Good day ladies and gentlemen and thank you for standing by. Welcome to the Great Lakes Dredge & Dock Corporation fourth quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be follow at that time. [Operator Instructions].

As a reminder, this conference call is being recorded. I would not like to introduce your host for today's presentation, Ms. Abby Sullivan. Ma'am, please begin..

Thank you and good morning. 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 the events of the quarter and year.

Then Mark will continue with an update on our financial results of the quarter and year. Lasse will conclude with an update on the outlook for the business and market for the coming years. 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 2017 Form 10-K and subsequent filings.

During this call, we also refer to certain non-GAAP financial measures, including adjusted EBITDA from continuing operations, which are explained in the net income to adjusted EBITDA 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 users of the data to better evaluate our financial results from operations as compared to the prior year. Reconciliations regarding these non-GAAP measures are included in our fourth quarter earnings statement released this morning.

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

Thank you Abby and good morning. As stated in our earnings release this morning, we had a strong fourth quarter and significantly improved full-year results with net income from continuing operations of $11 million and a full-year adjusted EBITDA from continuing operations, excluding restructuring, of $109.8 million.

Before discussing our financial results, I will start with a moment on our safety culture. We continued to improve our safety performance throughout the year, seeing a 27% decrease in recordable injuries year-over-year. Our incident and injury-free safety culture drives personal responsibility for safety, care and concern for one another.

We strive to create the safest projects and facility sites in the dredging industry and I am encouraged to see that our employees use our safe work practices at home as well. In addition to safety, the company aspires to follow the best-in-class environmental, social and governance processes in everything that we do.

Our business is focused on ensuring that our nation shorelines and navigation channels are protected and potential risks associated with storms and sea change are mitigated.

We are committed to ensuring that all projects are executed in strict performance with project specific environmental standards and we strive to mitigate any impact to the environment and sea life in the areas we work.

We look forward to sharing more details on these processes in an environmental, social and governance report that will be published later this year. Now returning to our result for 2018. This year was one of significant transformation at Great Lakes.

Our adjusted EBITDA from continuing operations, excluding restructuring, nearly doubled to $109.8 million or 17.7% of revenue. Net income from continuing operations, excluding restructuring, was $22.9 million or nearly 4% of revenue.

These improvements are a direct result of the restructuring program implemented in late 2017 and executed within energy and focus in 2018 in combination with our strong performance on projects in a solid domestic dredging market.

During the year, we also achieved a net debt reduction of $115 million, which resulted in a healthy net debt to adjusted EBITDA from continuing operations ratio of 2.98.

As we finished the fourth quarter of 2018, the port deepening projects in Charleston, Tampa, Delaware and Jacksonville were in full production with work continuing into 2019 and also into 2020. While we are excited about the results of this year, we recognize that we must continue this disciplined performance for the years to come.

We look forward to continue to work with the teams in Great Lakes to ensure we remain committed to cultural excellence and operations and product execution while we continue to reduce debt and improve our balance sheet.

Our expectations for the start of 2018 was a solid bid market, which ended at a record of $1.8 billion, giving us a backlog at December 31 of $707 million of which $447 million was capital work mainly comprised of port deepening projects.

On December 31, the first phase of the Corpus Christi port deepening was awarded at $93 million, which added a fifth deepening project to our already strong project portfolio. In the first six weeks of 2019, we have added an additional $40.5 million in project work to our backlog.

We expect this strong domestic dredging market to continue for the next three to four years and our focus will be on port deepenings, on LNG export facilities port constructions and on beach renourishment projects.

We look forward to continued partnerships with the United States Army Corps of Engineers, port authorities and energy companies to ensure the safe and successful completion on these projects on time and on budget.

As noted in our earnings release this morning, we have reviewed the E&I segment and have concluded while it has experienced good improvements from prior years, the business itself does not align well enough with our core dredging business to continue operating it under our portfolio of assets.

As a result of this review, we have determined that we will divest of the business and expect to complete the sale by the end of the second quarter of this year.

I commend Chris Shea and the E&I team for the hard work over the last years in their improvement of processes and operational diligence which we believe has position the segment for a strong future. And with those updates, I will turn the call over to Mark to discuss the results of the quarter and year-end and for an update on backlog developments..

Okay. Thank you Lasse. Consistent with our most recent earnings releases, some of the financial results released this morning were in a slightly different format than the prior years.

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.

As noted by Lasse and disclosed in our earnings release, the E&I business has been discontinued and thus is not included in consolidated results from continuing operations. I will start with the quarterly and annual consolidated results and then discuss some specifics related to our dredging business.

Please note that all results discussed will be operationally focused and do not include restructuring charges. I will provide specific commentary on the restructuring charges near the end of my comments.

