Good day, ladies and gentlemen, and welcome to the Great Lakes Dredge & Dock Third Quarter 2016 Earnings Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Miss Mary Morrissey. Ma'am, you may begin..

Thank you. Good morning. This is Mary Morrissey and I welcome you to our quarterly conference call. Joining me on the call this morning is our Chairman of the Board, Mike Walsh, our Chief Executive Officer, Jonathan Berger, and Mark Marinko, our Chief Financial Officer.

They will discuss the operational and financial results for the quarter and nine months ended September 30, 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 will also refer to certain non-GAAP financial measures including adjusted EBITDA from continuing operations, which are explained in the net income to adjusted EBITDA reconciliation attached to our earnings release and posted on our Investor Relations website, along with certain other operating data.

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

Thank you, Mary. And good morning, everyone. As Mary mentioned, our Chairman of the Board, Mike Walsh, is joining us on the call this morning. I invited Mike to be on the call so he could provide some color regarding the recruiting process for the new CEO.

He will say a few words, then I have asked him to turn over the call to Mark to review the financial results for the quarter and then I will give you some color on our third quarter results and outlook.

With the recruiting process in full swing, we will not be taking any questions on the topic during the Q&A since we are certain that candidates are listening in during the call.

Mike?.

Thank you, John. And thank you all for joining us today on the earnings call. I say good morning to everyone. I know a lot of folks were up late last night watching the game. We'll see how that ends tonight. As many of you know, last October Jon announced his intention to retire by April of 2017.

As Jon mentioned during the last call, the CEO search has been ongoing alongside the strategic review process and was somewhat hampered by it for obvious reasons. With the process behind us and with the assistance of Heidrick & Struggles, we have undertaken the search and moved it into high gear.

After having concluded, conducted extensive interviews, we currently have a short list of candidates that will be presented to the board soon and we expect to have a new CEO in place well before Jon's departure.

I want to conclude my comments by reiterating to our shareholders and stakeholders that the board is committed to enhancing the value of the Company. We acknowledge that putting a CEO in place with the appropriate skill sets and experience is critical to achieving this goal.

In addition, the board and the management will continue to focus on executing our current strategic plan including having the ATB join our hopper fleet and returning environmental and infrastructure segment to profitability by divesting the unprofitable services and focusing it on its core strengths.

At this point I'll turn the call over to Mark to review the third quarter financial results.

Mark?.

Thank you, Mike. And good morning to everyone joining us today. Starting with the consolidated results, total Company revenues in the third quarter of 2016 were $199 million, which is a 10% decrease compared to the third quarter last year with revenue down in both of our business segments.

Total Company consolidated gross profit was $20 million, a decrease of 17% compared to the third quarter of 2015. Gross profit margin for the quarter was slightly lower at 10% compared to 11% in the prior year, with the environmental segment's significantly improved margin offset by a decrease in dredging segment's margin.

Total Company operating income was $13 million for the quarter, up from operating income of $10 million from the prior year quarter, driven by a significant improvement in the environmental segment's operating income partially offset by a decrease in dredging operating income.

During the quarter there were one-time items that positively impacted consolidated EBITDA including an $8.6 million reversal of an earn-out in restricted stock units associated with the GLEI acquisition due to failing to meet performance expectations. Additionally we had a $2 million reversal of variable employment compensation.

At the segment level, the dredging segment's revenue was down 5% in the current year quarter at $154 million with lower foreign capital and domestic maintenance revenue partially offset by higher revenue in our other markets.

Dredging's gross profit margin decreased to 11%, driven by significantly lower foreign market, partially offset by strong contract margin on some of our domestic dredging projects. As a reminder, last year during the third quarter we had the high margin Suez Canal deepening project.

Operating income decreased to $6 million for the quarter, a 72% decrease from the same period in the prior year, driven primarily by lower gross profit on lower revenue. Operating income benefitted from the reversal of employee variable compensation in the current year period, a delta of $3.4 million compared to the prior year period.

Our Environmental & Infrastructure segment's revenue decreased 26% to $45 million for the third quarter, primarily as a result of less remediation work in the Midwest and also due to not replacing several large projects that were being executed on during the third quarter of 2015.

As stated last year at this time, our strategy for this segment was to focus on executing the projects in backlog to minimize project losses and to be more selective on pursuing new work.

