Mary Morrissey - Director, IR Jon Berger - CEO Mark Marinko - SVP, CFO.

Will Green - Stephens Incorporated Scott Levine - Imperial Capital Jon Tanwanteng - CJS Securities John Rogers - D.A. Davidson Stephen Hansel - Eclectic Investment.

Good day, ladies and gentlemen and thank you for standing by. Welcome to the Great Lakes Dredge & Dock Corporation First Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time.

[Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's presentation, Ms. Mary Morrissey. Ma'am, please begin..

Thank you. Good morning. This is Mary Morrissey and I welcome you to our quarterly conference call. Jon Berger, our Chief Executive Officer; and Mark Marinko, Chief Financial Officer will discuss the operational and financial results for the quarter ended March 31, 2016. 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 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 Web site along with certain other operating data.

I will first turn the call over to Jon Berger..

Thank you, Mary. I would like to start by remaining everyone that the Board is continuing to review strategic alternatives. As we announced in early November, we retained Greenhill & Company to serve as financial advisor in connection with the process of reviewing the strategic alternatives.

We are committed to evaluating all alternatives in order to maximize shareholder value. Since it continues to be ongoing we will not provide information or take questions on this call and we cannot speculate on when we will provide an update. With that, I'm going to ask Mark to go over the first quarter results..

Thank you, Jon. The total company revenues in the first quarter of 2016 were $163 million about 7% lower than the first quarter of 2015.

Our Dredging segment revenues were down 6% in the current year quarter at $145 million primarily driven by lower foreign capital revenue, which was partially offset by higher domestic capital, costal protection and rivers and lakes revenue.

Our environmental and infrastructure segment formally referred to as our Environmental & Remediation segment had a decrease in revenue of 11% to $19 million in the first quarter as was the case last year during the first quarter. This segment was in a seasonal low point during the quarter.

We have also have been more selective in the types of projects pursued. The total company gross profit margin for the quarter increased to 12% compared to 6% for the first quarter of 2015.

Our dredging segment's gross profit margin improved to 16% from 12% in the first quarter of 2015 with strong performance and several costal protection and domestic capital projects being the primary factors.

I'd like to note that we experienced this improvement in gross profit margin despite the absence of a high margin foreign contract which we had in prior years. Limited mechanical downtime or weather delays as well as overall domestic project mix positively impacted the first quarter results.

The Environmental Infrastructure segment made improvements in the first quarter, the segment's negative gross margin of 18% for the first quarter this year is compared to a negative gross margin of 35% in the first quarter and the prior year.

The negative gross profit for the quarter was $3.4 million in the first quarter of this year compared to negative gross profit of $7.6 million during the first quarter of 2015.

The primary drivers for the improvement in negative gross profit results are; first, the successful resolution of approximately $2 million in change orders and claims, additional project profits are approximately $2 million, lower overhead from our -- primarily related to lower labor expense of approximately $0.50 million and the absence of approximately $3 million in project losses that were incurred during the first quarter of 2015.

These projects were completed in 2015. These improvements were negatively impacted by a new project loss of approximately $3 million on a project that was reported during the first quarter.

The loss occurred due to a combination of factors all of which began occurring during the first quarter including weather delays, high water impacts and hazardous waste impacts. We have notified the client and they have acknowledged the different site conditions and weather delays, but we have not finalized the change orders.

This was the last large project that was bid before we put in place our enhanced risk assessment controls around project selection estimating and execution under Chris Shea. Overall, the company recorded a small operating loss of $100,000 for the quarter, an improvement from the operating loss of $7 million from the prior year quarter.

Operating income in our Dredging segment increased to just over $10.6 million for the quarter up 34% from the same period in the prior year driven by higher gross profit margin, which was partially offset by higher G&A expenses primarily related to higher labor and legal expenses.

The Environment Infrastructure segment reported operating loss of just under $11 million and improvement of almost $4.5 million compared to the first quarter of 2015. The improvement is primarily attributable to the improvement in negative gross profit.

