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

Thank you, and good morning. Welcome to our quarterly conference call. Joining me on the call this morning is our Chairman of the Board, Robert Uhler; our Interim-Chief Executive Officer and Chief Financial Officer, Mark Marinko; and Katie O'Halloran, our Controller and Treasurer.

They will discuss our operational and financial results for the quarter and 12 months ended September 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 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.

With that, I’ll turn the call over to Bob Uhler..

Thank you, Mary and good morning to everyone. I have been the Chairman of the Board effective the start of this year and this is the first earning call since that change. Due to the magnitude of management and governance changes in the last 90 days, our Board felt it was appropriate for me to reach out the shareholders. First a little bit about myself.

I joined the GLDD Board in October of 2015 following a four-year professional engineering career in the Global EC industry which culminated with 11 years as the Chief Executive Officer and Executive Chairman of MWH Global Inc. My former employer was one of the world's largest single sector focused water engineering construction companies.

We completed infrastructure projects and programs worldwide including the construction of some of the world's largest hydropower dams, river power plants, treatment works, tunnels, transmission and distribution systems. Most recently we were the designer of record of the new Panama Canal.

After retiring four years ago, I started my own strategy consulting firm the Uhler Group and I have been serving as an Operational Advisor and Strategy and Executive Evaluations to several private equity firms on their portfolio companies.

In the 16 months since I've been on the GLDD Board I received an extensive education on the Company's operations. I served on the compensation, audit and strategic alternatives committees along with being the lead director in the recently concluded CEO search.

I've also assisted as the assigned Board Representative to supervise on the ATB progress due to my extensive construction management experience. As a Board we are in sincere gratitude to our predecessor Chairman, Major General Mike Walsh. He assumed Board leadership at the time of the resignation of the former Chairman of the Board in October of 2015.

I can truly say that Mike has been a stable rock of integrity, clam and stability this last year. But as a full-time and senior executive of a rapidly growing engineering firm, Mike has found his time availability increasingly taxing as Chairman and he asked to step down at the end of the year.

I am honored to serve in this capacity and moreover I am even more pleased that Mike has agreed to continue as one of our Directors. There is no secret that our Company has had a difficult and disappointing journey over the last few years.

The strategic alternatives process which started in November of 2015 ended in July 2016 without a transaction because we were convinced that the company is worth more than indications of value we receive for all or part of the company.

As a result we rededicate ourselves to rapidly refreshing the Company's Board and to recruiting a CEO to drive the future. Following the completion of the strategic alternatives process, we recruited a new CEO elect in Lasse Petterson.

You'll recall that Jon Berger had announced that he wanted to retire after we found a new CEO but no later than April of 2017. Last is a highly experienced and well-qualified serving as President, CEO and Senior Exec for both [AMAC] [ph] and Chicago Bridge and Iron both publicly held along with having been the CEO of a Global Marine Company.

We are waiting the completion of the citizenship process in order to comply with the Jones Act Requirement before he starts as CEO. In the meantime Walsh has been elected as a - to our Board at a new Director.

His work as a director has allowed him to begin to learn the Company's business, capital planning process and to understand the GLDD operational leadership team. After agreeing on Lasse, we also on Jon Berger's request to retire to a freshly start the new fiscal year.

Our CFO Mark Marinko has agreed to step up as our Interim CEO, while continuing his current CFO role. I want to thank Mark for giving us that flexibility and Mark for your extra efforts in this regard. Even prior to beginning the strategic alternative process, we plan an effort to refresh the Board.

Upon the completion of that process, we are able to bring these plans to fruition initially with the addition of Ryan Levenson in December. Ryan is the founder of Privet Fund Management LLC, a well-regarded fund management firm that is one of our top 10 shareholders.

Ryan is currently the principal and portfolio manager at Privet and brings financial and operational experience to the Board and his capacity as an independent director. He is joined our nominating governance and our compensation committees.

Ryan brings t he perspective of a large shareholder to our board and also has provided substantial value-added ideas in a very short period of time.

We then recruited two new independent directors with experience and background relative to our business with the intent they could be successors to our current chairman's of our compensation and audit committees. We are very pleased to have Larry Dickerson and Mike Steuert join our Board in January.

