalized this month. The Great Lakes Environmental Infrastructure division, which is the acquisition we made at the end of 2014, is executing well, is performing more in line with its preacquisition levels and above our expectations for the first six months of the year.

The E&I segment reported operating loss of $7 million compared to a loss of $4 million in the second quarter of 2015 due to lower gross profit margin in the presence of some one-time items in the second quarter of 2015. First there was a write-down of the seller note associated the Magnus acquisition that was reduced by $7 million due to the NPD being unable to meet 2015 performance targets set forth in the note. That reduction had a positive impact on SG&A in the second quarter of 2015.

G&A was also impacted by $1.7 million in amortization of intangible versus $2 million or $0.2 million in the current year period. G&A expense primarily related to labor decreased $1.8 million in the current quarter compared to the second-quarter 2015. We also recorded a goodwill impairment charge of $2.8 million related to our Terra Contracting Services business during the second quarter of 2015, which had a negative impact.

The net benefit of these one-time items in 2015 was $2.7 million.

Moving to the balance sheet, at June 30, 2016, we had $21 million in cash on our balance sheet and had drawn $45 million on our. Our credit facility became current in June, so the $45 million drawn on our revolver was classified to current debt. Previously it was included in long-term debt. We are currently negotiating a new facility and expect to have it in place in the coming months. Total CapEx through the first six months of 2016 was $29 with approximately $11.3 million for the ATB through the first six months of the year.

Turning to bid results, the domestic dredging bid market for the second quarter of 2016 was $222 million, which is 10% lower than the second quarter of 2015. This quarter's bidding market included $39 million Deer County Coastal Protection bid that Great Lakes was awarded. In total, the Company won 27% of the overall domestic dredging bid market during the second quarter of 2016, which is below our prior three-year average of 49%. Please remember that variability in contract wins from quarter to quarter is not unusual and that the win rate for one quarter is not indicative of the wind rate the Company is likely to achieve for the full year.

During the second quarter, Great Lakes won none of the $5 million in capital project awarded, 70% or $52 million of the coastal protection projects awarded, none of the $90 million in maintenance projects awarded and 15% or $8 million of the rivers and lakes projects awarded. Contracted dredging backlog at June 30, 2016 totaled $623 million compared to a backlog at December 31 of 2015 of $678 million.

The environmental and infrastructure segment's backlog was $52 million at June 30, 2016, versus $73 million at year end.

In conclusion, with the sale of the Reem Island and the pending sales of the Terra Services business assets, we have or will have monetized approximately $25 million of assets on our balance sheet that were resulting in approximately $10 million in annual operating losses.

With that, we will open up the call for questions.

(Operator Instructions) Jon Tanwanteng with -- your line is open.

It's Pete Lucas for Jon. I just wanted to know if you could talk about expected profitability for the remaining E&I business, either for this year or next, and if it's possible to give some color on the run rate of revenues related to the assets that you sold.

Mark, why don't you handle that one?

We don't give guidance on these individual segments. But related to the services business that we sold, the trailing 12 months operating income for the services business was a $7.2 million loss and about $4.4 million EBITDA loss.

Okay, great. And just to follow up as far as the international business goes, we've been waiting for the large Mideast projects update for a while now. And it takes you that or does that change with sale of Reem Island?

No, it does not change with the sale of Reem Island. We have a memorandum of understanding that we are in the process of extending to allow the owner of the project to put in place third-party financing. So we are in the process of finalizing the -- that will give us more time to allow him to do that while keeping our quote open. It is still there and we still anticipate being able to bring that into operations.

Any sense of the timing on that?

No. He's out there financing it. Our hope is that we get it done by the time we roll off and begin work after we complete the $55 million of work we are doing there now because obviously, if we have to demob it will cost them more

And last one from me before I jump back in queue -- as far as the proceeds between the sale, that sale and the E&I assets, any plans to pay down debt or more CapEx or anything else you're looking at?

Mark, do you want to handle that?