Despite the lower revenue, our realignment strategy to focus on fewer projects with better margins has been successful with the segment's gross profit margin making a significant improvement in the third quarter of 2016, increasing from a negative gross profit of 8.9% to positive gross profit margin of 7.9%.

This improvement was driven primarily by project execution at our GLEI reporting unit. This reporting unit performed more in line with its pre-acquisition levels and above our expectations for the first nine months of the year.

Gross profit margin for the segment was negatively impacted by overhead and underutilized equipment related to the noncore assets at the Terra reporting unit, some of which we sold subsequent to the third quarter close and the remainder of which we expect to have divested by the end of the year.

And a project loss of $1.1 million at Terra that we expect to be completed by the end of the year. The E&I segment reported operating income of 7 million compared to a loss of 10 million in the third quarter of 2015 primarily as a result of the presence of some one-time items in the third quarter.

First there was the reversal of the earn out restricted stock associated with the GLEI acquisition, positively impacting G&A by 8.6 million. During the period last year, we reported $2 million of amortization of intangibles versus reporting $230,000 in amortization of intangibles this year.

Moving to the balance sheet, at September 30, 2016, we had $14 million in cash on our balance sheet and had drawn $60 million on our revolver. As a reminder, because our credit facility became current in June, the $60 million drawn on our revolver was classified to current debt. Previously it was included in long term debt.

We continue to work with our new bank group to finalize a new credit facility and are working on the schedule at this current time. Total CapEx for the first nine months of 2016 was $66 million with approximately $39 million for the ATB through the first nine months of the year.

Turning to bid results, the domestic dredging bid market for the nine months ended September 30, 2016 totaled $668 million, compared to $1 billion in the same period in 2015.

During the nine months ending 2015, the $134 million Savannah Harbor expansion project was awarded and four jobs between $75 million and $100 million jobs were also awarded, contributing to the sizable market last year.

In total the Company won 34% of its domestic dredging bid market through the first nine months 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 the win rate for one quarter is not indicative of the win rate the Company is likely to achieve for the full year.

During the first nine months of the year, Great Lakes won 23% or $27 million in capital projects awarded, 80% or $146 million of the coastal protection projects awarded, 14% or $38 million in maintenance projects awarded, and 16% or $17 million of the rivers and lakes projects awarded.

Contracted dredging backlog at September 30, 2016 totaled $570 million compared to a backlog at December 31, 2015 of $678 million. The Environmental & Infrastructure segment's backlog was $33 million at September 30, 2016, versus $73 million at year end.

I'll now turn the call over to Jon for his remarks on our third quarter performance and outlook moving forward..

Thank you, Mark. I'll start off by addressing two of the major topics that I know are of great interest to our stakeholders and all of our Great Lakes employees. First, the Environmental & Infrastructure segment and our turnaround efforts with it. And second, the ATB.

As I stated during our last earnings call, we believe that divesting the services portion of certain contracting services business best positions us to return to profitability and we remain committed to making this happen.

While the change in the structure of the transaction delayed the divestiture, as Mark mentioned, we have completed one of the two transactions and we expect to have the remaining noncore services portion of the business sold or wound down by the end of the year. The other business, our GLEI entity, had a good quarter.

Project execution was strong and job level performance executed on or above bid estimates. The implementation of a robust risk management controls plan including processes around project and client selection criteria, have been adhered to.

GLEI has no projects with losses in backlog and in total the margin on contracts to date is higher than the original bid estimate. I anticipate that the rigor we are applying to selecting projects, reviewing estimates, and execution has put us on the path to profitability.

Backlog is down from last year for this segment, but this has been partially driven by our efforts to execute our strategy of managing the projects in backlog and being selective in new work that we established and the new processes put in place of experienced team members.

We believe we are in a position now, led by some seasoned industry business development team members, to capture new profitable work. We are bidding significant work in the fourth quarter and hope to be positioned to report solid backlog entering 2017.

To reiterate, our intention is not to focus on rapid growth in the segment, but to focus on our core competencies, capture work at attractive margins, and to rationalize overhead to the expected level of work. I think Chris and his team have done a wonderful job of putting us in a position for 2017 to be very good.