Both are seasoned executives and Board members for Marine Infrastructure and Construction industry. While completing a 34 year career, Larry served as the CFO and then as CEO of Diamond Offshore Drilling which is listed on the New York Stock Exchange.

He also served on the Boards of several other public companies including Murphy Oil, Oil States International and Global Industry. Mike's career included an 11 year tenure as Fluor Corporation Senior Vice President and CFO. Fluor, one of the world's largest ECs is also publicly owned and listed on New York Stock Exchange.

Prior to Fluor, Mike served as CFO of both Litton Industries, a defense contractor and GenCorp Inc., an aerospace and defense contractor. Mike's additional public company experience includes audit and risk committee leadership assignments with LNG Limited and Warehousing Corporation.

Finally we announce that the current independent director and former U.S. Congressman, Peter Deutsch elected to withdraw his name from consideration from our Company's slay [ph] of Directors for the 2017 Annual Meeting but will remain on the Board through May's meeting.

Peter has served GLDD with distinction for 10 plus years and we're most appreciative of his wise counseling service. We wish him well and we’ll miss his advice and expertise. Subsequent to our May meeting, the board will now have a total of eight Directors, four of whom are newly added since December.

We are pleased to have added new expertise and oversight to the Board that we will combine with the new CEO and Chairman lead the company forward and generate revenues for our shareholders. As our new ATB launches into full operation late in the second quarter and our specific end markets continue to improve, we are optimistic regarding the future.

Upon losses taking charge, the top priority will be to condense refreshing our enterprise strategic plan which will be led by the CEO executive team and endorsed by the Board.

Since becoming Chairman I have called numerous of our large shareholders and want to now extend our Board's gratitude for all of our shareholders who have stayed loyal to us through a challenging time for Great Lakes. We will endeavor to return to the great company and investment. We know Great Lakes can be in the infrastructure industry.

We are leading Dredge Company - we are the leading Dredge Company in United States with outstanding applied technical knowledge and a 126 year record of successfully dredging oceans, rivers, ports of this country and in addition many overseas locations. In our storied history we had never failed to complete a marine project.

Finally we expect to participate in the work projected to result from significant tailwinds ahead in the future of U.S. infrastructure spending, requirements to open our harbors for larger Panamax vessels, as well as the need to protect and recover our shoreline from increasingly violent storms and the warming of the oceans.

Internally we will continue to focus on operational excellence and curetting a portfolio of assets best position to drive returns on capital.

Lastly the launching of our ATB would be the nation's largest hopper Dredge the Ellis Island will be transformational for Great Lakes and we look forward to discussing this accomplishment in greater detail in the future. Thank you for the opportunity to speak to you. I will now ask Katie O'Halloran to continue with the earnings call.

I will be pleased to fill your questions at the end of our prepared remarks. Thank you..

Thank you, Bob and good morning to everyone joining us. I will start with the consolidated results, and then drill down to the segment level to provide more detail on what is driving our results for the quarter and the year.

Total Company revenues in the fourth quarter of 2016 were $213 million, which is a 4% decrease compared to the fourth quarter of last year with revenue up in our dredging segment but significantly down in our environmental and infrastructure segment.

Total Company consolidated gross profit for the quarter was $22 million, a decrease of 23% compared to the fourth quarter of 2015. Gross profit margin for the quarter was 10% compared to 13% in the prior year.

The environmental segment or what I'll refer to as the E&I segment posted positive gross margin for the first time since the third quarter of 2014.

While the dredging segments gross profit margins decreased compared to the comparable fourth quarter in 2015 that benefitted from a strong international margin resulted in part from the work done by the company on the Suez Canal project.

Total Company operating loss was just under $2 million for the quarter, down from operating income of just over $6 million from the prior year quarter. This was driven by less gross profit in the dredging segment which was somewhat offset by an improvement in the E&I segment.

Operating loss also included two non-recurring items that negatively impacted our results including the last time that – on a dredge held for sale is 2.4 million and 2.3 million in losses related to sale of Terra Services assets. Net loss for the quarter was $7 million compared to a net loss of 800,000 for the prior year quarter.