For the fourth quarter of 2018, revenues were $173.2 million, net income from continuing operations was $8.9 million and adjusted EBITDA from continuing operations was $33 million. Total company's for the fourth quarter of 2018 represented a $20.5 million increase compared to the fourth quarter of 2017.

The revenue increase was caused by strong utilization on our vessels as they worked on capital and rivers and lakes projects. Total company consolidated gross profit from continuing operations was $36.9 million, compared to $16.7 million in the fourth quarter of 2017. Gross profit margin was 21.3% compared to 11% in the prior year quarter.

Total company operating income was $21.7 million, which is an increase of $18.7 million over the prior year quarter. The increase is driven by high utilization of our fleet, strong project performance, lower plant expense and savings from our asset rationalization and cost saving programs.

These factors were partially offset by an increase in G&A expense in the fourth quarter related to incentive compensation. Net income from continuing operations for the fourth quarter of 2018 was $8.9 million, compared to net income from continuing operations of $11.8 million in the prior year quarter.

The current quarter net income includes net interest expense of $7.9 million and an income tax expense of $4.6 million. Net income for the fourth quarter of 2017 included $7.6 million in net interest expense and a $16.6 million income tax benefit.

Please note that the fourth quarter of 2017 was positively impacted by a tax benefit of $15.7 million related to the passing of the Tax Cuts & Jobs Act of 2017.

Adjusted EBITDA from continuing operations for the fourth quarter of 2018 was $33 million, compared to adjusted EBITDA from continuing operations of $16.6 million in the fourth quarter of 2017. Now turning to our full-year results.

For the year ended December 31, 2018, revenues were $620.8 million, net income from continuing operations was $22.9 million and adjusted EBITDA from continuing operations was $109.8 million.

These results represent a $28.6 million increase in year-over-year revenue and increase in net income from continuing operations of $20.7 million and an increase of $52.6 million in adjusted EBITDA from continuing operations.

For the full-year, the company recognized a loss from discontinued operations, net of tax, of $17.3 million, compared to a loss from discontinued operations, net of tax, of $15.9 million in 2017. The 2018 full-year loss includes a $14.1 million preliminary loss on disposal of assets held for sale.

Excluded from the results I just discussed were charges related to our restructuring plan. During the fourth quarter of 2018, we recognized a charge of $5.3 million related to restructuring, which had a $4.6 million impact on adjusted EBITDA from continuing operations.

For the full-year 2018, we recognized a charge of $16.1 million, which had a $9.4 million impact on adjusted EBITDA from continuing operations. During 2018, we achieved $35 million of savings as a result of our cost reduction initiatives.

As of December 31, 2018, we have completed this restructuring plan and do not expect to recognize any additional charges in 2019. Next, we turn to our balance sheet, where at December 31, 2018, we had $34.5 million in cash and had drawn $11.5 million on our revolver leaving us with net debt of $299 million.

As Lasse noted and we have discussed throughout the year, the focus in 2018 has been bringing health back to our balance sheet with debt paydowns. We are pleased with the progress made thus far and expect the revolver balance to be paid down fully in the first quarter of 2019. Our total capital expenditures for the year were $38.1 million.

During the fourth quarter, the company spent $13.6 million on a clamshell dredge that was purchased from a competitor who is exiting that market. We will make a final payment of $10 million in the first half of 2019 for this dredge.

This mechanical dredge will increase the company's capabilities to perform deepening work under strict environmental water quality requirements in the Southeast United States. Finally, the 2018 bid market totaled $1.8 billion compared to $1.2 billion in 2017.

On December 31, 2018, we were awarded the first phase of the Corpus Christi deepening project and since year-end have been awarded an additional $40.5 million in project work which will be added to backlog in the first quarter of 2019. For the full-year 2018, the company won 45% of the overall domestic dredging bid market.

This rate is in line with our prior three-year average win rate of 46%. 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 next year.

During 2018, Great Lakes won 62% or $476 million of capital projects awarded, 62% or $171 million of the coastal protection projects awarded, 13% or $82 million of maintenance projects awarded and 53% or $82 million of the rivers and lakes projects awarded.

Contracted backlog at December 31, 2018 was $707 million compared to backlog at December 31, 2017 of $511 million. With that, I will turn the call back over to Lasse for his remarks on the outlook moving forward..

Thank you Mark. Turning to the outlook for 2019. We expect the domestic dredging market to continue to be solid. Our focus is to remain on the large and technically challenging port deepening projects where we can excel with our technical expertise, experience and diverse fleet.

Several additional phases of projects where we are already performing deepening works are expected to bid in the second half of 2019.

Additionally, as a result of extreme storm systems in 2017 involving hurricanes Harvey, Irma and Maria, the United States Senate Committee on Appropriations passed supplemental appropriations for disaster relief and recovery which includes $17.4 billion for the Corps to fund projects that will reduce the risk of future damage from flood and storm events.