Turning to the ATB, a substantial progress has been made on construction of both the barge and the tug components of the vessel since our last call. We reached an historic milestone on September 30th when the barge unit, called the Ellis Island, was successfully launched into the water at Eastern Shipbuilding's shipyard in Panama City, Florida.

It was impressive to witness. As we stated in the press release on October 3rd, the shipyard has informed us it anticipates the tug portion of the vessel, the Douglas Mackey, to launch later this year and sea trials on the entire ATB vessel are expected to begin in March. We expect dredging operations to commence in the second quarter.

Now let's move to financial results by segment. The dredging segment domestically had a good third quarter, primarily as the result of strong project execution, but the segment's results continued to be impacted by the slowdown of work internationally. This softness impacted both revenue and margins.

Domestically, we executed on several projects along the East Coast, including some of the large Sandy related projects and the Savannah Harbor entrance channel deepening. We also worked in the Gulf of Mexico on the Shell West Coastal Restoration project in the Gulf of Mexico and the Corpus Christi LNG project in Texas.

Our rivers and lakes unit reported an outstanding quarter, executing a reservoir deepening and on Lake Decatur in Illinois. Our dredging teams have done a wonderful job of turning that segment around and it is now a very profitable piece of business for us. Internationally, we are working on projects in the Middle East and Brazil.

Despite the slowdown, we currently have our entire foreign based fleet utilized through the end of the year, but at lower margins that we have experienced during the past few years during which we had the high margin Wheatstone LNG and Suez Canal projects. For the last year, we had anticipated doing a large land reclamation project for a client.

However, the project continues to be delayed. Despite the delay, we remain hopeful that we will secure this work at some point in the near future. We are also negotiating work in Bahrain that would commence in 2017.

In addition there are several attractive opportunities that we are tracking which are a good fit for our equipment based in the Middle East. But as we stated during the second quarter conference call, as we continue to assess the market, we will take into consideration potentially selling or retiring older, less competitive vessels.

Regarding the domestic bidding market, during the third quarter in 2016, some large projects that we anticipated would be tendered was delayed. Going forward we expect bidding to pick up in the fourth quarter with some of those delayed projects coming up for bid.

A large coastal protection project in New Jersey, funded from the Sandy Supplemental Appropriation, is scheduled to bid in the fourth quarter, and we expect the first phase of Mississippi Coastal Improvement program to tender in late fourth quarter or the first quarter of 2017.

However, our overall estimate of work we would bid on this year will be down from 2015 by somewhere north of $100 million. With the newly expanded Panama Canal, we continue to expect to see ports along the East Coast pursuing deepening projects in the next few years.

It still appears that Jacksonville will likely be the next port that tenders a bid, most likely early next year. Charleston and Port Everglades are also looking promising, to potentially kick off their projects next year. In the Gulf of Mexico, progress is being made on project planning to utilize the $18 billion of BP oil spill settlement funds.

And we expect to see some additional bidding opportunities funded by BP monies in the near term. On the East Coast we expect to maintain our strong position on a range of coastal protection, maintenance, and capital projects. We continue to expect to see some projects funded by the Superstorm Sandy appropriations.

In addition, there may be some work next year in Florida in the aftermath of Hurricane Matthew. However, we do not expect the devastation that Matthew caused to lead to the level of work that Superstorm Sandy generated.

In Washington, since Congress did not pass the budget, we are working under a continuing resolution which puts the Corps budget back at last year's level. I guess this is not to be unexpected considering what the country is going through right now, but hopefully there will be an omnibus passed soon after the continuing resolution takes effect.

But at this point, we don't know when the budget may be passed. With that, we will open up for questions..

[Operator Instructions] Our first question comes from the line of Jon Tanwanteng with CJS Securities. Your line is open..

Can we expect positive gross margins and potentially operating margins going forward in the E&I segment?.

Well I want to reiterate there, seasonality if you talk quarter to quarter. But yes, we expect for 2017 to be positive, yes..

For both gross and operating?.

Yes..

Can you talk a little bit about what happened with the asset sale of Terra and what the results would have looked like if that went through as expected and what's actually left behind?.

Yeah, sure. So the acquirer we were originally talking to was unable to secure financing for the size of the deal we anticipated that we announced last quarter. So subsequent to the end of the third quarter, we agreed to exclude certain assets from that original deal, thereby reducing the purchase price.

