Great Lakes Dredge & Dock Corp (GLDD) 2018 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Great Lakes Dredge & Dock Corporation Fourth Quarter 2018 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 presentation, Ms. Abby Sullivan. Ma'am, please begin.

Thank you, and good morning. Welcome to our quarterly conference call. Joining me on the call this morning is our Chief Executive Officer, Lasse Petterson; and our Chief Financial Officer, Mark Marinko. Lasse will provide an update on the events of the quarter and the year, then Mark will continue will an update on our financial results of the quarter and year. Lasse will conclude with an update on the outlook for the business and market for the coming years. 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 2017 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 from continuing operations reconciliation attached to our earnings release and posted on our Investor Relations website, along with certain other operating data. During this call, we will also exclude our restructuring costs and certain financial measures to allow the users of the data to better evaluate our financial results from operations as compared to the prior year. Reconciliations regarding these non-GAAP measures are included in our fourth quarter earnings statement released this morning.

And with that, I'll turn the call over to Lasse.

Thank you, Abby, and good morning. As stated in our earnings release this morning, we had a strong fourth quarter and a significantly improved full year results, with net income from continuing operations of $11 million and a full year adjusted EBITDA from continuing operations, excluding restructuring, of $109.8 million.

Before discussing our financial results, I'll start with the moment on our safety culture. We continue to improve our safety performance throughout the year, seeing a 27% decrease in recordable injuries year-over-year. Our incidents and injury-free safety culture drives personal responsibility for safety, care and concern for one another. We strive to create the safest projects and facility sites in the dredging industry, and I'm encouraged to see that our employees use our safe work practices at home as well.

In addition to safety, the company aspires to follow the best-in-class environmental, social and governance processes in everything that we do. Our business is focused on ensuring that our nation's shorelines and navigation channels are protected and potential risks associated with storms and sea change are mitigated. We are committed to ensuring that all projects are executed in strict conformance with project-specific environmental standards, and we strive to mitigate any impact to the environmental and sea life in the areas of work. We look forward to sharing more details on these processes in an environmental, social and governance report that will be published later this year.

Now returning to our results for 2018. This year was one of significant transformation at Great Lakes. Our adjusted EBITDA from continuing operations, excluding restructuring, nearly doubled to $109.8 million or 17.7% of revenue. Net income from continuing operation, excluding restructuring, was $22.9 million or nearly 4% of revenue. These improvements are a direct result of the restructuring program implemented in late 2017 and executed with energy and focus in 2018, in combination with our strong performance on projects in a solid domestic dredging market.

During the year, we also achieved a net debt reduction of $115 million, which resulted in a healthy net debt to adjusted EBITDA from continuing operations ratio of 2.98.

As we finished the fourth quarter of 2018, the port deepening projects in Charleston, Tampa, Delaware and Jacksonville were in full production, with work continuing into 2019 and also into 2020.

While we are excited about the results of this year, we recognize that we must continue this disciplined performance for the years to come. We look forward to continuing to work with the teams in Great Lakes to ensure we remain committed to a culture of excellence in operations and project execution while, we continue to reduce debt and improve our balance sheet.

Our expectations for the start of 2018 was a solid end market, which ended at a record of $1.8 billion, giving us a backlog at December 31 of $707 million, of which $447 million was capital work, mainly comprised of port deepening projects.

On December 31, the first phase of the Corpus Christi port deepening was awarded at $93 million, which added a fifth deepening project to our already strong project portfolio.

In the first 6 weeks of 2019, we have added an additional 4 -- $40.5 million in projects -- of project work to our backlog. We expect this strong domestic dredging market to continue for the next 3 to 4 years. And our focus will be on port deepening, on LNG export facilities port constructions, and on beach renourishment projects.

We look forward to continued partnerships with the United States Army Corps of Engineers, port authorities and energy companies to ensure the safe and successful completion on these projects on time and on budget.