During the fourth quarter of 2018, Congress passed an additional $1.7 billion of supplemental appropriations for disaster relief funding as a result of Hurricane Florence. We expect new projects to be funded by these appropriations to start bidding in the third and fourth quarter of this year.

With regards to the government shutdown earlier this year with the newly declared national emergency by President Trump, we have not seen and at this point in time do not expect to see any a major impact on the dredging market for 2019. Moving to the international markets.

We have mobilized on our project in Bahrain which will keep our fleet busy in 2019, however, only at an unexpected breakeven contribution level. We expect the market to start improving in 2020 and beyond.

In conclusion, with a strong backlog, the new Ellis Island hopper dredge up to full production capacity for a full year and an additional $5 million expected in cost savings from the restructuring, we anticipate 2019 to be another solid year.

We expect high project activity in the first half of the year, however 2019 is a heavier than normal drydocking year, which will impact the fleet utilization in the third and fourth quarters. We anticipate the net adjusted EBITDA impact from higher drydocking activities to be approximately $10 million, depending on timing.

2018 was a successful year showing that with the changes we implemented, we now have the opportunity to perform well in a good domestic market delivering projects safely, on time and on budget, resulting in quality work to our clients, a safe working environment for our employees and improved positive returns to shareholders.

And with that, I return the call over for questions..

[Operator Instructions]. Our first question or comment comes from the line of Andrew Casella from Deutsche Bank. Your line is open..

Hi guys. Thanks for taking the question. Nice quarter.

I guess can you first talk a little bit about what happened that you guys finally decided to market E&I? Was the prospect of turning the business around, I know it sounded like it was getting some foothold but it sounded like it came to a fork in the road and you decided to the ultimate divest it? And then second question is, as we think about potential proceeds from the business or if there is any other charges or whatnot to prepare that for sale and who potential buyers would be? Thanks..

I think I will comment on the process heading up to the decision on E&I and then Mark will comment on the financial impacts. When I took the position here in the company, well it's now 18, 19 months ago, we started with a focus on the business to look at all aspects of our assets, including the businesses. We rationalized the fleet.

We did cost reductions. And that resulted in the restructuring plan which has been implemented. And that took a lot of energy and focus. And as we were going through this process, the E&I led by Chris Shea, also improved the performance in that segment.

However, when we look at the future, we need to focus our energy and our capital resources where we believe it gives the best return for our shareholders and also the strategic alignment between the dredging and E&I, the synergies, the overlaps were not us prominent as I think was seen in the outset.

So that led to the conclusion that we need to find a better place for E&I going forward and we made that decision late last year.

And Mark, can you comment?.

Yes. So on the second half of your question, Andrew, we are in the middle of the process. So we can not disclose any kind of price or proceeds at this time. But included in the press release, we have booked a charge related to the estimated loss on the sale, as required by GAAP. We don't expect any material change from that number in the future..

Okay. Got it. That's helpful. And then just my second question would be, as we think about 2019 and I appreciate that you guys said there is going to be $10 million of year-over-year headwind related to higher drydocking. But as we kind of think about the run rate as you guys exit 2018, the second half was about $17 million.

Can you just help us understand how we should think about the quarterly performance or the kind of direction and seasonality as we think about 2019 notably with the second half of 2019 having some headwinds related to the drydocking? Thanks..

Yes. Sure. This is Mark. So that's why we intentionally kind of talked about we had strong compared to, I would say, when you look at 2018, the second half of the year was much better performance than the first half of the year. So we do expect, as Lasse said, higher utilization in the first half of the year related to the port deepening work we have.

And then when you get to the back half of the year, we do have more dry dockings of vessels that lowers the utilization.

So you don't have much, as opposed to the prior years, where we have maybe our third quarter would be our strongest quarter, the third quarter would be for the year, a weaker quarter, but it's a much more smoother quarter-to-quarter throughout the year as opposed to in the prior years..

Got it. And then so I guess asking the question a different way.

So when we think about the first quarter relative to the third and fourth, so it sounds like third quarter was obviously a banner quarter, fourth quarter had some downtime and whatnot, I mean is the new run rate we should think about? Or the new baseline for quarterly EBITDA with that kind of a three handle, in your opinion or high-twos?.

So a little bit, in terms of this quarter, when you look at it, yes, the current quarter was really an exceptional quarter. And we talked about that last time that the fourth quarter would be a decent quarter, but not as good as that.

But as you talk about the run rate, we did have in this quarter some really exceptional performance on projects really good. So even this quarter is still a little bit of, I would call, an exceptional quarter for us. So when you talk about looking forward, I just don't give, it's still a little bit of an exceptional quarter for us..

Okay. Thanks so much and I will get back in the queue..

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

Good morning guys. Nice quarter and thanks for taking my questions..