What we also did was we extended the closing date to December 15th for that transaction. We did complete a sale of a portion of these assets that were excluded from that original deal. So the deal became two deals, two different parts. As we announced last time, we expected to sell about $11.5 million of assets, fixed assets and working capital.

Right now the deal looks like between these two deals we should be somewhere between $6.5 and $7 million of those fixed assets. In that original $11.5 million, about $9 million of that was fixed assets.

Then with the remaining fixed asset pieces, we are talking to alternate buyers for the remaining pieces of equipment, but we expect to sell off all that equipment before the end of the year..

Gotcha, that's helpful.

And then just moving on to the dredging segment, can we assume that the international dredging portion of your fleet is going to be profitable in Q4? And does that mean margins rebound for the overall segment as we go into the last quarter of the year?.

No. No, we think it will be, we have one major project working on in Saudi that we mentioned, or in the earnings release, that went into a loss position, so we've kind of recognize in fire loss for that. That project wraps up in the first quarter, so we will have a depressed margin there in Q4..

Okay, got it. And then Jon, you mentioned that you would be bidding maybe $100 million less in opportunity in 2017.

Could you provide a little bit more detail into what's going on there?.

Yeah, and I'm sorry if it was confusing. I think the overall bid market that we see for 2016 is about $100 million less. So, which means that fourth quarter there's some significant bidding opportunities.

So we haven't kind of given an outlook on 2017 yet and it all depends on kind of when we sit down with the federal government, some of the private projects. But I think some of its just when jobs come out and when they're planned. I mean I think the overall market is still a very solid market domestically.

A lot of work out there, just not very back loaded. Obviously in 2015 there was probably a larger amount of emergency work with Sandy and all that work which also elevated 2015 as opposed to 2016 being a bad bidding year. But there's no question 2016 is a very back loaded year..

Then just jumping back to the E&I division, you mentioned you're bidding on significant opportunities in Q4.

Can you just kind of size what that looks like?.

Yeah, and I should say I believe we were either, we have either been awarded in the fourth quarter or low bid pending about $30 million of work already in that. And we're probably bidding I would suggest somewhere around $80 million to $100 million of work.

A lot of that is in our very core areas of GLEI where we win a lot of work and we have a very high percentage win rate and very consistent profitability. So I think there's a level of confidence that we will enter 2017 with a solid backlog of work to execute in line with expectations for normal years..

Great. Thanks for the color..

Thank you. Our next question comes from the line of Matt Duncan with Stephens. Your line is open..

Hey, good morning, guys. So Jon, just to piggyback on something the last questioner asked, the size of bid market in the 4Q sounds like it's going to be pretty big if you're going to close the gap a little bit by yearend. And it also sounds like you feel pretty good about what your hit rate is going to be on those projects.

So should we translate all of that to mean that by yearend the win rate is probably going to be higher than 34% so that we should see a pretty good book to bill here in the fourth quarter?.

That's our expectation. I think, as we've said, there are a couple of big, big projects coming out that are in our wheelhouse. These projects should or could use the Ellis Island and the Ellis Island we believe is going to be a competitive advantage for us. But they're very lumpy. These are big projects.

So we win one of them, all of a sudden 34% rate jumps up to a 50% rate real quickly. So over time, we have always had that 40% to 50% win rate in our core market on dredging and I can't imagine we won't..

Okay that's helpful. Mark, just to rehash the math you went through on the Terra asset sales, I want to make sure I have this down right. So the annual loss of all the stuff you're selling, remind us what that number was.

How much of that will be sold by the end of the year? And what's the plan to do with the rest?.

Yep, so the Terra services business was a trailing 12 months operating loss of $7.2 million. That is the business we are getting out of. It is now like I said, two separate acquirers. One of those transactions has been completed and closed.

The other one is still going where we, that was the original acquirer, we shrunk the deal down little bit and we have extended the closing date potentially to December 15. The total fixed assets out of that, those two transactions, will be somewhere between I'll give you a range of $6.5 million to $7.5 million.

The remainder of those assets, in the neighborhood of $3 million, we will sell off to other third parties. We really anticipate having no drag from this business, or we want to have no drag from this business, going into 2017..

Okay, so let's take that $7.2 million operating loss and break it down into these different pieces then.

How much of it was from what you already closed the sale on?.