As noted in our earnings release this morning, we have reviewed the E&I segments and have concluded, while it has experienced good improvements from prior years, the business itself does not align well enough with our core dredging business to continue operating it under our portfolio of assets. As a result of this review, we have determined that we will divest of the business and expect to complete the sale by the end of the second quarter this year.

I commend Chris Shea the E&I team for the hard work over the last years in their improvement of processes and operational diligence, which we believe has positioned the segment for a strong future.

And with those updates, I'll turn the call over to Mark to discuss the results of the quarter and year-end and for an update on backlog development.

Okay, thank you, Lasse. Consistent with our most recent earnings releases, some of the financial results released this morning were in a slightly different format than the prior years. The results included the financials as reported, which include restructuring charges as well as certain financial measures excluding restructuring charges to allow the reader to better evaluate our financial results as compared to the prior year.

As noted by Lasse and disclosed in our earnings release, the E&I business has been discontinued and thus is not included in consolidated results from continuing operations.

I will start with the quarterly and annual consolidated results and then discuss some specifics related to our dredging business. Please note that all results discussed will be operationally focused and do not include restructuring charges. I will provide specific commentary on the restructuring charges near the end of my comments.

For the fourth quarter of 2018, revenues were $173.2 million; net income from continuing operations was $8.9 million; and adjusted EBITDA from continuing operations was $33 million.

Total companies for the fourth quarter of 2018 represented a $20.5 million increase compared to the fourth quarter of 2017. The revenue increase was caused by strong utilization on our vessels, as they worked on capital and rivers and lakes projects.

Total company consolidated gross profit from continuing operations was $36.9 million compared to $16.7 million in the fourth quarter of 2017. Gross profit margin was 21.3% compared to 11% in the prior year quarter. Total company operating income was $21.7 million, which is an increase of $18.7 million over the prior year quarter. The increase is driven by high utilization of our fleet, strong project performance, lower plant expense, and savings from asset rationalization and cost-saving programs. These factors were partially offset by an increase in G&A expense in the fourth quarter related to incentive compensation.

Net income from continuing operations for the fourth quarter of 2018 was $8.9 million compared to net income from continuing operations of $11.8 million in the prior year quarter. The current quarter net income includes net interest expense of $7.9 million and an income tax expense of $4.6 million.

Net income for the fourth quarter 2017 included $7.6 million in net interest expense and a $16.6 million income tax benefit. Please note that the fourth quarter of 2017 was positively impacted by a tax benefit of $15.7 million related to the passing of the Tax Cuts & Jobs Act of 2017.

Adjusted EBITDA from continuing operations for the fourth quarter of 2018 was $33 million compared to adjusted EBITDA from continuing operations of $16.6 million in the fourth quarter of 2017.

Now turning to our full year results. For the year ended December 31, 2018, revenues were $620.8 million; net income from continuing operations was $22.9 million; and adjusted EBITDA from continuing operations was $109.8 million. These results represent a $28.6 million increase in year-over-year revenue, an increase in net income from continuing operations of $20.7 million, and an increase of $52.6 million in adjusted EBITDA from continuing operations.

For the full year, the company recognized the loss from discontinued operations net of tax of $17.3 million compared to a loss from discontinued operations net of tax of $15.9 million in 2017. The 2018 full year loss includes a $14.1 million preliminary loss on disposal of assets held for sale. Excluded from the results I just discussed were charges related to our restructuring plan.

During the fourth quarter of 2018, we recognized a charge of $5.3 million related to restructuring, which had a $4.6 million impact on adjusted EBITDA from continuing operations. For the full year 2018, we recognized a charge of $16.1 million, which had a $9.4 million impact on adjusted EBITDA from continuing operations.

During 2018, we achieved $35 million of savings as a result of our cost reduction initiatives. As of December 31, 2018, we have completed this restructuring plan and do not expect to recognize any additional charges in 2019.