Yes, sure. So moving forward, we still have a remainder of about $40 million left on the ATV. So, we will use our free cash flow to pay that. You can see in the quarter versus last year our CapEx is down. We have been, actually, the more conservative on CapEx going forward, in particular in our E&I business. But the big chunk of it for the remainder of this year is the $40 million that we have remaining on the ATV.

Great, thanks. I'll jump back in the queue.

Scott Levine, Imperial Capital.

So maybe you can just elaborate a bit further on the type of business, exactly what you are divesting from Terra and/or, now, E&I, I guess, what you are keeping, what the decision is strategically why you are confident you can -- in that viability of the business you are retaining and the reason these types of jobs makes sense for you guys strategically and feel like you can execute them well in the future.

(technical difficulty) the segment of the business will -- why don't you --?

This is Mark. I'll take this for John. He seems to be breaking up the call. I'll answer it because -- Jon, can you --? You are breaking up on the call. I'll take this one. Okay.

So yes, so the Terra Services business -- that's made up of smaller jobs. And they are into different service areas. They are essentially emergency response where we do those type things, abatement services where we clean -- take out asbestos, the oil and gas business we are doing tank cleaning, some pipeline cleaning and underground infrastructure, which is sewer cleaning.

So this is the group that we do hundreds to thousands, 1,000 jobs a year, smaller-sized jobs.

Moving forward, the remainder of the business is really the remediation and geotechnical. There will be some remediation under the Terra brand. We are selling assets. But that will be under the guidance of the Great Lakes and environmental infrastructure group, the former Magnus. So where they do -- the remediation they do is essentially the line job reclamation they have done that has been very good for us in the geotechnical, the slurry walls, the levee work.

So with the additional -- so those are right in their expertise area. They have a competitive advantage in those areas. But also with (inaudible) coming on board and improved project controls, we look forward to having a solid remediation and geotechnical business going forward so we have the proper project controls, contract controls, bidding controls. And really, our one project that we've had an issue with this year was the old legacy project we signed middle of last summer.

Got it. And then as a follow-up, Mark, I think you said there was a $1 million-plus charge on one legacy contract in the quarter but that there were no additional projects that deteriorated in to a loss position. Do I have that right?

That's correct. It was $1.8 million in the quarter. It's the job we took, the $3 million in the first quarter. It's the additional $1.8 million. But yes, there is nothing in any additional deterioration in jobs. In fact, as we've said, it's been performing well.

And when do you expect to complete the loss project, the one that you have the charge on this quarter?

Yes, in third quarter.

Complete in third quarter, got it. And then just as a follow-up, with regard to the dredging operations, it sounds like you expect bidding activity to pick up in the back half of the year, just by the fact that we are not getting a budget from the government. Potentially it seems like the policy outlook is kind of mixed. But I'm guessing this relates to some of the beach type jobs that you guys have discussed in the press release as picking up in the back half. Or maybe just a little bit more elaboration as to why you expect bidding activity to pick up in the back half of the year.

So, historically, this kind of third quarter has been busier time as the Army Corps lets these jobs out. We are seeing that right now. There's a lot of bidding activity we are working on right now to prepare for bods. So some of the Sandy work is a piece of. So we expect it to be strong as it was last year. We don't have a large port deepening yet in this quarter coming up. But as we stated before about we potentially see Jacksonville coming online but probably in 2017.

Got it. But would that be first half of 2017 or too early to tell?

Yes, we think it's first half of 2017.

Got it. Great, thank you.

Matt Duncan, Stephens Inc.

I appreciate that there may not be a lot you can say about the strategic review. But I'm hoping we can squeeze maybe a little bit more information out. Can you talk maybe about how much offers the Company received, whether you got any offers for the whole Company or just for the E&I segment? Just trying to get a better sense for what the options were that the Board had to evaluate.

I'm just going to say the most I can say is the Board evaluated a lot of different options. I can't give any more detail or color into those items. But they looked at it, a full range of different options related to the business, as Jon said earlier.