Turning to the Dredging segment; the domestic dredging bid market for the first quarter of 2016 was $126 million down compared to the first quarter of 2015 by approximately $122 million. The first quarter last year included the award for the $134 million Savannah Harbor deepening project.

In total, the company won 66% of the overall domestic dredging bid market during the first quarter of 2016, which is above our prior three year average of 49%.

Please remember that variability and contract wins from quarter-to-quarter is not unusual and the win rate for one quarter is non-indicative of the win rate the company is likely to achieve for the full year.

In the first three months of 2016, Great Lakes won 100% or $27 million of the capital projects awarded, 100% or $40 million of the coastal protection project awarded, 17% or $7.5 million of the maintenance projects awarded and 57% or $9 million of the rivers and lakes projects awarded.

Contracted dredging backlog at March 31, 2016, totaled a robust $633 million compared to a backlog at December 31, 2015 of $678 million.

Subsequent to quarter end, we executed a $38 million contract for a coastal protection project in North Carolina that is being conditioned upon the North Carolina local government commission approval, which is expected in the second or third quarter.

Internationally, we signed two sub-contracts valid at over $55 million for work on a land development project both in the middle -- projects both in the Middle East. One project commenced in April, and the other is expected to begin in May. This project will keep a significant portion of our fleet utilized through the end of the year and into 2017.

Finally, the Environmental and Infrastructure segments backlog was $77 million at March 31, 2016 a $4 million increase compared to year end backlog. Moving to the balance sheet, at March 31, 2016, we had nearly $16 million in cash on our balance sheet compared to $14 million at the end of last year.

We had drawn $35 million on our revolver and had $49 million in outstanding letters of credit, leaving us with $120 million in availability on our credit facility.

At the end of the first quarter, our ratios were within our bank governance, total CapEx for the quarter was $17.5 million including $12 million in growth CapEx, which included approximately $8.4 million for the ATB with the remainder in maintenance CapEx. For the remainder of the year, we expect to spend $45 million on the ATB.

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

Thank you, Mark.

Before discussing first quarter results and our outlook for the rest of the year; I would like to point out that Great Lakes is participating with more than 15 national and global construction firms that comprise the construction industry safety group in the injury and incident free CEO forum, a joint force with a single aim to inspire everyone in the industry to be leaders in safety.

This week we are celebrating the third annual safety week. Although, the types of construction projects on which we work vary, one goal connects us all, safety. We have committed at Great Lakes to promote a safe work environment so that every employee goes home safely.

I want to take a moment to thank our employees for supporting safety and recognizing their efforts to be injury free. Let's remain focused on safe project execution. Additionally, for everyone on our call, I ask you to take a moment to think about your safety as you walk through your day.

And while you will not come in direct contact with our workers during your normal day, I'm sure you do see construction workers either when walking near a job site or driving new one. Please be careful of both your and their safety. Safety is everyone's responsibility, which echoes the theme of this year's safety week.

We are stronger and safer together. Turning to our first quarter results. I'm pleased with the improvement we had in our environmental and infrastructure segment, while also acknowledging that we need to continue to make improvements from reduced costs.

Our goal is for that business to return to profitability and we are taking meaningful steps for this to occur, we see improved -- led to the improvement during the first quarter over [last year demonstrates] [ph]. We need to be vigilant as we continue to focus on risk management and project execution.

This starts with job selection, disciplined project bidding and focused detailed execution. Additionally, we need to address change as quickly with our client and be able to recognize additional cost we incur due to these changes.

I'm also pleased with changes we have made to our personnel over the last six months, parting company professionally with those who are not aligned to our vision and being able to attract top-tier talent to replace those in strategic positions.

We should continue to see all these changes result in improved operations throughout the remainder of this year and into 2017. The Dredging segment had a strong quarter with higher operating profit driven by a strong performance in several domestic coastal protection and capital projects.

Revenue for the segment was lower than anticipated for the quarter due to the continued delay in finalizing a contract for a multiyear land reclamation project that we have mentioned during our fourth quarter earnings call. We have a contractual agreement in place, the client's scope of work in the commercial terms.