I'd have to look at that number, I don't have that number in front of me. But it's probably $1 million of it, but I'm guessing a little bit. It's about less than a quarter of the piece..

All right.

And how much of it is captured in the piece that sells at the closing date of December 15, of the $7.2 million?.

The rest of it..

So the rest of it is in that number?.

Correct. We're selling off….

It's going to weigh on the fourth quarter but it's going to be gone into next year.

Just out of curiosity, why would you guys not be reporting this as discontinued operations since you're selling this business?.

For GAAP purposes, it doesn't fit the definition of discontinued operations. We're not selling the whole segment if it was segment type that would be. So we don't -- this is a piece of Terra..

Actually, good question and one thing we went through with the audit committee and with our auditors over the last quarter..

And can you maybe spike out what the loss was from those assets in the third quarter and kind of what you expect it to be in the fourth quarter?.

We were -- we were running about -- originally, to go back to the $7.2 million, that $600,000 a month loss on a trailing 12 months, we have reduced some costs to that business, so it was running about $500,000 a month loss..

So about $1.5 million loss in the third quarter and maybe like a million….

Related to that business.

And then in Q4, you have all of it in October, we just closed that one piece so it will be a little smaller, but we will also take a hit related to the transaction of roughly $2.5 million in the fourth quarter related to selling off the assets, the legal fees to close the deal, some small severance, some retention bonuses, things like that.

Similar to what I talked about last quarter..

But the actual operating loss is going to be probably somewhere between $1 million and $1.5 million is the way to think about it?.

For that business for the fourth quarter for us..

For that business, right, for that business. I just want to make sure we're all clear on that. So okay..

That's correct..

Then when I look at dredging margins, shifting gears here, so pretty low this quarter; I understand part of why.

How much is the lower margin on international work you're doing in the fourth quarter going to weigh on segment margin? And I know you guys typically don't get into the quarterly guidance game, but given the size of the bid market you see in the fourth quarter and what's going on with margins, I want to make sure we're thinking about this the right way.

Can you grow revenues in dredging in the fourth quarter versus the third? And should margins be up now that all of your international assets will be back to work and at least making some money?.

So there's not that much change from fourth quarter to third quarter. We're really working the same jobs per se. There's a few differences, but yeah, we won't have a, from the international side of it, we did take the loss in third quarter when -- once the project goes into loss, we book the entire loss. So you won't have that loss in there.

But that's not that material. It's about $2 million for the quarter. And then on the domestic side, we're pretty much working the same jobs we were in the third quarter so I wouldn't anticipate much change to the margin in fourth quarter..

But then moving into next year, it should start to get better even before the ATB hits the water, and certainly once it does, we'll definitely see an improvement?.

We -- I mean we do need -- I want to go back to what Jon said. Domestic is doing very well. But on the international side, we do need to get the replacement work for after we finish this job in the first quarter here…..

Okay. All right, I'll hop back in queue. Thanks, guys..

Our next question comes from the line of John Rogers with D. A. Davidson. Your line is open..

Hi, good morning. Just a couple of follow-up things.

Mark, you gave us some debt numbers and I missed it, but with this sale of the Terra assets and the completion of the ATB, where do you expect to finish the year in terms of debt?.

So our year, our third quarter, talking about the revolver is the main one that moves, right, that's that $60 million. We expect it to be in that range at the end of the fourth quarter.

Over the least, prior to kind of these last large let's call it ATB payments as we finished up paying for the construction, before that we were generally in this $20 million to $30 million. As stated before, we'll be in this elevated range until we do this, the completion of the ATB.

So do expect it to be in what I'll call a little bit of an elevated range through the end of this year kind of into Q1. The ATB payments are driven by certain milestones they hit. As they put vessels into the water and other completions. So that, I expect it to be elevated through Q1..

So that's like $375 million here and $80 million in total debt?.

It's, we $275 million on the senior unsecured, we have $40 million on the term loan, and we have $60 million on the revolver. Those are the big ones, but the revolver is the one that really moves..

Okay. I know some of this will be in the Q, but okay..

Yep..

That helps. And then in terms of the dredging business, and I guess Jon made the comment that the domestic business is doing pretty well. But even if you back out the international business, your margins in the dredging are low mid-single digits and substantially below where they've been over the last couple of years.