So Mark, from the comments then, should we assume that you were not able to get anyone to give you an offer that fairly valued impact of the ATB? Is that really the way we should read the news that you are going to keep going it alone?

Yes. I think that what -- it was pretty clear that we expected the value of the business to incorporate the ATB and our investment in the ATB as well as the turnaround in E&I and that value wasn't there at this point.

All in the ATB, is that still on track to hit the water in January?

.

Well, it will start working for us in, actually, March 2017, delivered in the first quarter to us.

And that's still on par with your previous expectations, then?

Yes.

Okay. On the E&I business, does the sale of Terra, the Terra assets alone get that business profitable, or is there more work to do there? It sounds like that business lost I guess you said a little over $7 million last year. But the operating losses so far this year have been greater than that amount.

So what still needs to happen to get that business profitable?

Right. So you are correct; there is losses in the remediation portion of Terra, which is really the remaining portion there. And this one job that I mentioned with the $5 million loss is in that group. So we need to finish off that legacy job and move that business essentially under the GLEI portion of our business. And it will run through that business. So we do have to finish off these legacy jobs that are the remediation portion.

When will that be done?

Q3.

So I'm going to put you on the spot here. Will this segment be profitable in the fourth quarter?

The segment -- well, I don't give any guidance going forward. But I'll say -- we've said our Great Lakes and Environmental Infrastructures segment, group or division is part of this group. And it ramps up in Q3 and Q4 and it's exceeding our expectations in the first six months of the year.

And so -- that's where I was going next. The seasonality of this business isn't really changing any with these assets going away. It sounds like it's still going to be a back half loaded segment?

Yes, that's correct.

All right. What are the revenues of the assets that you are divesting? We just need to be able to get some sense for on an annual basis how much revenue goes away with that sale.

Yes. Sorry; someone asked that earlier. I just talked about the average. It's $30 million of revenue.

Okay. And was that $30 million -- trajectory wise, was it increasing or declining?

No, it was actually pretty flat in that services segment. Some pieces up there, some pieces down.

So $30 million of revenue and over $7 million of operating losses are what goes away. Plus the $5 million, I guess, the project loss that you've had in that business is also maybe like 12 --

Yes, right, right, right. That's correct.

All right. So all things considered, then, if I'm reading the tea leaves correctly here, this segment should get back to a profit late this year or next year. Too early to tell, probably, on what that is going to be. But to put a little bit wider timeframe around it, we should expect this business to get back to profitability in the next 12 months?

Yes, that's correct. I do want to add one thing to the impacts for 2016 related to selling these services. As I said, it was about $7 million of operating loss, $7.2 million. So we've got four months left in the year, essentially. You would say about $2 million there. I will have about $2 million of one-time costs related to getting rid of the segment in terms of severance, retention, bonuses, a couple office leases we will write off, the legal fees to sell the deal.

So it won't have a material improvement to this year's 2016 numbers related to that sale because of those one-time costs.

And the sale is done, you said -- I don't think in the release it said -- by the end of this month, correct? (Multiple speakers).

That is correct. Yes, close this month. That's right.

Okay. And then the last thing before I hop back in the queue, just on dredging. Your segment margins there, I think, continue to do better than what you have expected. Company against last year, when you had the Suez job, is pretty impressive. You're only down 30 basis points on a much larger revenue decline. So obviously something -- you are doing something right there.

Was there a benefit from any project that closed out that were well-executed upon? Or is this a gross margin level that is safe to model on a go-forward basis?

No, I wouldn't say there's any big anomaly out there like a Suez. We had a very good performance on some of our Sandy jobs, in particular Long Beach Island. But I wouldn't say anything sticks out that's release giving the numbers.

Okay. So there's nothing to be considerate of in terms of mix going forward?

No, I wouldn't say there is.

Okay. So [16%] is a level -- if I'm hearing you correctly -- you can maintain?

Yes.

Okay. All right, I'll hop back in queue. Thank you.

[Bill Newby], D.A. Davidson.