During the current, we recorded 2.6 million in losses related to the wind-down of the TerraSea joint venture. In total these three non-recurring items had a negative impact of $7.3 million on our results. Adjusted EBITDA was $12 million compared to $22 million in the fourth quarter last year.

Absent these non-recurring items, adjusted EBITDA would have been $19.3 million. For the year, the Company's revenue was $768 million, a 10% decrease over annual revenue in 2015 with revenue lower in both segments particularly in the E&I segment.

Gross profit margin remains in line with the prior year at 11% with E&I showing an improvement in gross profit margin while dredging volume was lower. Operating income was $15 million in 2016 compared to approximately $23 million in 2015.

The environmental segment operating loss improved significantly, however, dredging segment experienced decline in operating income. Net loss for the full year was $8.2 million compared to $6.2 million in 2015.

The loss in 2016 includes the previously mentioned non-recurring items that occurred in the fourth quarter which adversely impact the results, as well as $2 million benefit due to reversal of variable in play compensation. In 2015 equity loss and joint ventures was $6.1 million compared to $2.4 million in 2016.

2015 also included $2 million of other income. Adjusted EBITDA for 2016 was $72 million down 13% from adjusted EBITDA of 2015 - adjusted EBITDA in 2015 of $83 million.

At the segment level the dredging segment revenue was up 6% in the current year quarter at $184 million with higher foreign capital, domestic capital and rivers and lakes revenue partially offset by lower maintenance and coastal protection revenue. For the year, dredging revenue was $637 million down 6%.

Foreign capital revenue was down 58% from $140 million in 2015 to $59 million in 2016 due to absence of the Suez Canal project, which not only generated significant revenue in 2015 but also drove margins higher. This decline was partially offset by increased domestic capital coastal protection and rivers and lakes revenue.

The dredging segment gross profit margin decreased 12% in the fourth quarter driven by lower foreign margins partially offset by strong contract margin on some of our domestic dredging projects. For the year the segment's gross profit margin declined to 13% primarily a result of negative gross profit in the foreign operations.

For 2015 foreign gross profit was $34 million compared to negative gross profit of $7 million in 2016. Operating income decreased to $7 million for the quarter, a 60% decrease in the same period in the prior year primarily driven by lower gross profit which was partially offset by a $3 million decrease in G&A during the quarter.

The $2.4 million loss in the dredge held for sale also impacts the results. For the year operating income was $34 million compared to $64 million in 2015. In addition to the fourth quarter non-recurring items, 2016 operating income includes the $2 million benefit for the reversal of variable employee comp.

Our E&I segment's revenue decreased 39% compared to the fourth quarter of 2015 to $30 million primarily due to lower revenue in the Terra reporting unit. For the revenue - for the year revenue was down 27% to $134 million again primarily as a result of lower revenue in the Terra reporting unit.

The segment excluding Terra continued execute well with the segment gross profit improving from negative gross profit of $5 million in the fourth quarter of 2015 to positive gross profit of $700,000 in the fourth quarter of 2016. In addition to improved project execution, a decrease in overhead expense by $1.5 million positively impacted results.

For the year, the segment gross profit margin was just above breakeven at approximately 1% compared to negative gross profit margin of 9% in 2015. Again improved project execution and lower overhead are the primary drivers for the full year results.

The segment reported operating loss for the quarter of $9 million compared to an operating loss of $12 million in the fourth quarter of 2015 primarily due to the improved gross profit. The current year quarter includes the $2.3 million loss in the sale of - of assets in the Terra Services line of business as well.

For the year the segment operating loss was $19 million compared to a loss of $41 million in 2015. The improvement in gross profit and reduction of $5.1 in amortization of intangibles partially offset by the $2.3 million loss related to sales of the Terra Service assets previously mentioned a primary driver for the improved results in 2016.

The loss in 2015 was negatively impacted by a $6.4 million charge for amortization of intangibles and $2.8 million goodwill impairment. On December 30, we were pleased to enter into a new $250 million revolving credit facility. The new facility refinanced our previous revolver and our term loan.