The client is in the process of finalizing additional matters associated with this project. Although, we were not working in the Middle East during the first quarter, the contracts that Mark mentioned we recently signed -- we have work in backlog to keep a significant portion of our fleet in the Middle East utilized throughout the end of the year.

As a reminder, these projects are not being completed under the tight time constraint that we require on the Suez and Wheatstone projects. As a result, we do not anticipate January in the same elevated margins internationally that we have had over the last several years.

As we have spoken about on previous calls, we have seen our revenue mix shift to higher utilization of our domestic to hedge fleet. And we expect to see choppy times internationally as a result of the slower economies and the political challenges that region faces.

As a management team, we have been able to balance these market dynamics to continue to maintain a strong core dredging business. During the second quarter, our fleet will be executing on several projects in the United States.

We will continue to work on the Baltimore Harbor project, Long Beach Island in New Jersey, Shell Island West and Corpus Christi LNG in the Gulf of Mexico just to name a few.

Turning to the outlook on the bidding market for the rest of the year, I want to remind everyone that we entered 2016 with a significant portion of our backlog in place to meet our expectations for the year. As this backlog will keep wider array of our diverse fleet utilized than in past years.

Strong execution of our backlog is critical to having a successful year. Even with our robust backlog, we are monitoring several attractive bidding opportunities. We expect several coastal protection projects along the East Coast to be tendered most likely during the second half of the year.

This will be funded by the Superstorm Sandy supplemental appropriations. The winter storms experienced during the first quarter may lead to modifications to existing contracts we have in place.

With the Panama Canal opening ceremony scheduled for June 23, we expect to see continued pressure on ports to be deepened in order to accommodate larger vessels coming through the canal. First phase of the Jacksonville deepening is expected to be tendered in the third quarter and we continue to expect Charleston port deepening to follow.

As a reminder, the 2016 Water Resource and Reform Act must pass in all of these projects to move forward. The bill is moving along in congress and we continue to monitor its progress. In Washington, the House and Senate Appropriations Committees are working on the Fiscal 2017 Energy and Water Appropriations Bill, which provides funding to the U.S.

Army Corps of Engineers. While the President continued to cut his spending on infrastructure in his budget, congress increased their spending over -- even last year and continue the upward trajectory of -- on HMTF reform in the quarter's budget that was passed in 2014.

Passing a budget remains challenging, but it's being fast track in both the house and the senate and we are hopeful that even if they are not passed on time, these spending levels will be part of [indiscernible] bill likely to be passed shortly thereafter.

We continue to make excellent progress on our new ATB hopper dredge, the Ellis Island being constructed in Panama City, Florida. We expected two components of the vessel will be launched prior to our next call and final outputting will be done on the water dock side during the next six months.

As of today, we continue to maintain our schedule of having it operational in 2017. There is much work to be finalized, but it is an impressive vessel and our whole management team is focused on getting a complete and in our fleet to start meeting the growing needs of the U.S. maritime infrastructure.

Finally, we would like to take this opportunity to thank our stakeholders for their continued commitment and dedication. And I'd like to reiterate our steadfast commitment to delivering a strong performance for the rest of the year. With that, I'd like to open it up for questions..

[Operator Instructions] Our first question or comment comes from the line of Matt Duncan from Stephens Incorporated. Your line is open..

Hey, good morning, guys. This is Will on the call for Matt.

I wanted to start with the seasonally strong gross margin in the Dredging segment, can you -- and you hit on it a little bit in the prepared remarks, but can you give us more detail on that margin improvement of what we should be expecting throughout the rest of the year for the dredging gross margin?.

So a little bit of detail as we said, in the first quarter domestically in particular, we had good operational production, we didn't have weather delays. And we had actually lower maintenance expense what we call kind of our plant expense during the first quarter.

We expect those types of levels going forward are possible, but there were a lot of good events in the first quarter domestically. Obviously, to offset that a little bit, we don't have the absence of a foreign project in the first quarter, so we should have some pick up on the back half of the year related to the international side of it..

