Good day, ladies and gentlemen, and welcome to the Great Lakes Dredge & Dock Fourth Quarter Earnings Call. [Operator Instructions]. As a reminder, today's conference is being recorded. I would now like to turn the call over to Ms. Abby Sullivan, Manager of Investor Relations. Ma'am, you may begin..

Good morning, and welcome to our quarterly conference call. Joining me on the call this morning is our Chief Executive Officer, Lasse Petterson; and our Chief Financial Officer, Mark Marinko. Lasse will provide an update on our restructuring plan, the Ellis Island and some recent changes in management.

Then Mark will continue with an update on our operations during the quarter and year. Lasse will conclude with an update on the outlook for 2018. 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 2016 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.

During this call, we will also exclude our restructuring costs from certain financial measures to allow the user of the data to better evaluate our financial results from operations as compared to the prior year. Reconciliations regarding this non-GAAP measure are included in our fourth quarter earnings statement released this morning.

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

Thank you, Abby, and good morning. During the second half of 2017, we completed an extensive analysis of the company's operation and strategy.

As a result of this analysis, in the third quarter, we put our restructuring plan in place for reduction of corporate and divisional overheads and SG&A, and phasing out of assets in our fleet that are either not profitable or are underutilized and we will focus our capital investments in the most productive assets in our fleet.

The restructuring is ongoing and will be fully implemented through 2018 and '19, and is planned to result in a run rate improvement of $20 million in 2018 and $40 million annualized in 2019 and onwards.

During the fourth quarter of 2017, we recognized a $27.4 million charge for restructuring, resulting in a total restructuring charge in 2017 of $29.5 million and we expect to recognize an additional $13 million to $18 million in restructuring charges in 2018.

We are on track to recognize the targeted run rate improvements and remain confident that this restructuring plan and strategy will allow us to be in the best position to capitalize on the current solid domestic bid market, to reduce our debt and to improve our return on invested capital and begin to put necessary reinvestments in our fleet.

During the fourth quarter of 2017, the hopper dredge Ellis Island successfully commenced operation and has since been working and earning revenue in the Mississippi Coastal Improvement project in the Gulf of Mexico.

As we have discussed previously, new additions to the fleet always require a certain level of running time and we expect the Ellis Island to take about 3 months before she reach her full design capacity. The production results has been encouraging and she approaches her full design capacity.

On an annual basis, once at full design capacity, we continue to expect the Ellis Island to provide an incremental $20 million to $30 million of EBITDA. Finally, during the quarter and subsequent to year-end, we announced changes to our Executive Management Team. Katie LaVoy was elected Senior Vice President and Chief Legal Officer.

Katie has been with the company since 2007, most recently serving as the Interim Chief Legal Officer. Annette Cyr also joined the Management Team as Vice President of Human Resources. Annette joins Great Lakes with over 25 years of experience in Human Resources, most recently serving as Executive Vice President of Human Resources at Beaulieu America.

Finally, Larry Dickerson took the position as the Nonexecutive Chairman of the Board on February 1. Larry has extensive experience as CEO of Diamond Offshore and he sits on several public company boards. With those updates, I will return the call over to Mark to discuss the results of the fourth quarter..

Okay. Thank you, Lasse. Due to the restructuring charges, the financial results released this morning were in a little different format than past press releases.

The results included the financials as reported, which includes restructuring charges as well as certain financial measures, excluding restructuring charges, to allow the reader to better evaluate our financial results as compared to the prior year.

During the call today, I will discuss our reported financial results as well as our financial results, excluding restructuring charges. At the end, I will discuss a summary of the restructuring charges. I'll start with the quarterly consolidated results and then discuss results at the segment level before providing a summary of the full year results.

For the fourth quarter of 2017, including restructuring charges, revenues were $191.7 million, net loss was $8.8 million and adjusted EBITDA was negative $8.4 million. Total company revenues for the fourth quarter 2017 represented a $21.7 million decrease compared to the fourth quarter 2016.

The revenue decline was caused by a $31.6 million decrease in the Dredging segment, offset slightly by an increase of $8.8 million in the environmental and infrastructure or E&I segment. Total company consolidated gross profit, excluding restructuring, was $13.9 million compared to $22.1 million in the fourth quarter of 2016.

