Good day, ladies and gentlemen, and welcome to the Great Lakes Dredge & Dock Corporation First Quarter 2017 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we'll conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] As a reminder, this call is being recorded.

I would now like to introduce your host for today's conference, Ms. Katie O'Halloran. Ma'am, you may begin..

Thank you. Good morning. This is Katie O'Halloran and I welcome to our quarterly conference call.

Joining me on the call this morning is our Chairman of the Board, Bob Uhler; our new Chief Executive Officer, Lasse Petterson; and our Chief Financial Officer, Mark Marinko Bob will be making a couple of opening comments and then having assumed his positioned as CEO just two days ago, Lasse will make a brief introduction.

Then Mark and I will discuss the operational and financial results for the quarter ending March 31st, 2017. 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 from continuing operations 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..

Thank you and good morning. As Katie mentioned, we were excited earlier this week to announce Lasse Petterson as our new CEO. But first I want to thank Mark Marinko for being our Interim CEO and doing a great job of creating stability and improving morale while doing two critical jobs for us. Thank you, Mark..

Thanks Bob..

As Chairman, the Board welcomes Lasse to the Great Lakes' Executive management team. It has been a pleasure working with Lasse on the Board of Directors since he was appointed last year. The time has been well spent to onboard and orient him to the company, which enables a much faster CEO start.

Working with Lasse over the last few months has made us even more confident that we have the right individual in place to lead Great Lakes forward. His input insights have been invaluable and I expect as CEO to be -- he will create a positive and impactful movement forward.

With that, welcome Lasse and I'll turn it over for him to make a few comments..

Thank you, Bob. Good morning everyone. I had a big two weeks. I gained my U.S. citizenship last week and I became the Chief Executive Officer of Great Lakes just this past Monday. Since the Board of Directors chose me for the position a few months ago, I've looked forward to assume the role and I'm pleased that the day now has come.

Some of you may ask what about Great Lakes and this opportunity that appealed to me? I joined Great Lakes in part due to its position as the leading U.S. based dredging company, but mostly, for the opportunities I believe the company has going forward.

I was attracted to the idea of leading a company whose history spans over more than a century and whose impact on America's infrastructure has been impressive and to take it to its next chapter building on and leveraging people's expertise and professionalism.

I believe that Great Lakes brand is well known and well-respected within the Marine construction industry, both in the U.S. and internationally and is now also gaining traction in the company's more recent business venture, the environmental, remediation, and infrastructure industry.

As said I look forward to lead the Great Lakes' management team, taking the company to the next chapter, in which an important step will be adding the state-of-the-art newbuild Ellis Island ATB to the Great Lakes' dredging feat [ph] later this year.

As a member of the Board of Directors for the past few months, I've been getting up to speed on the company's operations, financial drivers, culture, and employees.

Going forward, my priority will be to ensure that the vision and direction for the company is firm and a solid roadmap is created ensuring the company's continued leading position building and maintaining environmental, coastal, and marine infrastructure. Thank you for listening. I'm looking forward to speak to you again on future earnings call.

I now turn the call over to Katie O'Halloran..

Thank you, Lasse and welcome aboard. The first quarter of 2017 was in line with management's expectations and management is encouraged that most of the uncertainties that existed in 2016 have been closed down. I'll start with a review of the consolidated results and then discuss results at the segment level.

Total company revenues in the first quarter of 2017 were $171 million, which is a 5% increase compared to the first quarter of last year with revenue up a bit in our Dredging segment and flat in our Environmental & Infrastructure our E&I segment.

Total company consolidated gross profit for the quarter was $16 million, a 19% decrease compared to the first quarter of 2016. Gross profit margin for the quarter was 9.5% compared to 12% in the prior year.

Total company operating loss was $624,000 for the quarter, down a bit from the small operating loss of $90,000 we recorded in the prior year quarter. This loss is the result of lower gross profit in the Dredging segment, which was somewhat offset by an improvement in the E&I segment and an overall reduction in G&A.

Net loss from continuing operations was $3.7 million for the quarter compared to net loss of $4 million in the prior year quarter and adjusted EBITDA from continuing operations was $14.2 million, a $1.2 million increase compared to $13 million in the first quarter last year. Net loss from discontinuing operations in the current year was $13 million.

The loss related to a historical demolition project for which a surety bond remained in place. This surety provided a notice to us that the bondholder terminated the underlying contract and as a result this surety is likely to draw a letter of credit that we provided to the surety at the time of the sale of the historical demolition business.

As we stated in the press release, we do not expect any significant additional losses related to this project. Mark will discuss this item in greater detail later in the call.