Next, we turn to our balance sheet, where at December 31, 2018, we had $34.5 million in cash and had drawn $11.5 million on our revolver, leaving us with net debt of $299 million. As Lasse noted, we have discussed throughout the year, the focus in 2018 has been bringing health back to our balance sheet with debt pay downs. We are pleased with the progress made thus far and expect the revolver balance to be paid down fully in the first quarter of 2019.

Our total capital expenditures for the year was $38.1 million. During the fourth quarter, the company spent $13.6 million on a clamshell dredge that was purchased from a competitor who was exiting that market. We will make a final payment of $10 million in the first half of 2019 for this dredge. This mechanical dredge will increase the company's capabilities to perform deepening work under strict environmental water quality requirements in the southeast United States.

Finally, the 2018 bid market totaled $1.8 billion compared to $1.2 billion in 2017. On December 31, 2018, we were awarded the first phase of the Corpus Christi deepening project, and since year-end, we have been awarded an additional $40.5 million in project work, which will be added to backlog in the first quarter of 2019.

For the full year 2018, the company won 45% of the overall domestic dredging bid market. This rate is in line with our prior 3-year average run rate of 46%. Please remember that variability in contract wins from quarter-to-quarter or from year-to-year is not unusual, and the win rate is not indicative of the win rate the company is likely to achieve next year.

During 2018, Great Lakes won 62% or $476 million of capital projects awarded; 62% or $171 million of the coastal protection projects awarded; 13% or $82 million of maintenance projects awarded; and 53% or $82 million of the rivers and lakes projects awarded.

Contracted backlog at December 31, 2018, was $707 million compared to backlog at December 31, 2017, of $511 million.

With that, I will turn the call back over to Lasse for his remarks on the outlook moving forward.

Thank you, Mark. Turning to the outlook for 2019. We expect the domestic dredging market to continue to be solid. Our focus is to remain on the large and technically challenging port deepening projects where we can excel with our technical expertise, experience and diversity.

Several additional phases of projects where we are already performing deepening works are expected to bid in the second half of 2019. Additionally, as a result of the extreme storm systems in 2017 involving hurricanes Harvey, Irma and Maria, the U.S. Senate Committee on Appropriations passed supplemental appropriations for disaster relief and recovery, which includes $17.4 billion for the corps to fund projects that will reduce the risk of future damage from flood and storm events.

During the fourth quarter of 2018, Congress passed an additional $1.7 billion of supplemental appropriations for disaster relief funding as a result of Hurricane Florence. We expect new projects to be funded by these appropriations to start bidding in the third and fourth quarter of this year.

With regards to the government shutdown earlier this year and with the newly declared national emergency by President Trump, we have not seen, and at this point in time, do not expect to see any major impact on the dredging market for 2019.

Moving to the international markets. We have mobilized on a project in Bahrain which will keep our fleet busy in 2019, however, only at an expected breakeven contribution level.

We expect the market to start improving in 2020 and beyond.

In conclusion, with a strong backlog, the new Ellis Island hopper dredge up to full production capacity for a full year, and an additional $5 million expected in cost savings from the restructuring, we anticipate 2019 to be another solid year. We expect high project activity in the first half of the year. However, 2019 is a heavier than normal dry docking year, which will impact the fleet utilization in the third and fourth quarters. We anticipate the net adjusted EBITDA impact from higher dry docking activities to be approximately $10 million depending on timing.

2018 was a successful year, showing that with the changes we implemented, we now have the opportunity to perform well in a good domestic market, delivering projects safely, on time and on budget, resulting in quality work to our clients, a safe working environment for our employees and improved positive returns to our shareholders.

And with that, I return the call over for questions.

(Operator Instructions) Our first question or comment comes from the line of Andrew Casella from Deutsche Bank.

I guess can you first talk a little bit about what happened that you guys finally decided to kind of market E&I? I mean was the -- was, I guess, the prospect of turning the business around. I know it sounded like it was getting some foothold, but it sounded like it was -- came to a fork in the road, and you decided to ultimately divest it. And then second question is, as we think about potential proceeds from the business or if there's any other charges or whatnot to kind of prepare that for sale and who potential buyers would be?