Gross profit margin, excluding restructuring, was 7.2% compared to 10.4% in the prior year quarter. Total company operating loss, excluding restructuring, was $2.8 million, which is a $0.9 million decrease over the prior year quarter.

The decrease was driven by decreased contract margins caused by domestic weather delays, additional contract costs on our smaller domestic inland and foreign capital projects and idle plant in our fleet.

These factors were partially offset by improved operations in the E&I business and the absence of the loss on sale of assets of the Terra business which occurred in the fourth quarter of 2016. Net loss from continuing operations for the fourth quarter of 2017 was $8.8 million.

Net income from continuing operations, excluding restructuring, for the fourth quarter of 2017 was $8 million compared to a net loss from continuing operations of $7 million in the prior year quarter.

The current quarter net income includes net interest expense of $7.6 million and an income tax benefit, excluding restructuring, of $18.8 million, $15.7 million of which is related to the recent passing of the Tax Cuts and Jobs Act of 2017.

Net loss for the fourth quarter 2016 included $6.5 million in net interest expense and $5.2 million income tax benefit. The prior quarter also included $3.8 million in loss from equity joint ventures and other expenses, while the current quarter had only a $0.5 million loss. Adjusted EBITDA for the quarter was a negative $8.4 million.

Adjusted EBITDA, excluding restructuring, was $12.2 million. This compares to an adjusted EBITDA of $11.6 million in the fourth quarter of 2016. At the segment level, the Dredging segment revenues decreased from the prior year on lower foreign capital, coastal protection, domestic capital and rivers and lakes revenue.

These decreases were slightly offset by higher revenues in the maintenance market. Gross profit margin, excluding restructuring, decreased to 8.5% from 11.6% on additional contract costs on our smaller domestic inland and foreign projects and overall idle plant and domestic weather delays.

Dredging's operating income, excluding restructuring, decreased to $0.6 million for the quarter, which is a $6.8 million decrease from the prior -- from the period in the prior year, driven primarily by the lower gross profit excluding restructuring, offset slightly by a lower impact of loss on sale of assets, excluding restructuring, in the current quarter as compared to the prior year quarter.

Our E&I segment's revenue increased in the fourth quarter of 2017 compared to the prior year quarter by $8.8 million. An increase in the core E&I business revenues were offset -- were slightly offset by the lost revenue on the divested Terra business.

The E&I segment's gross profit margin, excluding restructuring, was flat quarter-over-quarter, driven by the lack of project losses in the historical Terra business unit, offset slightly by lower contract margins in the Great Lakes E&I business -- remaining business, stemming from 1 project loss, which negatively impacted gross profit by $2.5 million in the quarter.

The segment also benefited from lower plant and overhead expenses in the quarter. The segment reported an operating loss, excluding restructuring, of $3.3 million in the fourth quarter, a $5.9 million improvement from the prior year quarter due to lower G&A expenses and loss on sale of assets, both excluding restructuring.

Please note that the prior year quarter included $3.1 million loss on sale of assets related to the divestiture of the Terra business. Moving to our full year results.

For the year ended December 31, 2017, inclusive of restructuring charges, revenues were $702.5 million, net loss from continuing operations were $18.6 million and adjusted EBITDA from continuing operations was $34.7 million.

Excluding the restructuring charges for the year ended December 31, 2017, net loss from continuing operations was $0.5 million and adjusted EBITDA from continuing operations was $57.3 million.

These results, excluding restructuring, represent a $65.1 million decrease in revenues, an improvement of $7.6 million in net loss and a decrease in adjusted EBITDA of $14.7 million.

At the segment level for the full year of 2017, the Dredging segment reported revenue of $592.2 million, gross profit of $42.7 million and operating loss of $13.4 million. When excluding the impact of restructuring charges, the Dredging segment reported gross profit of $65.7 million and operating income of $15.5 million.

These results compares to revenues of $637.5 million, gross profit of $85.3 million and operating income of $34.1 million in the prior year. For the E&I segment for the full year of 2017, we reported revenue of $112.6 million, gross profit of $7.2 million and operating loss of $10.2 million.