I know the project mix has changed, but when you say that's doing pretty well, I guess I’m just trying to think about what does that mean in terms of what you expect this business to return? I mean is that what we're looking at for the next couple of years?.

Well let's talk a little bit about, first Mark has some historical margin information I think he wants to share..

Yeah, when we look at, I looked at the operating margins going back to 2010 on the entire dredging segment, and the last couple of years, yes, it's been in the I think year to date now we're in this 14% at the operating income line. When you go back last couple of years, we had the Suez and Wheatstone, we were in the I think 16%, 14%.

Prior to that we were in this kind of 12% to 13% range. You go back to….

This is the gross margin?.

This is the operating margin. Operating income margin. Not EBITDA..

Okay..

And then you go way back to 2010 when they had all the stimulus that was high there, so we've been running kind of in this level so I think or tell you things were flat. When your kind of take out the Suez is a little bit of an anomaly and Wheatstone is a little bit of an anomaly.

But what you're seeing this year is, domestically margins have increased but now those are being offset by the drop in international. And when you kind of go forward, as Matt was asking a minute or two ago, going into until the ATB gets in the water, I don't see that much change.

A new international job is important to increase that, to bring the margin back up on the international side, but then the ATB will obviously change the game for us in terms of improving margins next year..

Yeah, and certainly in 2010 and 2011, if you look back a little bit of history, with Katrina work and all that work really positively influenced volumes domestically. But I think, John, there's no question that what we've seen over the last four or five years is domestically an older fleet.

The maintenance that runs through it and the operating efficiency is, points to the fact that strategically you have to make some focused investments and also take out some older assets. And I think we'll all be pleasantly surprised when the ATB is in the water and producing at how big a difference that makes.

But strategically there's not a question that the older the fleet and this is the whole industry, it's not just Great Lakes. There's been some sporadic building in industry, but there's not a question that when you're working with older vessels, that the maintenance and operating efficiencies will go down.

And that's why the ATB will be our first example of how that can affect it..

I just want to add one thing. John, it is gross profit margin by the way..

Yep, that maps out. All right.

And then if I could, just I appreciate the comment relative to what the Terra services assets that you're selling, the impact on operating income, but beyond that, in terms of just the size of the business now, for the whole environmental side of the business, how do you look at that on an annualized rate once all these transactions are completed?.

We think that the business will have a run rate to start out in kind of the 115 million to 125 million range going into next year. And as Mark says, we'll be profitable. And then we will build on that but we will build slowly, efficiently, not getting ahead of our skis..

Okay, great. Thank you. Best of luck..

Thank you. Our next question comes from the line of Tyler Rhett with Privet Fund Management. Your line is open..

Good morning. Mark, unfortunately another kind of margin question in dredging. I guess just trying to understand the margins you guys kind of generated in the first half of this year from that business, I think they were 15% or 16%, and there was almost no international work in there. And this is obviously a little bit sizable kind of decline.

Just trying to understand how domestic margins seemingly seem so high in the first half of this year and you guys are kind of guiding us down to expect a little bit lower than that..

Yep, so we, in the first half of the year domestically, we worked on some Superstorm Sandy projects that we performed very well on. And you can generate some very good margins. And as those projects, that project is actually completed now, so you replace it with some other projects.

But when you talk about the quarter, we did take the hit, it's in the earnings release, on this one job in Saudi Arabia, so that depressed the margin for the quarter. As we were talking about gross profit a few minutes ago, being at about a 14% margin on a year to date basis but only 10% on the quarter because of that international hit.

And, Mark, also we had one of our hoppers in dry dock for four months and the hoppers do, are running right now higher margin than the cutters or mechanical by a pretty significant amount. So if you took that out for four months largely spanning end of the second quarter all through the third quarter; that would be a difference..

And then just moving onto E&I, I think a couple of people now have tried to kind of figure out what this business kind of looks like going forward. I think you guys have provided what GLEI margins were in second quarter, gross margins.

Could you guys kind of provide what that looked like in the third quarter?.

Yes, it was -- I forgot what it was in second quarter, I want to say maybe 14% cross talk so we're right about the same spot. I thought we were at 16% for this quarter..

That's great. And I think you guys previously said GLEI was about $110 million business before and now you guys think the business overall E&I is $115 million to $125 million.