I think I'll comment on the process heading up to the decision on E&I and then Mark will comment on the financial impacts. When I took the position here in the company, well, it's now 18, 19 months ago, we started with focus on the business to look at all aspects of our assets, including the businesses. We rationalized the fleet. We did cost reductions. And that resulted in the restructuring plan which has been implemented. And that took a lot of energy and focus. And as we were going through this process, the E&I, led by Chris Shea, also improved the performance in that segment. However, when we look at the future, we need to focus our energy and our capital resources where we believe, it's -- give the best return for our shareholders, and also the strategic alignment between the dredging and E&I, the synergies, the overlaps were not as prominent as I think was seen in the outset. So that led to the conclusion that we need to find a better place for E&I going forward, and we made that decision late last year. And Mark, can you comment on...

Yes. On second half of your question, Andrew, so we're in the middle of the process, so we cannot disclose any kind of price or proceeds at this time. But included in the press release, we have booked a charge related to the estimated loss on the sale as required by GAAP. We don't expect any material change from that number in the future.

Okay, got it. That's helpful. And then just my second question would be, as we kind of think about 2019, I knew -- I appreciate that you guys said there's going to be $10 million of kind of a year-over-year headwinds related to higher dry docking. But as we kind of think about the run rate as you guys exit 2018, I mean the kind of second half was about $70 million. Can you just help us understand how we should think about the quarterly performance or the kind of direction and seasonality as we think about 2019 with -- notably with the second half of '19 having some headwinds related to the dry docking [fence]?

Yes. Sure, this is Mark. So that's why we intentionally kind of talked about where we had strong, compared to I'd say that when you look at 2018, the second half of the year was much better performance than the first half of the year. So we do expect, as Lasse has said, higher utilization in the first half of the year related to the port deepening work we have. And then when you get to the back half of the year, we do have more dry dockings of vessels that lowers the utilization. So you much -- have a much -- as opposed to in the prior years where we have -- maybe our third quarter would be our strongest quarter, the third quarter would be, for the year, a weaker quarter, but it's a much more smoother quarterly -- quarter-to-quarter throughout the year as opposed to in the prior years.

Got it. And then so I guess asking the question in a different way. So when we think about the first quarter relative to the third and fourth, so it sounds like third quarter was obviously kind of banner quarter. Fourth quarter had some downtime or whatnot. I mean is kind of the new run rate we should think about or the new kind of like base line for quarterly EBITDA that kind of was the 3 handle in your opinion or high 2s?

So a little bit -- in terms of this quarter, when you look at -- yes, the third quarter was really an exceptional quarter, and we talked about that last time, that the fourth quarter would be a decent quarter, but not as good as that. But as you talk about the run rate, we did have in this quarter some really exceptional performance on projects, really, really good. So this is -- even this quarter, say, still a little bit of I would call an exceptional quarter for us. So when you talk about looking forward, I don't give guidance, it's still a little bit of an exceptional quarter for us.

Our next question or comment comes from the line of Jon Tanwanteng from CJS Securities.

Can you break out the operating income and maybe the D&A for the E&I business in the quarter as well as the charge that you took from moving to disc ops?

So the charge was $14 million. So when we talk about the overall disc ops breakdown, it was $9 million from operations for the entire segment, of the $14 million charge, and then the tax of -- then we have tax effect of that of, I think it was about $6 million to net -- hold on, Jon, I got it. Yes, so that's why we've got this $17.3 million charge. So $9 million on -- $9 million from the operations, $14 million from the loss and then the $6 million tax effect to that net benefit from that for a net of $17 million.

Great. And have you been in contact with potential buyers for this asset yet, or is it still too early in the process?

No. We are in the middle of the process right now.

Okay. Are there potential bidders or do you…

I can't -- I don't want to talk anymore about the process. But as we have stated, we expect to sell this or divest of it in the first half of 2019.

Okay. Fair enough. Lasse, what are the major awards or lettings that you're expecting to come out in 2019 from a large port deepening perspective, major coastal work or even these large LNG facilities that you've been talking about?