At the segment level, Dredging segment's revenue was up 6% in the current year quarter to $153 million, with domestic -- higher domestic capital and foreign capital revenue, partially offset by lower maintenance and Coastal Protection revenue.

The Dredging segment's gross profit margin decreased to 9.5% in the first quarter, leading to $14 million in gross profit. Compared to the prior quarter, this quarter results were primarily driven by higher plant costs due to the acceleration of dry docks for several dredges.

The first quarter 2016 also benefited from a strong performance domestically. As the year progresses, we expect Dredging gross margin to improve compared to first quarter of 2017.

Dredging's operating income decreased to $2 million for the quarter, which is an 80% decrease from the same period in the prior year, driven primarily by the lower gross profit. Our E&I segment's revenue was flat compared to the first quarter of 2016 at roughly $19 million.

And although we divest of certain Terra assets, revenue was able to remain flat as a result of significant contracts being executed within the remaining core business. The E&I segment continue to execute well with the segment's gross profit margin improving to 9% from negative gross profit margin of 18% in the prior year quarter.

Gross profit in the first quarter of 2017 was approximately $2 million, a $5 million increase compared to negative gross profit of over $3 million in the first quarter of 2016.

In addition to improved product execution, a reduction in overhead expense by $3.8 million positively impacted E&I, primarily as a result of improved absorption of our downsized equipment spread as well as lower labor and benefits expense.

The segment reported an operating loss of just under $3, an $8 million improvement compared to a loss of approximately $11 million in the first quarter of 2016, primarily due to the improvement gross profit margin and lower G&A cost of approximately $3 million, primarily labor and benefits.

Please keep in mind that the business experience is seasonality with winter months being slower. For the year, we expect this segment to be profitable. At March 31st, 2017, we had $7 million in cash on our balance sheet and had drawn $115 million on our revolver leaving us with $45 million in availability.

Total capital expenditures for the quarter were $20 million, with approximately $12 million for the Ellis Island, our new ATB hopper dredge. We have approximately $13 million in CapEx remaining for the construction phase of the dredge.

Turning to bid results, the domestic dredging bid market for the three months ended March 31st, 2017 totaled $178 million compared to $126 million in the first quarter of 2016. In the first quarter of this year, the $88 million Mississippi Coastal Improvement Project made up a significant portion of the market.

In total, the company won 63% of the overall domestic dredging bid market so far in 2017, which is above our prior three year average of 49%.

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

During the first quarter of 2017, Great Lakes won 86% percent or $88 million in capital projects awarded, 100% or $11 million of the coastal protection projects awarded, 19% or $12 million maintenance projects awarded, and we didn't win any of the rivers and lakes project that we did submit a bid on.

Contracted dredging backlog at March 31st, 2017 totaled$ 457 million compared to backlog at December 31st, 2016 of $468 million. In April, we were awarded $17 million project on the West Coast that includes $3 million of additional potential options.

We also have $7 million in options pending award related to a Coastal Protection Project in North Carolina. And in April, we were low bidder on a $10 million maintenance project in Louisiana. We expect this contract to be awarded soon. The E&I segment's backlog was just under $60 million at March 31st, 2017, up from $38 million at December 31st, 2016.

With that, I'll turn the call over to Mark for his remarks on our performance and outlook moving forward..

Thank you, Katie and thank you to Bob and Lasse for joining us this morning. Lasse I want to welcome you to the Great Lakes' management team. We're excited to have you on Board and look forward to working with you. We are pleased with the results in our refocused E&I segment.

As Katie mentioned, this business does experience seasonality, but its performance during the first quarter was an excellent improvement compared to the first quarter of 2016 and fully met our expectations. With the backlog we currently have in place, we expect this business to be a positive contributor to the company's annual results.

Let me point out that the $13 million loss from discontinued operations is not related to the legacy Terra business and is no way related to our Environmental & Infrastructure segment. As Katie mentioned, it is related to a surety bond that we had in place on a historical demolition project at the time of sale of the historical demolition business.

It is our understanding that the potential default on the bond was triggered as a result of the contractor, the entity we sold the historical demolition business to, being terminated from the project.

Pursuant to the terms of the sale of the historical demolition business, The Great Lakes received an indemnification from the buyer for losses resulting from the bonding arrangement. We intend to aggressively pursue enforcement of those indemnification provisions for any losses suffered by Great Lakes.

Moving to Dredging, domestically our Dredging segment's results were impacted by more severe weather conditions than anticipated on both the East and Gulf Coast and unplanned mechanical repairs.