Its structure allows us the flexibility as we continue to deploy our free cash flow on the ATBs through the first half of 2017. At December 31, 2016 we had $11 million in cash on our balance sheet and had drawn $104 million on our revolver leaving us with $48 million in availability.

Total capital expenditures for the year were $85 million with approximately $54 million spent on ATB. Turning to bid results, the domestic dredging bid market for the 12 months ended December 31, 2016 totaled just under $1 billion at $972 million compared to $1.3 billion in 2015.

In 2015, the $134 million Savannah Harbor expansion project was awarded and four projects between $75 million and $100 million were also awarded contributing to the sizable market that year. In comparison in 2016, there were just two jobs exceeding $75 million in contract value both of which were won by our competitor.

In total, the company won 29% of the overall domestic dredging bid market in 2016. We are just below our prior three year average of 49% but please remember that variability and contract wins from quarter-to-quarter or from year-to-year is not unusual and the win rate is non-indicative of the win rate the company is likely to achieve next year.

In this case, the award of the two large projects to our competitor is driving our lower win rate this year.

During 2016, Great Lakes won 22% or $27 million in capital projects awarded, 39% or $164 million of the coastal protection projects awarded, 23% or $68 million of the maintenance projects awarded and 16% or $22 million of the rivers and lakes projects awarded.

Contracted dredging backlog at December 31, 2016 totaled $468 million compared to backlog at December 31, 2015 of $678 million. We also had $24.6 million of domestic little - sales and options pending awarded at year end and this one we were awarded an $88 million coastal restoration project in the Gulf.

Given our outlook of the upcoming bidding environment, we feel there are opportunities to add projects to backlog that we can also execute on this year. Mark will discuss this in more detail. The E&I's segment's backlog was $38 million at December 31, 2016 versus $73 million at December 31, 2015. E&I also won $13 million of work since year end.

Again despite being lower than the prior year end given the scale downsize of the business, we are comfortable with this level of backlog. I will now turn the call over to Mark for his remarks on our performance and outlook moving forward..

Thank you Katie, and thanks for helping out on the call this morning, and thank you Bob for your comments at the start of our call. I wanted to start out by acknowledging that we expected 2016 to be a year with several transitions and it was just that from the board level down to changes in our operations.

The Company believes that the changes in 2016 position us well for 2017 and beyond. I'm pleased with the terrific transformation of our E&I segment over the course of the year, while the delay in divesting the Terra Services assets was a drag on the segment, the core business had a solid performance and executed well on its projects.

With the sale of the assets now complete, we are optimistically looking forward to a profitable 2017 for this segment. Backlog is lower, we have a smaller streamline business focused on our core competencies and we are at a level that we think is appropriate given our expectations for this segment going forward.

We are actively bidding on works that is within our core capabilities and within callable risk profile and we have - and as Katie said we have already won 13 million in new projects since the end of the year.

Domestically the dredging segment had a solid year, however the weakness in the international dredging market is adversely impacting global dredging contractors including Great Lakes.

The decline in our international revenue in gross profit margin during the year partially offset by strong performance in domestic and rivers and lakes dredging is a primary driver for the segment's 2016 performance.

In light of these conditions, we sold an underutilized dredge that was based in the Middle East and we are in the process of selling it sister ship which is in underutilized vessel also based in the Middle East. We continue to pursue several contract opportunities and are hopeful that some of the work will come to fruition.

Regarding the ATB or the Ellis Island as we will refer to it going forward, 2016 was a milestone year. We transitioned from having a massive steel structure on land to launching the barge portion of the vessel in Panama City, Florida on September 30. The tug portion called the DB Mackie was launched earlier this month.

We are entering the final stages of outfitting on both pieces of equipment. Major machinery alignments for both vessels will commence next week, which will be followed by multiple system commissioning activities and dock trials. They will then be coupled together and commence sea trials.

We continue to expect that the Ellis Island is a game changer for our company with the operational efficiencies alone estimated to generate over $20 million in incremental EBITDA. Construction is slightly behind schedule, but not unordinary for investment of this size.