Bill on for John Rogers. Thanks for taking my question. Just wanted to get a little bit more color on the dredging opportunities that you guys are seeing internationally. Obviously, they have slowed down recently. But what you are saying for the remainder of this year and into 2017?

Mark, do you want to take that?

Yes. So as Jon talked about a little bit, we have to finish up this $55 million job we are doing in Saudi Arabia. The big one that's in the queue is this -- the [FOP] job, which is this -- what we are working on right now is actually Phase 1 of that, looking for that.

It's a big job, a potentially $150 million job. Now we are doing the first $55 million of it. So that's the one where we are working on extending the memo of understanding that we have already signed. That's really the big job on the short-term horizon we are looking to close.

There are some other jobs in Bahrain that we are looking at. And I think there's a very big job sort of like Suez coming out in 2018, in Kuwait. So getting this job for 2017 would be very critical for us, along with filling in some other opportunities in the Middle East and Bahrain, in particular, that we are looking at.

Perfect. I appreciate the color, guys. I'll jump back in queue.

Rick D'Auteuil, a private investor.

I just have a couple of follow-ups. I have a question regarding the E & I business that you already addressed a few times. But I'm a little unclear. As it relates -- so we have one contract that's a problem that's finishing up this quarter. But then you went on to say that we have several remediation losers.

So, is it one or several?

And then I guess why are we confident in saying that there will be profits there if in fact the one loss contract runs off this quarter and the other parts of the business are doing reasonably well?

I'm confused on why we are not committing to being profitable there. Why don't you start with that?

First off, we didn't say there are several mediation contracts. We said the one that was a loss, this $5 million loss. And I didn't say we wouldn't be profitable; I just said I'm not going to give guidance for the rest of this year. But I did say that going forward now in the third and fourth quarter is our most available time for this business, particularly in Great Lakes environmental infrastructure historically and going forward.

And they are performing above our expectations through the first six months of the year.

Okay. And then maybe a quick update on the status of the Georgia [deepening] project?

Savannah?

Yes, you are talking about the Savannah project. It's going on as expected. There's only windows with which to dredge. So we've got, I believe, four years to complete the project. So it's an on-and-off project. It's not as if we are going to do all $130 million or $140 million that we won the award in one year. It's going to be spread out over many seasons. And that's just due to environmental windows, Rick.

Okay. And I thought you just won Phase 1, but is there more work or has somebody else got that work?

Know. It has not been bid. But don't forget, we are doing shipping channel out. There is a 17-mile or 19-mile river in Savannah that we expect will be a more competitive bidding process. And then additionally, because you certainly have seen quotes that the whole project will be (inaudible) $500 million to $700 million, $800 million. There's a lot of environmental work that is also being done on the river that is really not work we do.

One example is oxygenating the river water to maintain marine life. That's not something that we do; that's more of an engineering type project. So there will be more.

It will be more competitive because it will be protected water. So there's no guarantee that that is actually in our sweet spot as much as it will be more competitive, so pricing will be tighter is my guess.

And then lastly, on the large international, is that expected to conclude favorably this year? Or are the funding that they are waiting for is like -- I guess I'm just trying to bid down on (multiple speakers).

Yes. But me try to go through it with you. We are doing Phase 1 of the project right now. We are doing subcontracting work for another entity that had trouble completing it. It really has to get done because it's a major investment in a port that has both industrial and commercial and residential, one of these mixed-use projects, if you will. And doing Phase 1 without doing other phases doesn't really make sense.

The family is one of the big Saudi families, extremely wealthy. But they are having a generational transfer and the newer generation would rather fund this with some debt as opposed to funding it all through their own pockets.

So I think we are confident it will get done. We just think it's taking a little bit of time. If you've ever done work in the Middle East during the summer, most of the people of wealth leave because it's so hot. So that's also, my guess, slowed down his financing.

But they have been very accommodating on wanting to continue the MOU. They are happy with the work we are doing on Phase 1 as a subcontract in the actually insisted that the prime contractor who was having trouble engage us to complete this work.