Okay.

And then, going in that leads me to my next question about the foreign dredging segment, but with the new $55 million of awards taken into account, what is your revenue expectation over the next year, call it 12 to 24 months within that segment?.

We generally don't give that type of information out in terms of that individual segment..

Okay. Then, I'm going to pop over to the couple of questions regarding the project that's entered the loss position within E&I.

Where is that project and how long until you believe that project can be closed out and is that -- is that the last project that you would say is at risk in moving into the loss position?.

Yes. It will be finished during the year as Mark said we've talked to our client on that project and they've acknowledged the site differentials and the contractual differences when we are contracted. So, as of today, we've obviously -- our accounting policy is to recognize all the cost and not recognize any revenue.

So it probably won't swing back positive project but it will make up a reasonably [indiscernible] portion of the loss we believe by the end of the year hopefully soon as we got our -- we've got initial claims in front of the client right now..

Okay.

And do you expect to breakeven within the segment to be by or around the end of the year or on a quarterly rate, what quarter do you expect that segment to be breakeven?.

So, as we stated kind of last year, or at the end of last year when you're looking at this year 2016, we are projecting kind of -- we talk about adjusted EBITDA, we were projecting close to breakeven for 2016 and where the -- really when you get to the third quarter that's the large quarter where they turn a large positive for this segment due to the seasonality..

Yes. We've started to ramp up now due to some significant projects on the West Coast and the North Pacific, a project in the Northeast. So ramping up now, so we really start seeing to picking up the second half of Q2 and Q3 is where everything is out and really making hay very similar to last year.

The only difference is, we have some work especially in our non-union segment down in Florida and that continues to grow for us, which is positive. But really you'll see the second half of this year, the second half of this quarter end and the third quarter are really the big, big quarters of this segment..

Perfect. Thank you, guys..

Thanks..

Thank you. Our next question or comments comes from the line of Scott Levine from Imperial Capital. Your line is open..

Hey, good morning, guys..

Hey, Scott..

So just to clarify with your last comment, are you still expecting the business to be close to breakeven this year including the first quarter performance?.

Yes, on adjusted EBITDA, yes..

Yes. No question, Scott..

Got you.

And then, could you remind us, when was that project booked?.

The project was booked probably in August, September it was suppose to start in the fall during bad weather, our client had some issues, it got pushed back. And they asked us to do it during the winter month. And that's one of the reasons that is one of our claims. So it was booked, I think July or August..

Got you. Okay, great.

And you would characterize your relationship with the customers as good still and it's just too early to finalize claims given the timing of when this transpired?.

That's correct..

Yes. It's actually a governmental agency, I won't necessarily share which one. But it's a governmental agency. We worked with them in the past, we've done excellent work for them.

It's just -- it's like I said, they got backed up and when you get backed up into the winter month, the weather, higher water levels that they didn't anticipate and some other things. They clearly acknowledged that all of our claims have merit, it's just a question you have to negotiate them..

Got it. Okay. Great. Thanks Jon. And then turning to your dredging, so I guess, I'm trying to reconcile your positive comments regarding dredgulization in the U.S.

with your comments on the international, so should the dredging business as a whole given what you're saying about lower margins internationally, essentially better margins domestically in dredging, all in, how should we think about margins for that segment as a whole comparable to last year I'll take any additional color you can provide?.

We talked about -- last year we had the large contribution from and by the way which margin are you talking about, operating margin, right? We talk about the Dredging segment, we had the large Suez impact from last year, which we don't have this year. So, we do expect margins to not be at the levels that they were in 2015.

So you'll see a very strong performance on the domestic side offset by lower margin on the international side..

So, as a whole does that mean, is because the international, the revenues are lower does that mean as a whole dredging margin should be flat given those two characteristics, or is the headwind from Suez suggest margins are likely down year-over-year as a whole?.

They are down as a headwind from that..

Got it.

Any -- you can give us some or that you can't quantify it?.