We expect the Ellis Island to be completed late in the second quarter and operational soon thereafter. As we mentioned in the press release, we already have in backlog the first product return which will be put to work. Regarding the domestic bid market as expected it was just about 1 billion.

As Katie mentioned was one of our competitors winning two large projects, our win rate for the year was lower than normal. However, we are comfortable with the backlog we have in place given what we see as upcoming opportunities later in 2017. And please keep in mind that we're coming off an unprecedented level of backlog at the end of 2015.

Domestically there's continues to be positive market catalyst that make the dredging industry attractive. We continue to expect to see ports along the East Coast pursue deepening projects in the next few years. It still appears that Jacksonville will likely be the next port that tenders a bid, potentially early in the second quarter.

Charleston and Port Everglades continue to look promising to potentially kick off their projects next year. In the Gulf of Mexico, we continue to be encouraged that there will be opportunities in the future, leveraging the funds available from the $18 billion BP oil spill settlement.

The timing of these projects is uncertain, but we are pleased that we have already been awarded and commenced work on the coastal restoration project of Whiskey Island that is being funded with early BP funding. We continue to expect the BP finds the additional source of funding for the U.S. domestic dredging work beyond the Army Corps annual budget.

In Washington DC, although Congress did not pay us the budget and are working under a continuing resolution which puts the Corps' budget back at the previous year's level, we're encouraged by the new administration's focus on repairing and rebuilding America's infrastructure, including our nation's ports and waterways.

And despite the budget not being passed we're pleased to see that the Water Resources Reform bill or WRDA 2016 was passed by Congress and signed by former President Obama. This important legislation authorizes the nearly $16 billion in critical infrastructure improvements that need to be made in the U.S.

In addition it updates the Harbor Maintenance Trust Fund language that was included in 2014 that required by 2025, 100% of this tax revenue to be used for its intended purpose, which is to maintain the navigable waterways of the United States. The new law ensures that the amount of these tax revenues will be at least 3% higher than last year.

To conclude, I'd like to reiterate that 2016 was clearly year of change. The refocus of the environmental business and the launch in production of the Ellis Island make us optimistic for the future.

In addition I'd like to echo's Bob's comments that our internal management is excited about the Board and management changes that have been made over the last 90 days. The new Board members bring a wealth of helpful experience and we're confident they will assist us in helping the company move forward. With that, we'll open up the call for questions..

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

Good morning. Thank you for taking my questions.

Can you touch on the lower win rates through the year? I know you talked about it briefly but was there stronger competition actually in the dredging market or was it a function of having the right assets or schedules available? Maybe little bit more on that front and what you're expecting in 2017 on the win rate specifically?.

So it was - the competition was stronger. One competitor won two large jobs as we mentioned on the call. Now when you go into 2017 obviously competitively you look at their vessels are occupied that helps us have - I'll call it less competition may be related to those bids in 2017..

Okay, got it.

And then just on the lower dredging backlog entering the year, does it look like from your point of view right now that there will be a similar low volume compared to 2016 of total industry work? And if so, how could that change with the new regime in White House and Congress that could potentially be more friendly to infrastructure?.

Sure. So, a couple of things. As we mentioned on the call, first of all we won this $88 million job in January.

And I think that was one originally that we anticipated would be in fourth quarter, just slipped into 2017 but additionally we mentioned this port deepening potentially Jacksonville this year, you didn't have a large port deepening in 2016 at Savannah the year before. So those are a couple of large jobs that are in the first half of this year.

So we expect a solid bid market in 2017. And obviously with the new administration, you see a lot of discussion about the infrastructures are, the focus on infrastructure, not just highways and bridges, but they specifically talk about port deepening's, and the coastal protection and restoration.

So it could allow some of these things to accelerate from what we would, I’ll say, typically see. That being said, the administration, we know there is a lot of uncertainty in Washington as well, but the initial ratings that have come out of that administration seem very positive for our industry..

Okay, great.

And I think in the press release, you mentioned a robust bidding environment in E&I, can you elaborate on that? And perhaps what range of operating profitability we can expect?.

So, it's a big market obviously. We want to - I think go back and focus on our core competencies and those are the bids. As we've mentioned earlier in the call, we've won 13 million of work just since the beginning of this year.