When excluding the impact of restructuring charges, the E&I segment reported gross profit of $7.2 million and operating loss of $9.5 million. These results compare to revenue of $133.6 million, gross profit of $1 million and operating loss of $19.4 million in the prior year.

To recap the restructuring charges for the year ended December 31, 2017, we recorded a charge of $29.5 million. $23 million was included in gross profit and primarily represent a reduction to our fleet of assets. Of the $23 million, $6.9 million was charged to depreciation.

$1.8 million of the charge was included in general and administrative expenses, primarily related to severance. Finally, $4.7 million of the charge was charged to loss-on-sale of fixed assets from -- primarily related to reduction of our fleet assets.

Now we will turn to our balance sheet, where at December 31, 2017, we had $15.9 million in cash and had drawn $95 million on our revolver, leaving us with $76 million in availability. Our total capital expenditures for the year were $66.1 million, $43.3 million of which was completed -- were -- was for the completion of the Ellis Island.

Finally, the 2017 bid market year totaled $1.3 billion compared to $972 million in 2016. During the fourth quarter, we were awarded $336 million, inclusive of the Charleston II project that has a total value of $278 million including options. During 2017, the company won 52% of the overall domestic dredging bid market.

This rate is above our 3-year average win rate of 42%. Please remember that variability in contract wins from quarter-to-quarter or year-to-year is not unusual and the win rate is not indicative of the win rate the company is likely to achieve next year.

During 2017, Great Lakes won 75% or $414.2 million of capital projects awarded, 58% or $155.1 million of the coastal protection projects awarded, 22% or $93.5 million of maintenance projects awarded and 8% or $2.6 million of the rivers and lakes projects awarded.

Contracted dredging backlog at December 31, 2017, totaled $511 million compared to backlog at December 31 of 2016 of $468 million. The E&I segment's backlog was $35 million at December 31, 2017, versus $38 million at December 31, 2016. And with that, I'll turn the call back over to Lasse for his remarks on the outlook moving forward..

Thank you, Mark. As we move our sights into 2018, we remain focused on implementation of our restructuring plan and cost-saving strategies as we prepare the company to take on the opportunities that we see coming to our various markets over the next few years. The domestic dredging market continues to be solid.

We focus on port deepenings and coastal protection projects and we are encouraged by President Trump's recently announced infrastructure plan, which plans to expedite projects and allows for easier use of state and local funds in not only port deepening projects, but also beach restoration.

We also see a cautious optimism in the international dredging markets, where we have secured work and right-sized our fleet to keep it utilized in 2018 and well positioned to take on additional opportunities in the market going forward.

This combination of improving markets and a healthier balance sheet as a result from our restructuring will support our decisions on future investment in our fleet, both domestically and internationally. And with that, I'll turn the call over to questions..

[Operator Instructions]. And our first question comes from the line of Jonathan Tanwanteng from CJS Securities..

Can you break down the factors that drove the lower sequential operating income in the Dredging segment? I thought that with the new vessel helping a little bit, no hurricanes impacting you in the quarter, that would have been somewhat better.

Just a little more detail on the higher costs and maybe some of the other weather issues that you encountered?.

Yes. Sure. Really the Ellis Island came in really at the end of December, so it really didn't have an impact in 2017 for us. But in terms of the additional cost, we had some additional cost on our -- I mentioned our smaller inland dredging group.

We had some additional costs on our international operation's project costs, I'm talking about, as well as idle plants. So when you compare year-over-year with '16, particularly in our international as well as our inland projects -- smaller inland projects, we had more idle time than we did in 2016..

Okay.

Just any color on what was driving those higher costs and if those are something that's going to be ongoing, something that needs to be fixed? Or it's just absorbed as you increase utilization with more projects on the road?.

Yes. It won't be ongoing. This one was related to -- when I talk about the smaller inland projects, we had to stop a project a little earlier as we -- we had to take some sediment and remove it and place it. That place was filled up, so we had to stop and wait and get an additional place to drop the additional sediment.

Things like that will just be onetime that is not recorded in our project cost..

Okay. Got it. And then the same question for the E&I segment. I think you said you had a $2.5 million loss on a project in the quarter.