Do you still think GLEI is still kind of a $110 million piece of that $115 million to $125 million business?.

Yeah, I think when we're all said and done, we will just be keeping basically a Midwestern office of the old Terra business on remediation. So I think that's right..

Thank you. And our next question comes from the line of Frank Fallow with Alexander Capital Advisors. Your line is open..

I had a couple of things. The first one, I was just wondering if you guys could break up the ATB spend on a year on year basis through the past four years. And then also I had a question about you guys had, we've seen a nice decrease in maintenance CapEx.

I was wondering, with the improvements you've made, I was wondering if you've seen a similar reduction in maintenance expense on the P&L..

Yeah, good questions. And maybe offline, because I'm not sure anybody has the spend on the ATB by quarter or by year with us, but we'd gladly share it with you. I think we've talked about in the past, I just don't think anyone has it with us.

So your other question is maintenance CapEx?.

Yes..

Yeah, I just wanted to make sure.

Mark, do you have that information?.

So you're asking if we're seeing a decrease in maintenance expense over kind of year over year? That's the question?.

Correct..

So hang on for a moment. When we talk about it versus kind of looking at it on a year to date basis, it's actually pretty flat year over year. But I want to be careful about that. You have to look at dry docks year over year and things like that that can fluctuate those maintenance numbers. But it's pretty flat year-over-year..

And as Mark said, there are a couple things. I think the question was, well, you know, if you're not spending as much on your maintenance long term. And we certainly have taken a couple of vessels out of the system, but I think you almost have to look at it, if you get to that, at a sum rolling three or four year period.

Because if two big dredges go in for a mandatory dry dock in any one year, that maintenance CapEx will go up significantly. But our kind of pure maintenance expense that runs through our P&L is driven both by revenue and a little bit the age of our fleet. I mean certainly maintenance expense is really tied to how much we utilize our assets.

But good question..

Thank you..

And Mary will follow up with you to give you that other information..

Great, thanks. That's all I had..

Thank you and we have follow up from the line of Matt Duncan, Stephens. Your line is open..

Yeah, hey, guys.

So Jon, what's going on with the big international job we've been waiting on? I mean should we start thinking maybe this doesn't happen? So where are you guys at on that?.

We had a memorandum of understanding on the project. We have resigned it for another 18 months. We still believe it will happen. I mean the work we're doing right now is a part of that project, it's phase one. For the people to recoup the money they've invested and to execute on the project, they really have to have additional work done.

So we believe that project will happen. They've been in the marketplace as opposed to self-funding the whole project, to look for some financing. So that has certainly slowed it down.

I think there's a reasonable expectation on our part that it may be parceled out in phases so that even though the project we talked about is over $200 million for us, we think that we'll probably get it in phases. But we certainly still believe that work will be there..

What do you think at this point, Jon, is the timing of that work, just best guess based on what you know right now?.

I think we're working there through some time in the first quarter. So I think there's probably some incremental work they'll want us to do and I think it will cost them more for us to have to demobilize and go. So if I was to guess, I think they will be trickling work out to us over time..

So what do you feel like annual international dredging revenues look like then sort of taking all that into consideration going forward? If you're working on that stuff, are we kind of in a $75 million range, $100 million range? Just give us some help there..

I would, we generally don't give kind of the revenue at that level. But I mean, Matt, you look at this year, we're going to be in a, I would say more of a more similar boat. I think that's where we need to look at it.

As Jon said, it may come out, to be conservative, it may come out in phases, worked over this time, and then we'll look at other opportunities in that region to replace it or supplement it if we have to. So I would kind of look at it as more of the same until we get a solid answer on this..

And just to be sure, I mean it's no secret, the international market has been somewhat depressed. I'm sure everyone on this phone goes and looks at some of our competitors internationally and some of the things they're doing. 2017 will not be a wonderful year.

I think 2018, if things happen correctly, there's a really big project like the Suez project that has been talked about for quite a while, that would be one of those all hands meetings of all the dredging fleet. But we as a team, as Mark says, are spending a lot of time trying to manage through 2017 like we are 2016 internationally..

Okay, that helps. Matthew impact, I'm assuming you were shut down for a little while in Savannah because of Matthew.

How should we think about the impact there?.