Yes. As you know, starting with the LNG facilities, there is a huge increase in LNG exports from the U.S., so the previous built-in port terminals are now being reversed and end up being exporting LNG to the world, which is a fantastic development for the U.S. and also for the energy business. And when you do this, you need to change the port facilities at the same time, and that gives us a good opportunity to work for energy companies and broaden our, let's say, portfolio of the clients. On the port deepening projects that we already are engaged in, we expect that Savannah will come out with additional work in the second quarter of this year. And we also expect that Corpus Christi will follow up with an additional phase of their deepening project. And those are the main ones. There may be additional work also on the Charleston and Jacksonville projects later in the year. And for us, this is good. We already mobilized on the project. We are doing good work. And we are hopeful to be able to then continue to work on these projects as the new phases are being bid. There is also new large projects being announced for the Mississippi Coastal Improvement Program, the Phase 3. We did the Phase 1 of that project, and that is also coming out sometime towards the end of the year.

Great. And then the -- just what happened in international in the quarter? I thought you might be doing some business there, didn't look like you did. Was there a delay of some sort? And then kind of what gives you the confidence that 2020 will be that much better?

Well, as we have reduced our, let's say, activity in the international market over the last year, we do have backlog now for the fleet that we want to keep in the international markets for 2019. We do see good developments. Oil price is up, which is a good indicator for the work that will come up in the Middle East. And then new large infrastructure projects are being planned to start up in 2020 and on and beyond. That will improve the general market internationally. But as I said, for 2019, we got our backlog covered. Unfortunately, not at margins that we would like to see, but it keeps the fleet busy.

Okay, great. Finally, on just any closer to any capital spending positions on new dredges? I know you got the clamshell in the fourth quarter. Is there anything else in the pipe for 2019?

Well, what we do, we plan for the future, and we are looking at concepts and designs for new dredges. However, we will wait and see when it's prudent to invest in new capacity in the market and wait for those decisions when we see that our balance sheet is at a healthy level and this is -- is a good time to invest.

Our next question or comment comes from the line of Joseph Farricielli from William Blair.

Can you talk a little bit about working capital expectations for this year now that we're looking at just dredging operations?

Yes, sure. So this is Mark. Yes, so we will see a -- with the backlog we have, first of all, the overall working capital won't be that material to free cash flow next year, but it will be a little bit negative as you -- as we have a big backlog, expect some increased revenues for next year. You have a little bit of a higher AR. You won't have the large positive impact that we had this year as we had some items in coming into 2018 that were sitting in our work in process that did turn into cash. So we don't have a big work in process going into 2019. So it will be a little bit negative, but not a material amount impacting free cash flow.

Okay, great. And then next question would be, with the dry docking, is this related to regular safety checks that you have to do on your equipment? What -- could you give me a little more color behind that?

Yes, sure. Yes. Those are regulatory dry docks. You just have some cycles that you have more in a certain year, and we're in that cycle for 2018. And these are all regulatory through the Coast Guard to keep them in class.

Right. So what percentage do you think your -- I'm sorry, you mean 2019, right?

Yes.

Yes, go ahead.

Yes. And what percentage do you think you're at of the fleet for 2019?

You mean percentage of vessels that are in a dry dock?

Yes. Just wondering what your cycle is for the safety -- the required safety checks and stuff like that.

Yes. So generally, these vessels go through a major regulatory dry dock every 3 years. So think of it from the aspect of -- thinking -- a 33% type of cycle on an average, and this one's just a little bit higher than 2018.

Okay. So maybe pushing a little closer to 40% this year instead of a 33.3% that you traditionally see?

Yes. And obviously, they don't take up the entire year, so you're generally in these dry docks for 2 to 3 months.

Okay. And what -- historically, what kind of -- could we see higher CapEx from this that you don't anticipate because of Coast Guard saying fix this, change that? What's the traditional impact there?