In addition, there were several dry docks done in the first quarter, which drove results -- which drove results due to downtime for the vessels and additional maintenance costs. We expect fewer dry docks in the remainder of the year which is why we expect margins will improve.

But we do not expect them to improve to the levels reached in 2016, primarily as a result of project mix Internationally, we're encouraged by what we're seeing. It appears that the market is slowly picking back up and we are pursuing more opportunities than we have over the last year or so.

Nonetheless, as we stated during our last earnings call, we continue to evaluate certain underutilized assets located internationally. Regarding construction on the ATB, the hopper dredge Ellis Island and Tug. Douglas B. Mackie, our at Eastern's Nelson Shipyard undergoing final outfitting and system integration.

The vessels are now operating on shore power and we expect the Ellis Island to commence Coastal Protection Dredging operations in the third quarter. We continue to expect that the Ellis Island will be a game-changer for our company with the operational efficiencies alone estimated to generate over $20 million in incremental EBITDA annually.

Regarding the domestic bidding market, the number of bidding opportunities during the first quarter was somewhat lighter than normal considering the Mississippi Coastal Improvement project accounts for close to 50% of the total bidding market. But we believe that was a function of the heavy bidding market activity in the fourth quarter of 2016.

However, we remain comfortable with the backlog we have in place given what we see as upcoming opportunities later in 2017. Domestically, there continues to be positive market catalysts that make the dredging industry attractive. We can tell you expect to see ports along the East Coast pursue deepening projects in the next few years.

Many of the projects are progressing nicely and we are encouraged at the state and local governments are acknowledging their important roles in facilitating investment in federal projects.

In fact there are seven states with active legislation to begin or improve funding for port and coastal work including Texas, Louisiana, Florida, South Carolina, North Carolina, New Jersey, and Connecticut. It still appears that Jacksonville will likely be the next port that tenders a bid now most likely in the third quarter of this year.

Charleston and Port Everglades continue to look promising to potentially kick-off their projects next year and Boston recently held an Industry Day. 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 continue expect the BP fines to be an additional source of funding for U.S. domestic dredging work beyond the Army Corps' annual budget. In Washington D.C., Congress recently passed a budget for fiscal year 2017. We expect it to be sent to President Trump for his signature later this week or next.

Despite the delay in passing the budget, we're quite pleased that Congress has reached an agreement as it provides for a record budget for the Army Corps of $6 billion and exceeds the increase in Harbor Maintenance Trust Funds spending for maintenance dredging as required by the 2014 Water Resources and Development Act.

Congress has done its job so far meeting the goals for increasing the amount of this Trust Fund revenue so that it is used for its intended purpose of maintaining our nation's navigable waterways. We expect them to continue to do so in the near future. There's been a lot of talk about President Trump's focus on infrastructure.

We continue to be encouraged by the new administration's focus on repairing and rebuilding America's infrastructure including our nation's ports and its waterways.

However, this last massive legislation is a work in progress, but while the overall bill will be very diverse, we expect port's freight movement and coastal work will be part of any eventual bill. With that, we'll open up the call for questions..

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

Good morning guys. Thank you for taking my questions..

Hi Jon..

Good morning..

Can you talk about the expected run rate of the projects that you have now in the Middle East.

When do they currently expect to end? And what is the expectation for filling the backlog out there?.

So, actually this is Mark Marinko. Yes, we are still working the job in Saudi Arabia, actually just added some variation orders to that job. We'll work through the end of -- near the end of 2017 this year with that. And as I mentioned just earlier, there's a lot -- there's an uptick in tenders.

We are currently looking at a maritime yard, there's a tender for maritime yard in Saudi Arabia. So, I have the opportunity for a new port in Kuwait that will happen in 2018. And there are actually two other bids in the region we're currently working on so. So, I mentioned that we are starting to see this begin to uptick internationally..

Okay, great.

And then just moving on to the E&I division, you put some nice projects into the backlog, you set it a high margin, can you just qualify or quantify what those margins look like in the backlog? And what -- when do you expect to recognize those or are going through those?.

Most of that work will be done this year. Although some of that will flip into 2018. Some of the margin, I'm just looking at something real quick, the margins in backlog on some of these new projects are probably in the 15% to 20% range for contract margin..

Okay.

Is that a gross margin or operating?.

It's just above contract -- about gross margin, so that's before the equipment allocation..

Got you, okay.

And then just an update on the timing of ATB set in Q3, should we expect them more towards the end of the beginning of the quarter just in terms of how that contributes to the year?.

Yes, it will start in the middle of the third quarter contributing..

Got it.