We don't quantify that on this call..

Okay. Got it.

And then may be just lastly, if you could remind us of the timing for the ATBs and do you think the full year contribution next year and how much can we expect that to contribute to what types of projects, any color there will be great?.

Yes. I mean the ATB is on schedule and we expect to have both the components floating during this summer and as I said, we'll do final outfitting, we'll take over possession of or do final testing of the power plant and the tug a little earlier than the hopper.

But, we do expect as of today's schedule to have basically a full year of operations next year. It's going to go to tentatively first project will be simpler kind of bottom dump work to test the doors on the bottom. And then, we'll do pump out work next that we have. As of today, we have project to take them to probably for the first nine months.

We may change that based on the bidding schedule where we go because it does afford us some tremendous opportunities to take advantage of its long haul capabilities. But, our expectations went fully operational as we said before $20 million and $25 million of incremental EBITDA. I can't tell you that we won't have some shake out period.

I think anytime you put a disposed asset like this until we get it shaken out, we get everything calibrated properly, so it might be a little bit of a ramp up, but we expect full year production of this asset and we gave you a range of $20 million to $25 million, we probably say low end of the range next year just because of the shake out and things like that..

Got it. Great. Thank you..

Thank you. Our next question or comment comes from the line of Jon Tanwanteng from CJS Securities. Your line is open..

Hi, guys, thanks for taking my questions.

You mentioned lower maintenance expenses in the dredging fleet, but what was the magnitude of that in the quarter and does that ramp back up in Q2?.

It should, there is a -- it's a few million dollars in the first quarter. It will probably be higher in the second quarter if we have a kind of historical maintenance type expenses we were -- we did have just a lower number, it's not timing, I remember, its lower maintenance and where in the first quarter.

So it could be a couple of million higher in the second quarter. And you have to also take into consideration dry dockings and things like that, we do have dry docking in Q2, so it should be a little higher in the second quarter..

Okay. Thanks.

And just to beat the margin horse, on a sequential basis, does the ramp up of the international activity offset or more than offset, I guess in your version 2, I guess more normal margins in the overall dredging business as you go forward?.

So, wait, I make sure I understand your question. So, it's the first quarter had in particular domestically when you have that type of very good production, low weather delays, you have obviously a higher margin impact for the quarter, which was offset by the absence of a -- we didn't have a foreign project.

So when we talk about the second quarter, you will have some increase from foreign, but probably not enough to offset if we had kind of more of a normalized quarter in terms of margin domestically. If we're talking sequentially Q1 to Q2..

Got you. That's helpful. And can you just confirm that the recent $55 million awards you won at the [medis] [ph] that's separate from the $200 million, you discussed in prior calls..

That is..

Okay.

And if you win that one, when would it start and will you be fully utilizing the [medis] [ph], I guess $255 million of backlog there?.

We are -- our cutters will be fully utilized. It is -- we have one of our small hoppers basically fully utilized now associated with that $55 million project, one of those $55 million projects for the rest of the year.

We have two other hoppers that are those old hoppers we bought from Brazil years ago that have been giving us difficulty that would still be available for.

But our cutters between the subcontract work we signed and the expectations on the additional work should have worked both through out the year and if its not in the next contract for at least another two years for both of them..

Okay. Got it. That's helpful.

And finally, can you just go onto the environmental backlog, is there anything else in there that was before the new risk controls to put in place just trying to figure out if there is anymore risk at all?.

Yes. There is one big timing materials project that's the hold in mind that we've done excellent on all three years that they've done it. And it's a T&M project where you build your time and there is a premium for good work. So really a low risk project if you will. That's a big part of the backlog..

And the other, the second one, let me add to that Jon, if you don't mind. There was a levy project that we have been working in California worked it last year, work it this year it's a multi-year contract, which has been very profitable for us.

So, the two largest jobs in the backlog that make up a good maturity of the backlog are very profitable and I would say low risk for us..

Okay. And just given the issues in the past, have you just done an enhanced review of those.