Not really that, we were certainly shut down for a little bit of time. We factor in some weather. Hopefully there's some upside for us. I think there's some work that's out there in Florida if they get the funding for it, but I'm not sure..

Matt, from the since we do the percentage of completion accounting, we look at the estimate, the estimate had weather days in for it. So it had minimal impact..

Yeah, if I asked the operating guys, they'd probably say $1 million to $1.5 million..

All right, so not a whole lot. That helps. Then must a couple of just quick modeling questions. So If I look at sort of a normalized SG&A expense number, right? I add back the two items that helped this quarter, you would have been around $18 million.

But that's also sort of what's out running through incentive comps since you reversed what you had in there so far. I'm assuming you stay kind of at that $18 million level in the fourth quarter.

Then, Mark, do we jump back up to something kind of $19 million to $20 million a quarter after that?.

Yeah, so we'll look at, I think you got it spot on. So we'll look at when we go through the quarters and we look at incentive comp is the variable piece of that that kind of moves that number, we will when you go through things like first quarter, we expect everyone to be on budget, so we'll accrue on a target.

Then we do re-forecasts and move it up and down from here. So yes, I would go back to this $19 million, $20 million range that we've been at would be the way to model that in the future..

In 2017 but not in the fourth quarter, right? Because you don't have incentive comp in the fourth quarter..

Right. And remember, that's kind of a year to date reversal. It's not that big, but yes, that's correct..

Okay. And then the other thing I had is just trying to kind of figure out what kind of the real operating earnings number is for this quarter. Because obviously the reported has got some benefit in it. The reversal of incentive comp, that is what it is.

The $8.6 million reversal of the earn out, if I take that out, I'm getting something kind of around a loss of a penny.

Is that about the right number for us to use?.

Yes..

All right. That's all I had, guys. Thanks..

[Operator Instructions] Our next question comes from the line of Rick D'Auteuil. Your line is open..

I just had a follow up related to the prior caller's question on the Middle East project. Is it my understanding you're still doing phase one work there, right? And I thought that was valued in the $40 million to $50 million range.

Or has that been deferred also?.

No, no, no. Rick, you're right on target on that..

Okay. And I guess what has changed is just the timing? Last quarter..

Yes. As Mark said, obviously that project, which we were subcontract to the person that was doing the first phase, did go into a loss position. So we've taken a loss on that and we're working to try to position it and maybe, and work through it.

But it's the going forward, phase 2, 3, and 4 that we have a memorandum of understanding on, that we negotiated extending that memorandum of understanding for another 18 months with the expectation that we would be doing that work.

But the owner of the project who was self-funding the whole thing has now decided that they would like to look for some third-party financing. So that's the process that is going through..

You expect that to delay things up to 18 months, the process?.

No, no, no, I'm sorry if that was -- we expect that there's work through the beginning of the first quarter that we'll be working on. If someone was to ask me what will happen, and I think we did, I think they will trickle out work to us so we don't leave the site would be my view.

And keep us somewhat busy, but they won't award the whole project to us all at once..

And you'd expect -- you're not there to lose money, so you'd expect all phases to be profitable?.

Yeah, it's a different contract. We subcontracted to a contractor that had the first project. We certainly didn't -- our subcontract price to him when he got into trouble was not for us to lose money. There were some differing conditions that has caused us to reduce our margin.

We think, we're pretty confident that we have a solid margin on the work that we did and we just think we went into some harder material in this phase than was expected. And we think we're through a lot of that harder phase..

And then just one question on the Terra site that was losing money and you expect it to be completed by yearend, is that it for Terra? I mean it sounds like what's left of this business is mostly GLEI, so that really anything Terra related, we won't see Terra related costs in 2017?.

That's correct. We expect to be substantially complete on that contract in the next week or so assuming the weather is good. What we're retaining of Terra is just a Midwest presence and a handful of people that we selected that we think are solid to give us that.

But yes, everything that has been bid outside that services work that we are selling will be under GLEI and all under the auspices, the control, the discipline that Chris put into place..

And again, just to repeat, no other loss projects at this time?.

That's correct..

Thank you. And I'm showing no further questions at this time. I'd like to turn the call back to Miss Morrissey for closing remarks..

Thanks. We appreciate the support of our shareholders, employees and business partners and thank you for joining us this morning. We look forward to speaking with you during our next earnings discussion in February..

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