So we feel very good that we will actually get work. It's just we have to go through the process and wait and be patient.

Okay. And then lastly, on the line of credit are you having constructive dialogue on that (inaudible)?

On the replacement revolver, our current revolver expires in June 2017. So at this point we have signed a term sheet. We have also the -- it's led by a member of our current bank group. And they have been here and doing field appraisals. We are currently working on a term of the credit facility itself. So yes, moving along very -- we're spending a lot of time on it right now.

Jon Tanwanteng, CJS Securities.

Its Pete. Just a quick question for you on the E&I business. Last quarter on the call it seemed more like you were playing defense and just trying to get your house in order there, not bidding on some of the bigger projects. Have you seen a change there? And any more color you could give us on what Chris has done to turn things around?

Yes. And I'll start and, Mark, maybe you can just fill in any holes. Clearly, there's a lot of opportunity that we see. The bidding market is actually very promising. There were a couple of things that Chris had to do, which he did do, to stem misses on estimates, misses on execution. Chris has turned over a significant amount of people, put in a significant amount of control on the process of taking an opportunity and turning it into a bid. And I think, in doing so, we got a little bit risk-averse and wanted to make sure we made no mistakes.

Now that we've gotten away from our old bidding processes and in the pipeline now with controls in place, we feel much more comfortable. We brought in a couple of very experienced salespeople. We have traded out a couple of them and we are making some good progress with some clients that we want to have, some utilities where we are getting invited to bid.

Incrementally we also have done a nice job with our safety statistics that have driven it down. So we feel that we will start picking up backlog and we do see a lot of bidding activity.

But as Mark says, we have a big project we have to replace, that [Holbin] Mine project in 2017. We have consistent good work coming out of the Florida marketplace. There are some big projects coming out to bid which we won historically, about 50% of them, geotechnical levee work. The office we stood up in Atlanta for the Southeast is really hitting stride this year. It has some excellent opportunities, and long-term, I think when we talked earlier about the cyclicality of the business, we really do hope that the office down there and office in Texas will help us get more year-round work and smooth out some of the peaks and valleys. And we stood up an office with an excellent salesperson in the Northeast, which is probably more work than most areas of the country. And he is a 25-year sales veteran in this market Weiss who knows everybody. And we have got a significant amount of bidding activity for him stop

So the long answer, Pete, is we tightened our controls significantly. But the pipeline does look good for bidding activity.

Great, thanks. And last one from me -- I know quarter over quarter you really can't read any into it. But as far as the win rates, down significantly from your historical averages in dredging. And anything we can look into for that you change -- I know you mentioned you were busy, so not as active on the bidding, just a little more color on that, if you could?

Yes. And Mark, please jump in if I missed some. But quarter over quarter is so hard, Pete. But when you are going to see in the third and the fourth quarter and kind of the first quarter of next year, some of those really big projects coming out of the Sandy, some of these very large projects, some of the big coast restorations in the Gulf. And if you look at our win rate on those over the last three years there, 50% or more.

I think the Jacksonville project is another one that probably has some hard rock and some opportunity for us to differentiate ourselves with our big cutters.

So honestly, on our domestic dredging side, we have three little worry that we will be at the right number and continue to win our share of the projects.

Very helpful. Thank you, guys.

[Tyler Rhett], Privet Management.

I think this is the first time I've seen color on the margins of Magnus. Could you give us, this, with the revenue was for Magnus this quarter and maybe on a trailing 12-month basis?

Mark, can you jump in on that?

Yes. I don't think I gave margin on Magnus. But okay, so --

You guys broke it out in the PR. I think that was, what, 17% gross margin.

Okay. Okay, maybe the gross margin -- okay. The Magnus piece of this business is about $110 million from a revenue standpoint.

Great. And the sale of the services side of Terra -- does that affect the Terra [CE] JV?

No, no, no, no.

Okay. Have you guys have any progress on recovering any of the net advances for that JV?