Yes, yes. You do have CapEx, the $10 million number, talking about expense. You do have CapEx, it can be related to these dry docks, but that is included in the $40 million number that we said was our expected CapEx for 2019.

Our next question or comment comes from the line of Poe Fratt from NOBLE Capital Markets.

Could you give us the aging of your backlog? It went up to what, 708 -- or $707 million. What -- if you can give us sort of what the 2009 timing -- or '19 versus 2020. Any color on the timing of the backlog would be helpful.

Yes, I can give you a pretty close to what to expect. So we expect in the highs -- so that $707 million, we expect in the high 70% to be earned in 2019.

And then, Mark, as far as the foreign project, is that all 2019 business, or is that going to be spread out over a couple of years?

It's all 2019.

And then when you look at there -- was a little bit of a big drawdown in coastal protection, third quarter backlog to fourth quarter backlog, do you see a continued draw over the course of the year? Or do you think that the awards will be enough to stabilize that backlog? And sort of just color on where you think you maybe -- in your 2000 -- year-end 2019 backlog might end up.

Yes. So we expect that, yes, we'll have some awards that will bring that back to where it was, maybe even up a little bit.

Yes. I think to comment on that. There is through the supplemental appropriation that has been made already, those projects are coming to the market here during 2019, and we expect those projects to bid quite actively towards the second half of the year, and that will then replenish our backlog with beach restoration and wetlands improvement projects.

Great. Mark, could you bridge -- cash went up about $11 million over the course of the quarter, quarter-to-quarter. Can you just sort of bridge the cash flow for the quarter? It looks like you used about $20 million to pay down debt. Operating cash flow looked like it was $21 million or so. Can you just sort of fill in the -- or fill in the plug there? Was it all working capital? Or what -- could just help me understand sort of the cash bridge, third quarter to fourth quarter?

Yes. So we had the CapEx in the quarter with the -- there was the new clamshell that almost $14 million, $13.6 million being the major CapEx piece of that. But yes, the rest of it was working capital. We had a little bit of limited, I'd call it not that material, in terms of selling some assets related to our restructuring, but yes, the rest of it would be -- the plug would generally be working capital there.

Great. That's helpful. And then the $14.1 million charge, what did that take the E&I business down towards as far as what's on the books right now?

So we're in the middle of the process, so I don't want to talk about any of the details around the E&I numbers at this point in time, so just I'm going to have to leave it at that at this point.

You can't give me the number that was written down to?

No.

(Operator Instructions) Our next question or comment comes from the line of DeForest Hinman from Walthausen & Co.

Congratulations on the margin performance. It's a pleasant surprise. I know you've been working very hard on improving the discipline, and you had a nice tailwind with bids coming in from a volume perspective and winning some of those bids. When we look at overall performance in the second half of 2018, and I know you stated that that was some very strong performance, but with a full year expectation of the Ellis Island, are we seeing a reset higher of what we should be thinking about from a gross margin perspective going forward versus what we've seen over the last 3 or 4 years in the dredging business? That's my first question.

Yes. So when we talk about the -- yes, from a margin percentage perspective at -- the kind of the gross profit margin line, our expectations for next year are to have pretty similar margins that we achieved this year for the full year. What's driving that is exactly what you said, kind of the full year effect of the Ellis Island with some offset from these additional dry dock expenses which are above gross profit next year. So from a margin percentage, it's going to be relatively flat with the full year 2018.

And I guess maybe a different way going forward, is this a business that we think with some of restructuring actions you've taken, the discipline, Ellis Island, is this -- ex-dry docks, is this a business we should expect to generate 20% gross margins? On a gross margin...

Yes. Thinking the -- since this is a higher dry dock year, yes. I would say yes. You can -- we can approach that number, yes.

In 2019, or are you saying ex-dry dock...

No. In 2019 -- we did $19.4 million from continuing operations at that gross profit line. So we think it's going to be similar next year.