Should we be looking forward to more like -- issues like that or can we finally believe that the segment is going to be passing kind of losses going forward?.

Yes. So this is just the one project. That project will be done here in the first quarter. We do not anticipate any additional losses. In fact, we have a number of change orders and claims related to that, which we expect to recover something on. And so I do not see any additional from that project moving forward..

Okay. Got it. And just an update on port deepenings that you expect to be awarded this year, Boston and others.

Just -- what is the status of those and your expected chance of winning some of these?.

Yes. So on Boston, it's publicly out there. The Boston -- we did not win the Boston project. It was awarded to a competitor. We are actually looking at our options there, including protesting that bid. We do -- the other projects coming out, Jacksonville, Corpus Christi, among others -- we do feel we're -- again, we're well positioned for those projects.

So we are excited about the number and these large projects that are coming out..

Okay. Great.

And then finally, just the cash impact of the new tax laws going forward?.

Yes. No cash impact to us. So we just -- we took the P&L pick up this year related to our deferred tax liability. That liability was [indiscernible] going forward so we had to take the pick up under GAAP in the fourth quarter of 2016, but no cash impact..

And our next question comes from the line of Andrew Casella from Deutsche Bank..

I guess, first, just wanted to talk about the restructuring charges. I know you guys had about $29.5 million in the quarter, but only added back about $21 million to EBITDA. So just curious why you didn't, I guess, credit the full amount back? And then also wanted to just ask on -- sorry, the G&A number.

You said that was severance related and if that had a cash impact?.

Yes. So the restructuring charge was actually $29.5 million for the year. It was -- we took about $1.8 million in the third quarter. But $29.5 million is for the full year not just the quarter, but the reason there's about -- as I said, I think it's -- almost $7 million of depreciation as part of that restructuring charge.

So for the vessels or equipment that we are essentially retiring not selling, you accelerate the -- under GAAP, you accelerate the depreciation of those pieces of equipment, so they hit depreciation. So that's why you don't have the full amount going down to EBITDA..

Okay. Okay. Got it. And then do you guys normally not add back loss on sale of assets to EBITDA? It's just as a matter of....

Yes. That's correct. We have historically not done that. Correct..

Okay. Great. And I just wanted to ask, I know you guys don't provide formal guidance, but any kind of help going forward just as we think about the cadence of the quarter. I know you're going to have some tailwinds from the cost take outs.

You're also going to have the Ellis Island, but any kind of directional indication on revenue and margins? How we should think about the four quarters in the year?.

Yes. I mean, we've obviously talked about the Ellis and getting the -- as Lasse said, there's full -- when it's in full production, this $20 million to $30 million of EBITDA, you won't have a full year of that in '17 as we do this kind of running time in the first quarter.

So -- and then we have this $20 million of cost reductions we're on track for in 2018 versus the prior year. So those 2 -- that's why, as we look forward, I mentioned in the press release -- those 2 factors, we look for a much improved 2018 related mainly to those 2 items.

But we're also optimistic due to the backlog increase, winning Charleston, that's a big project which really didn't impact '17. So with those projects, obviously, replace projects that we've completed, but it gives us a good base for 2018..

Okay.

And as far as the way we should think about modeling, I mean, are those cost savings going to be essentially fully in the run rate as of first quarter? Or is that something that'll be trickled in throughout the year?.

Yes. It'll move in more during the year as there are certain pieces of equipment that we retire during the year as they finish projects. So you will see that more ramp up during the year. As I -- we mentioned earlier, the kind of overhead in G&A was really done in the fourth quarter here.

So you'll see -- as we talked about those savings of kind of $15 million going forward are a number that will be pretty -- most of that baked in early. So got a little mix going forward, but it would increase over the year..

Okay. Great. And then just final question. Just want to check your CapEx expectations for 2018. I know you've kind of guided towards a $40 million, $45 million number.

But I just want to make sure you're still comfortable with that?.

We are still comfortable with this kind of $40 million for this year. That hasn't changed. We still expect that. But we'll -- as we -- we will continue to watch our CapEx going out. As you noticed, this year was -- if you took the Ellis Island out, it was a lower number than historically we've had.