No. We are still in discussions with them, no change yet.

Great, thank you.

(Operator Instructions) Matt Duncan, Stephens Inc.

So just maybe one follow-up on the strategic review, and I don't know if you are going to be able to answer it or not. But what type of value would the Board have wanted to see to make a different decision?

I really don't want to get into the detail. But I think it's safe to say that the Board has a tremendous amount of confidence in the investment we've made over the last three years in the ATB. And I think we said, I think I said we have like $102 million into it. We think, with the sale of the services business and the hard work that Chris and his team have done, we think 2017 is going to look good for the E&I business and return to profitability from the losses. And we needed to see some of that included in the price. I look at where we trade versus the E&I companies, and we trade in a band pretty similar. But known as that type of investment, certainly, in our ATB. And the Board was pretty staunch about if we weren't going to see value for the hard work we've all put into that and the investment we put into that, it just wouldn't make sense for us to sell it. And so, you can do the basic math on that.

Yes, sure. Fair enough, Jon. So moving on, then, on international work the $55 million of work that you are working on so far -- remind us of when that is scheduled to be completed.

Mark, I assume that our schedule says that that's going to be completed before year end?

January.

January? All right, so when would you need to win the next contract, $150 million? When would that need to be awarded for there to be a smooth transition from one job to the next?

Yes. To be clear, we are on site. Right? We are in the same exact area where we are using the same tools. So if we have no other logical place to move the equipment to, we will keep it there. One of the pressures we are certainly using is if we have to demob and then remob back in, there are certainly cost associated with moving significant piece of equipment because we actually have the two cutterhead dredges and all their support equipment. So in an ideal world, we would move right to it the end of January, when we complete the work on Phase 1. That would be our hope.

And what is your level of (multiple speakers) confidence, Jon, that you will have that job in time to smoothly transition at the end of January?

Matt, I wish I could give you -- we have been talking about this job for a year. International and the Middle East goes up and down. These people are absolutely a real investment family. It's one of the wealthier families. They understand this, their engineers understand it. It wouldn't surprise me as opposed to awarding all $180 million or $207 million, whatever the contract is, if they break it into pieces just to keep us there.

So, they may come back and say here's a $40 million piece, why don't we do this one while we move forward? That wouldn't surprise me as a way to avoid them having to eat mob costs or something like that.

So what's the right way, then, for us to think about foreign dredging annual sales at this point, Jon?

Mark, any --? I think you are going to see it at -- certainly not the level of where we've had the last couple of years. I think we've demonstrated that by getting rid of the Reem. So I think we will run at lower levels for the next few years would be my expectation. I'm not sure I want to peg a number, but certainly not at our apex and probably a little bit towards the middle to lower end of what we've done the last five years or seven years.

That makes sense. All right, my last question --

Mark, does that make --

Yes, agreed, Jon.

All right. And then last question, just annual revenue capacity of the asset you sold internationally -- what was that?

First of all, the vessel has been idle. So it really hasn't been doing any work in 2016 at all.

Didn't it do anything on Suez?

No.

No. Matt, just so everybody remembers, and I think we talked about that, we bought these two assets probably -- the sister ship, the [Noon] -- we bought both of them, I want to say, in 2009, 2010, to work in some projects in the Middle East that we had and we could use capacity. They have never been real drivers of business for us, and I would suggest to you that over the life of us owning those assets, we haven't had a positive return on them.

So when we -- as we've talked about and as we get have been doing, we continually look at our lead. We try to get rid of assets that are not providing us a return. And hopefully, when we execute well on the ATB we have other opportunities to -- continually to upgrade our fleet for the next 20 years.

But these assets haven't really been positive performers the whole time. As Mark says, the last probably year and a half, I think, has been idle almost the whole time.

All right. Thanks, guys.

And I am showing no further questions at this time. I'd like to turn the call back over to Mary Morrissey for any closing remarks.

Thanks for joining us this morning and we look forward to talking with you in November.

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.