Okay, that's helpful. And then you gave some of the CapEx numbers. You've given a broader outlook for 2019, and just back of the envelope, I'm looking at the cash flow, I always think that's important, especially with some of the goals you guys are trying to accomplish with reducing net debt, $40 million of CapEx, expectations you gave for revenue, backlog burn, gross margins, is this a business that can do $65 million, $70 million of free cash flow next year, which should give us about a 10% free cash flow yield or sorry, I'm charting that plus 10% -- 13% free cash flow yield. Is that the type of forward free cash flow yield that's possible for this business right now?

Those -- that -- that -- the expectation at that level, it's -- that's, I would say, possible, but that's a lot of everything being fully utilized, I call it a lower dry dock year. We don't expect to be at that high of a level, but we do expect some really solid free cash flow in 2019.

Okay, that's helpful. And then when we start to think about that cash, obviously, a high level problem, because we can't call our bonds really I guess until 2020 and if we even do that at 2020, it's at [104]. What do we do with the cash? And it sounds like we're being patient with how we're looking at adding vessel capacity, and I think some previous statements were that that's not something that's really even near term. What do we do with the free cash flow?

So at this point, yes, that's a nice problem to have. We haven't had that problem in the past. Obviously, we focused on paying down debt. So still, as we mentioned the first quarter here, we want to half the remainder of that revolver, and that's the first piece of that. But as we look forward, I would think this is more of a discussion point for 2020 as opposed to 2019. But as Lasse said, we're going to look, we do have to look at the options of prudent investments in our fleet in a similar way of how we've looked at the rationalization of our assets. And as we do invest in new assets, what do we do with the assets we have in terms of, do we retire those, retire those, keep those, based on what the market looks going forward. So it's probably more a discussion for 2020 as opposed to 2019 because we still have a little bit more debt to pay down. And we, as Lasse said earlier, we are looking at designs related to where we want to invest in dredges in the future, and we're going to do that at the prudent time. But as far as -- we still have some -- still, we're definitely in a much better position, but we still want to make sure we are prudent and disciplined, and make sure we close this out to where we want to close it out to at this point.

And thinking about that 2020 discussion, we look at some of the Jones dredges, the 79 vintages and early 80s vintages, is that the areas where we need to think about doing replacements of those vessels or major overhauls of those vessels? Or are we thinking more internationally at investments?

Yes. We are looking at all those aspects, we -- as the only U.S.-based dredger who has international operations, that has been a good market for us when that market is good. And when we look at new investments, we are considering both the domestic market and also the international markets. But as Mark was saying, we want to be prudent with new investments. We are investing into our most productive vessels at this point in time. How do we improve the availability, the reliability of our existing fleet, make sure that we optimize our uptime, and through that, optimize our earnings and production. And then secondly, we are looking at new investments which will be replacement investments in the domestic market. We are doing the design of the new vessels at this point in time. However, investment decisions would come when we feel that's prudent.

Okay, that's helpful. And then lastly -- I'm sorry, 2 more questions. It might have been answered, I might have missed it. On the Bahrain project, is that -- what is the revenue recognition on that project going forward? Is it over 2019 or is that going...

Yes. It's just 2019. Doesn't go into 2020.

Is it -- and that should we -- pretty evenly weighted for the year or is it a little more first half?

No, it's actually more in the first half of 2019.

Okay. And then last question. E&I sales process, I know we're not making much of comments, but just my understanding of businesses of some branch offices, some rented equipment, and I believe, some owned equipment, the sales process you've laid out seems to be pretty aggressive in terms of getting that finished in the first half of this year, only really 4 months remaining. When we think about that sale process, the business strikes me as a business that potentially could be sold as a whole, but given the mix of the business, it might even lend itself to an auction process which is sell the assets and exit that business, is that a potential option that gives us the confidence that we're out in this business in the first half of 2019?

So as the press release said, I'm trying to stick to the press release at this point. We've hired an outside firm. We're in the middle of the process right now. And so I really can't comment any more on that at this point in time.

Our next question or comment comes from the line of Nelson Obus from Wynnefield Capital.