So we'll continue to keep a close eye on any of our capital expenditures in 2018..

And our next question comes from the line of Ben Klieve from NOBLE Capital Markets..

So a few questions. First, a couple on the Ellis.

Was this known to production? Can you give us an update on how this impacted the rest of your fleet? Does it still look like cannibalization from this vessel will be minimal?.

Well, Lasse Patterson here. No, the Ellis Island is on the field producing and we see the market for this type of dredges for this year and the coming years as very strong. So it's a good outlook in that market segment. And the cannibalization that we talked about, that is for later years..

Okay. Okay. Very good. And then, a couple of questions regarding the international outlook.

I'm curious kind of what you see in the underlying fundamentals of the international market that give you a sense of optimism regarding an uptick in 2019?.

Well, the market that we are engaged in is primarily in the Middle East now after we closed down Brazil in 2017. And with increased oil prices and stable oil prices, most of oil around $60 a barrel, that gives the states in the Gulf an opportunity to continue their investment or pick up their investments in infrastructure.

And that gives us cautious ground for optimism, but we're looking at this pickup coming from 2019 and 2020..

Okay. Very good. And then, last question for me regarding Boston.

Given the scale of the Boston award, does this look like that's going to be similar to Charleston in that there's multiple phases of the deepening that -- is that something that -- are you expecting more opportunities for Boston down the road? Or do you think what you saw -- what we have seen already has -- is the extent of the contract votes coming from Boston?.

Yes. No. This one is pretty much -- this first phase is the largest chunk. There's potentially a smaller phase after that, but it's different from what we've kind of seen in Savannah or Charleston or Jackson, those are proposing multiple phases. This one is -- really this one was the largest phase..

And our next question comes from the line of Michael Plancey from INB Partners [ph]..

So I was just wondering if is there anything specific you attribute your win rate to in 2017? Is it just the size of the contracts you won or was there anything going on that changed your competitive dynamic at all?.

No. I mean we won Charleston Phase I and II, was really the biggest chunk for the year for us. That was really a big driver. You've seen that a lot over the last couple of years. This -- as these larger port deepening projects come out. The winner of that can -- it can move, obviously, their market share for that year.

So Charleston was the biggest job by far for this year..

And then I was wondering if you had any, sort of, early estimates for what the bid market might look like in '18 versus '17, about the same size?.

Yes. We're thinking about the same size. What'll drive that either up or down a lot are these -- the timing of the port deepenings coming out. So we know there are a number on track this year. So Boston would be an example of that. If that moved in -- if that would've moved into '17, that would've made it even a larger '17.

Yes, I think it's -- we expect it to be a pretty robust market again in 2018..

[Operator Instructions]. And our next question comes from the line of Samantha Doxie from Walthausen & Company..

A couple of questions for you guys. Just first regarding the charge of $23 million and costs of contract revenues.

Are you saying that you have reviewed contracts and found contracts that are currently expected to produce a loss to an aggregate amount of $23 million?.

No. Most of that charge is related to vessels being taken out. So when we -- so it's above the gross profit line. So when you talk about depreciation, leases, there are some vessels that are on lease that we are taking those vessels out. So no, they're really -- they're not related to project charges..

Okay.

And do you expect more restructuring charges related to the same issues in the future?.

Correct. So in 2018, we've estimated this -- I think it was $12 million to $17 million in additional charges. $13 million to $18 million, sorry, the number a little bit off. So again, most of that is related to vessels that we have not retired yet or sold off yet because we are still working on completing projects..

Okay. Thanks.

And will you guys in the future continue to break out the EBITDA contribution of the Ellis Island so we can monitor its performance?.

No. We generally stay away from individual vessels or projects and how they perform for competitive reasons. So we will -- I think we'll discuss about, I think, how we -- how production is doing on those projects whether expect -- they're meeting our expectations, that type of communication to you..

Okay. And then just one more.

Will you please discuss the target margins of the bids you have won?.

No. We don't talk about, again, for competitive reasons what we've -- our margins that we've won or intend to bid on. So we stay away from those specific targets because of competitive reasons..

And I'm showing that we have no further questions. I'd now like to turn the call back to Ms. Abby Sullivan for any closing marks..

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

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