And then Mark you mentioned dry docks and unexpected mechanical issues did you pull any spending forward from the rest of the year when you did those or is it just a regular run rate going forward?.

Yes, well, there was one of the dry -- the larger dry dock was scheduled in the Q1. So, when you compare it to the first quarter of last year, we really didn't have any major dry docks in Q1 at 2016. We did bring a smaller one worth about a $1 million forward into the quarter..

And there was also some that's CapEx investment and there were some maintenance expense -- additional maintenance expense related to those as well..

Correct..

Okay, got it.

And then finally on the underutilized assets that you're exploring, what's the total value of those or the number of assets and boats that you're talking about here?.

Yes, there are about four vessels we're looking at internationally. As we mentioned we put -- one of them has assets all for sale at the end of 2016, the total value of these assets is between about $13 million to $15 million..

Okay, great. And then finally I noticed that you guys have returned to the West Coast for the first time in a while.

Can you just talk about that job and then what the margins look like you have the trends of the Panama Canal?.

That's a job that we have done before on the West Coast. It's a good -- its good margin despite the fact that we have to mold over the West Coast, but we have done it before for the material that we're familiar with. So, it will be a nice contributor for the year..

Okay, got it. Thank you very much..

Thanks John..

[Operator Instructions] And our next question comes from the [Indiscernible] and Company. Your line is now open..

Hi, thank you. Just a little bit more clarity on the disclosure on the demolition business with the surety bond.

Is the charge that we booked on a discontinued basis; is that the cash flow that we're required to put forth?.

Yes, essentially, it's -- we had to -- we had a bond in place when we sold that business a letter of credit backing that up and that would be the anticipated draw on that letter of credit. The letter of credit has not been drawn yet..

Is that a number that we talked about in the 10-K related to the Zurich thing?.

Correct. Yes. Yes that we disclosed at year end, yes..

Okay. And then I mean this is kind of fairly long dated relative to when we sold this.

Are there other demolition projects that are still not completed? Or they mostly all finished?.

Yes. So, good question, so, yes, this one project went through a centrally a two-year delay. That's why it's coming up now. But all the other projects are complete or substantially complete with the exception of one and that other one is only not complete because there was additional follow work -- follow-on work added.

So, we do not expect any significant additional losses from any of these historical demolition projects..

Okay. And then I guess usually we have an indemnification agreement within the sales contract. But I believe we sold it in the disclosures to some sort of private entity.

Is that business still around? Are they financially viable? Is there any chance of reasonable recovery on that indemnification?.

So, correct, that indemnification is from the sale agreement. The business is still around. I can't tell you exactly where they are financially; they are privately held but that business is still around..

All right.

So, are we going to actively litigate that going forward?.

Yes, we are..

Okay. And then when we look at the E&I business, backlog was up sequentially, and mindful that we've we struggled with that business and Chris Shea is doing his best to kind of improve that business.

Is there a backlog number that we're targeting within that business or is it more along the lines of we're just going to be very careful with the projects we select if they're available turn our wheel house will bid on them if the margin is appropriate.

Or are we saying there's some set number we want to target for the backlog?.

I never saw -- I said there's a -- we have a budget every year obviously and there's a -- we understand the level of backlog we have to have to -- in terms of the timeframe of how quickly we work those jobs off. But the backlog is tracking where we wanted to be right now.

But I do want to say Chris has put in a -- and we've talked about this before, a robust risk profile. We want to make sure we grow smartly and at these projects we bid on. We don't have the history we did before where we had projects that lost money.

So, I would just say we're being much more prudent in our risk profile, but there are a lot of jobs and a lot of opportunities available that are in our wheel house. I like that word you used and those tend to be the ones we're winning. So, we feel pretty confident that the backlog is where we want it to be right now.

It is tracking and that will be a profitable contributor this year..

Okay.

And I apologize I'm kind of bouncing around back on the surety disclosure, is the first quarter abbreviated balance sheet that we put in the press releases, is that reflective of that $13 million payment?.

Well, there's a liability related to that $13 million that's out there..

We have not made the payment yet. They have not drawn on the LC as of today. It's that they intend to and that's why we have booked this in the first quarter..

Okay. So, there's an accrual on the balance struck..

Correct. Correct..

Okay.

And then we did disclose additional spending on the capital side on the ATB, you're saying it's going to be doing work in the middle third quarter, how much additional capital spending is left on the ATB?.

There's about $13 million left to spend on the ATB..

Okay. Thank you..

Great. Thank you..

At this time, I'm showing no further questions. I'd like to turn the call back over to Ms. Katie O'Halloran for closing remarks..

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

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may not disconnect. Everyone have a great day..