So that you're making sure that those remain profitable at all, or is there anything that's being done to make sure those really don't become problems in the future?.

Yes. I mean our whole risk review process has changed with Chris coming onboard over the last six months. So every project from even go, no go to weekly calls on the project to execution is totally a revamp to be sure that we're addressing any issues we might have before we take on a job throughout a project.

So I think we feel much better and even the project that turns to a loss position, I think the speed with which we've addressed that under on to our hands controls and got it in front of the client is significantly better than where we were.

If the project now that went to a loss position a year ago, it would probably taken us six months to get this in front of the client where we've gotten in front of the client very quickly addressing issues with the client addressing ways to mitigate issues with the client and protect our position totally different than we would have a year ago..

Okay. Great. Thank you very much..

Thank you. Our next question or comment comes from the line of John Rogers from D.A. Davidson. Your line is open..

Hi, good morning..

Good morning, John..

Couple of things, first of all, in terms of the E&I business, what is your expectation of sort of an SG&A level in that business that's reasonable because is it still, I mean relative to your the run-off in revenue and backlog, its still up there and I know you've talked about cost cutting but --?.

So, yes, we did do a cost cutting, I mentioned earlier about the cost cuts were a lot in overhead, some in G&A. But what we also did on the G&A side to mitigate our risk was we did invest some back obviously in Chris Shea, in our contracts area. So we can have better risk mitigation under contracts.

So we have -- and we've upgraded some of the talent there in that group where we thought we had to again to really around mitigating risk. So you'll see more of the savings on the overhead side as supposed to the G&A side and E&I..

Okay.

So with that kind of a cost structure, what sort of revenue base that have support, I guess what I'm trying to get to where is the -- what's the plan to take this business to?.

So as we -- I think, well, I don't think we gave a revenue number at year end. But, we are not going to aggressively grow the top-line of the business, we're being selective..

But would you shrink it more?.

Yes. And this is Jon. What my mantra has been is to get it profitable not by growing out of it, by getting it profitable at that -- the business that we can get to easily that we have some core strength on and then grow it after there. So from where the revenue was a year ago to where it is now it may go down $20 million or $30 million.

But, the whole mantra to Chris and the team is, I want that to be profitable revenue and I want a solid base that is defendable and supportable. And I think we're well on our way to doing that. We've taken our some segment -- some smaller segments of the business such as the oil and gas business that we're working in the Northern Michigan area.

So you could actually see revenue go down this year some as we get selective, but with that as you very well point out John is commensurate cuts in overhead and support, so that we balance out and don't have too much overhead and have to run for revenue to cover that overhead..

Okay. All right.

And you -- I mean it sounds like Jon your numbers $20 million, $30 million, I'm not trying to pin you down exactly, but at $150 million annual business with your backlog $77 million, I mean are there significant near-term booking opportunities to support that?.

Yes. Yes. Actually a very robust marketplace of bidding. Yes, I mean we're very happy with that and we've actually traded up and in my remarks, my mantra is really clear. We actually traded out three what I'll call business development people for much higher level.

I've been very happy with -- we've still been able to recruit really good people and we actually recruited three people and took three people out probably over the last six months on the marketing sales side to better upgrade our talent.

So our pipeline of opportunities is very generous and it's actually allowed us to be more selective in no-go a lot of projects..

Okay. And then, if I could go back to the dredging margins or the dredging business for just a second and I appreciate your comments about the shift and mix and end markets but, if you look at it on a same work basis whether its capital dredging, or just U.S.

business, are bid margins comparable to what they were a year ago worse or better?.

So, one of the things John that you see when you go in the past we have had the benefit in certain years of some extraordinarily high margin projects or events happening whether it was -- going back to 2010, the BP, you had the stimulus, you had the couple of international project. So we really don't have that type of event this year.

So, when you kind of look at that that's a little bit of the reason we talk about the margins being where they are..

Okay.

But it sounds like then I mean, I understand the mix issue this year, but if the opportunities aren't there then and we could see further margin degradation into 2017 as well?.