The bid market we talked about the size of these projects, a large project for this group is in the $10 million to $20 million range, not the $100 million range you see in the dredging industry. But obviously it will be a kind of much smaller business without the Terra piece of it anymore.

But as we said, we expect this business to be profitable in 2017 which is say think of it in the kind of the single digits type of profitability..

Okay, that's very helpful. And then finally, can you just give us an update on Mr.

Petterson status? Do you still expect him to take the range before the end of Q1?.

Yes, let - I think I'll let Bob answer that question since he's intimately involved..

Yes. As you know Lasse needs to be a U.S. citizen in order to meet the Jones Act Requirement. He has submitted his application in August 15, and we are tracking closely the progress of the processing sites of the customs immigration service.

Their website presently says they are processing applications as of July 28 which is about two weeks before Lasse submitted it. We believe they are scheduling interviews for individuals. His application file is earlier that day. We understand that the data has some no margin of error. At the same time, we are doing everything possible to convince USC.

I ask that you expedite losses filed, and really can’t control government processes. But I think the short answer is we believe it’s soon..

Okay, great. Just to clarify, that July 28 was when he applied, not when you expect him to take wins this year..

No, August 15 is when he applied and they are processing applications that were done two weeks earlier in July 28..

Okay, got it. Thank you very much..

[Operator Instructions] And we have a question from the line of John [indiscernible]. Your line is now open..

Hi, could you - I may have missed part of the call but I think I listened to most of it.

Could you characterize the potential either revenue or profitability without a specific forecast of your new dredge? What it does or what it cost, increases revenues, efficiency, bids a different jobs, differentiates your competitive position, what's the economical theoretical potential?.

So we have said that we expected to add $20 million at least $20 million of incremental EBITDA to the company, you have to look at the overall fleet and where that sits in the fleet. So I really - and that includes our cost cannibalization of fleet I don't want to give out specific revenue or margins..

That's a better answer than I deserve. I ask that kind of question 20 times a day, I don't get an answer like that..

So, yes, just we don’t give out the individual - and again it would change on project mix and things like that but it really is a much more efficient vessel then our existing fleet due to the capacity of it, as well as the technology fuel efficiency of that vessel..

Permit me to ask another question, I know it's right the day, so is it differentiated in the sense that you'll be able to do certain jobs that you haven't been done or do the more efficiently than others. In other words just more chocolate cake but is its strawberry short cake and other people don’t have..

Yes, I think, I understand yes. So, you’re seeing and I believe we mentioned this before but you’re seeing in certain types of projects where you have to go to a borrow area that is further away. These are longer distant sales.

Obviously with its capacity if you compare it to our liberty island let's take that dredge, that has kind of have the capacity of the Ellis Island and when you think about the 30 mile borrow area sale one way, it can obviously replace the capacity and makes half the trips.

So it's that type of advantage that you have, as well as it can go deeper than other vessels that we currently have in our fleet..

So, are the other vessels like this being board, have you contracted or could have priority to get another one or to need for another one..

There is not a need for another one I wouldn’t say that in the market - our competitors are building other hopper dredges like this but I'd say to its smaller so not to this size as well as it's not in our ATB type hopper dredge..

Obviously the deal to the question is this kind of cash flow is offering, equal more valuable - there was an earlier question about market share and this would be presumably a more defensible market share..

Correct..

And last question on this you just too nice is, so when you get a contract for this year will - what the - year two, three or be six months, three months will be always the question of renewing what's the market for this thing..

Well the market is - there is certain types of work where it excels, whether it's – I'll call beach work, costal restoration type, certain port deepening's, so that’s a market that has - when you - I talked about all the projects that are could be coming up that’s a very robust market for us we foresee, we anticipate going forward.

So if this vessel fits in very nicely with what's happening and what we expect to happen in the market going forward..

So you expect that utilization to be relatively high for relatively sustainable period..

Yes, definitely..

That's a drift of the question..

Yes..

Okay, thank you for taking my question. Thank you for this answer..

At this time, I'm showing no further questions. I'd like to thank you for your participation in today's conference. This does conclude the program. And you may now disconnect..