A remarkable pay down of debt, extremely remarkable. Just a couple of questions. And I know you want to keep avoiding questions about the environmental side. But you do have a number in the K of $78.8 million, I believe, for the total assets in that division. And so would that be appropriate to use as a number that we would subtract the write-off from? I mean that's just a technical question, it's just the yes or no.

I don't recognize that number, Nelson. Would you mind...

Well, it's under segment information in your K. Environmental and infrastructure, that's Note 18. It shows total assets of $78.8 million for the environmental and infrastructure business. So that means, it's in there. I -- if you don't want to deal with it, we can forget it, but I mean there is a base...

Yes, that's only, obviously, a -- so technically, that calculation, no, that's not right. You have to look at the assets and liabilities of the business. But obviously, that numbers from last year's K. Things have moved from there. But anyways, that just answer your technical question, no, that's not how you would calculate it.

All right, fine. If you were to make a decision to invest in a fleet, and I guess it may depend on exactly which type of a dredge or whatever you determined you want to order. And you put the order in, how long would it take on average between when you put the order in and when it would be ship-ready?

It depends on the size and the type of vessel. But the reason for doing the design now is we are then accelerating the schedule, so we have everything ready to put it into a shipyard when we make the investment decision. So from this point on, when we have the design ready, it would take between 2 and 2.5 years.

Wow! So it's a long lead time, and okay, interesting. And finally, what is it in the international market? Obviously, the competitive picture there is quite different. But can you give us a sense of why you have a level of confidence that things will improve? And if we can be competitive there, is it simply capacity utilization of your competitors, or is there other -- are there any other factors to take into consideration internationally, because it is a tougher [slot]?

Yes. For us as a U.S.-based dredger, I do believe that from 128-year-old history, that we have competence and the knowledge to be able to compete head on with the international competitors on projects. It depends on the nature of the project. It depends on the nature of the equipment that is being utilized. So the fact that we have been successful in working internationally for many years, I think that is something that should be recognized. And we are at this point in time in the international markets looking at fleet utilization that is probably in the range between 50% and 60%. And in order to move the needle on that international market, you need a good oil price which drives the Middle East market and then you need larger infrastructure projects, that are being discussed, but has not been funded. There's a huge project going on in Europe, linking the northern part of Europe to the southern part of Europe, which includes work between Denmark and Germany. That's one of these projects. There's discussions about second canal between the Red and the Caspian Sea. Once these larger projects, as it happened with the Panama Canal and with the Suez Canal, when they kick off requires a huge fleet or dredges to carry them through, and that is what I think will be the signs of a recovery in international market.

Okay. And finally, just to reiterate, I think the greatest challenge at least from my perspective was debt reduction. And the magnitude of that reduction is sort of unprecedented in terms of my experience. And congratulations, it really has some transformational implications.

Thank you, Nelson.

Our next question or comment comes from the line of Bill Feeley from Feeley Capital Markets.

I'm just curious, in the Mid-Atlantic this winter, we had kind of a couple of hellacious weather events, cold in one case and a lot of snow in another. I'm curious how your utilization on projects in that area worked out vis-à-vis your planning for weather days?

Yes. We have a long track record in the dredging business, and we've been doing these projects over and over in the different ports, so we have good estimates on how weather impacts us. Clearly, there are years where the weather impact is stronger and years where you have less weather. But over time, it evens out, but it could include that in estimates for our project, and that's really how you handle it.

So nothing unusual in this year's cycle from being from -- from heavy weather exceeding your allowances or the other way around?

On average, I would say, no, but we have seen some very strong weather on the East Coast of the U.S. here during the, let's say, the latter part of the year. In Charleston, for instance, the sea state has been extraordinary, but we have been able to work around that and get good performance on the project. And then on other geographies, we've seen better weathers. But on average, I would say it's an average year.

I'm showing no additional questions in the queue at this time. I'd like to turn the conference back over to management for any closing remarks.

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

Ladies and gentlemen, thank you for participating in today's conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.