No, John. I mean it really -- we play in a set of sub-market, international, we just have to find the right projects for our equipment. And we've been lucky and we found in Suez that they were just projects that were really high margin. We think we'll have good utilization internationally once we sign that additional project we talked about.

Domestically as we talked about for a while, the hopper fleet is very solid and solid for a while. And what we see in 2016 is we're putting a broader set of our fleet to work. So where the hydraulics fleet it was significant utilization, we're really utilizing a lot more of our fleet.

And while margin is important and obviously when demand increases domestically margin should go up. On something like out hydraulic fleet, don't forget that for every dollar we bid we may have somewhere from 20% to 30% fixed cost that we cover. So if we get more utilization, it's really -- it's very lucrative for us.

So it's not just pure operating margin, it's also the utilization of the fleet because we do have a broad fleet to serve the needs of the U.S. market just what happens at that as we said the whole U.S. market is expanding so that ability to put more of that equipment to work is really important.

Does that make sense to you guys?.

They did, that helps -- I guess I'm just trying to weigh that Jon.

The new equipment coming on, which has to work up a learning curve and trying to figure out what happens beyond 2016?.

Yes. The beauty is, when we went to build that we didn't anticipate the demand for the hopper fleet being as high as it would be. So, it not only fits and can do -- it certainly is going to be -- a lot better term is the king of the hopper fleet in the U.S. for everybody.

There is a lot more long-haul work which fits in extremely well for that work both in the Gulf and on the East Coast, but because it's so big, we actually think it can do some of this hydraulic work too in certain situations.

So and because demand is up for the hopper fleet in general, we think there is -- there will be more opportunities and probably as we have told everybody and we did it, we expected there to be some retirements in the hopper fleets in the U.S. both ourselves and other competitors. It might be a little slower those retirements than expected..

Okay. Thank you. I appreciate the color..

Yes. Sure, John..

Thank you. Our next question or comment comes from the line of Stephen Hansel from Eclectic Investment. Your line is open..

Thank you.

I found the expense growth disappointing, I would like to get a little more color on the move in G&A expenses against down revenue and as well as in other expenses and to understand what goals you have for G&A on an ongoing basis either as a percentage of gross profit or as a percentage of overall revenue?.

Yes. G&A, I stated at the earnings call at the end of the year that we expected it to be about $20 million a quarter that's where it was in the first quarter.

The increase year-over-year is based on a couple of items; legal expenses we have a project that -- an issue we are working on, it's not a lawsuit and there is some cost related to that in the first quarter. Then also from a labor, I said also that there was additional cost related to labor.

The big piece of that is in the first quarter, we have accrued more than last year in terms of labor cost due to incentive pay. We look at where we are going to finish for the year. This year we are expecting to finish on our budget, so we have accrued more than we did last year. So those are really the two large drivers of the additional G&A cost.

But, it is where we expected it to be for the year so far..

And do you have an ongoing goal for those expenses that's lower than where you are now?.

We expected to be around this level for the rest of the year even as the revenues increased. Again, this is our lowest quarter of the year from a revenue perspective mainly due to seasonality. So we expect that on a percentage or revenue basis to come down throughout the rest of the year..

And can you talk about the other expense line?.

So the other expense line -- yes, for the quarter, in our -- this $700,000 is related to our E&I business and what that -- there was a project that we finished last year that --. We finalized some project costs related to that project and we did recognize an additional $1 million of project benefit in the Q1, but that's above the line.

But those project costs there was a -- was a land reclamation, there was a land sale; we were going to receive some proceeds or the kicker. The additional project cost reduced the kicker, so we had to take the lower -- we had booked a gain on sale there last year in the same line. So we have to reduce that amount.

So net-net we picked up some money above the line -- above gross profit, but the offset was down here..

Okay. Thank you..

Thank you. [Operator Instructions] I'm showing no additional questions in the queue. I'd like to turn the call back over to management for any closing remarks..

Thank you for joining us this morning. And we look forward to speaking with you during our next earnings discussion in August..

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