Hi John..

Can you break out the operating income and maybe the DNA for the E&I business in the quarter as well as the charge that you took from moving to disc ops?.

So the charge is $14 million. So when we talk about the overall disc ops breakdown, it was $9 million from operations for the entire segment of the $14 million charge and then we have a tax effect of that, I think it was about $6 million to net. Hold on, John, I got it. Yes. So that's why we have got this $17.3 million charge.

So $9 million from the operations, $14 from the loss and then the $6 million tax effect so that benefit from that for a net of $17 million..

Great. Thank you.

And have you been in contact with potential buyers for this asset yet? Or is it still too early in the process?.

No. We are in the middle of the process right now..

Okay.

Are there potential bidders? Or do you just [indiscernible]?.

I don't want to talk anymore about the process. But as we have stated, we expect to sell this or divest of it in the first half of 2019..

Okay. Fair enough.

Lasse, what are the major awards or lettings that you are expecting to come out in 2019 from a large port deepening perspective, major coastal work or even these larger LNG facilities that you have been talking about?.

Yes. As you know, starting with the LNG facilities, there is a huge increase in LNG exports from the U.S. So the previous built import terminals are now being reversed and end up being exporting LNG to the world, which is a fantastic developments for the U.S. and also for the energy business.

And when you do this, you need to change the port facilities at the same time. And that gives us a good opportunity to work for energy companies and then broaden our, let's say, portfolio of clients. On the port deepening projects, we already are engaged and we expect that Savannah will come out with additional work in the second quarter of this year.

And we also expect that Corpus Christi will follow up with an additional case of their deepening project. And those are the main ones. There may be additional work also on the Charleston and Jacksonville projects later in the year. And for us, this is good. We are already mobilized on the project.

We are doing good work and we are hopeful to be able to then continue to work on these projects as the new cases are being bid. There is also new large projects being announced for the Mississippi Coastal Improvement Program, the Phase 3. We did the Phase 1 of that project. And that is also coming out sometime towards the end of the year..

Great. Thank you very much. And then just what happened in international in the quarter. I thought you might be doing some business there. It doesn't look like you did.

Was there a delay of some sort? And then what gives you confidence that 2020 will be that much better?.

Well, as we have reduced our, let's say, activity in the international market over the last year, we do have backlog now for the fleet that we want to keep in the international markets for 2019. We do see good developments and the oil price is up, which is a good indicator for the work that will come up in the Middle East.

And then new large infrastructure projects are being planned to start up in 2020 and beyond. That will improve the general market internationally. But as said for 2019, we have got our backlog covered. Unfortunately, they are not at margins that we would like to see. But it keeps the fleet busy..

Okay. Great. Finally, just any closer to any capital spending decisions on new dredges? I know you have got the clamshell in the fourth quarter.

Is there anything else in the pipe for 2019?.

Well, what we do, we plan for the future. And we are looking at concepts and designs for new dredges. However, we will wait and see when it is prudent to invest in new capacity in the market and wait for those decisions when we see that our balance sheet is at a healthy level and this is good time to invest..

Great. Thank you very much..

Thank you. Our next question or comment comes from the line of Joseph Farricielli from William Blair. Your line is open..

Good morning.

Can you talk a little bit about working capital expectations for this year now that we are looking at just dredging operations?.

Yes. Sure. So this is Mark. Yes, so we will see with the backlog we have, first of all, the overall working capital won't be that material to free cash flow next year. But it will be a little bit negative as we have a big backlog, expect some increase to revenues for next year. You have a little bit of a higher AR.

You won't have the large positive impact that we had this year as we had some items coming into 2018 that were sitting in our work in process that did turn into cash. So we don't have a big work in process going into 2019. So it will be a little bit negative, but not a material amount impacting free cash flow..

Okay. Great. Thank you.

And then next question would be, with the drydocking, is this related to regular safety checks that you have to do on your equipment? Could you give me a little more color behind that?.

Yes. Sure. Those are regulatory dry. You just have some cycles that you have more in a certain year and we are in that cycle for 2018. These are all regulatory through the Coast Guard to keep them in class..

Great. So what percentage do you think you are -- I am sorry, you mean 2019, right, for this.

And what percentage do you think you are at of the fleet for 2019?.

You mean percentage of vessels that are in a drydock?.

Yes.

Just wondering, what your cycle is for the required safety checks and stuff like that?.

Yes. So generally these vessels go through a major regulatory drydock every three years. So think of it from the aspect of a 33% type of cycle on an average. And this one is just a little bit higher than 2018..

Okay.

So maybe pushing a little closer to 40% this year instead of 33.33% that you traditionally see?.

Yes. And obviously they don't take up the entire year. So you are generally in these drydocks for two to three months..

Okay.

And historically, could we see higher CapEx from this that you don't anticipate because of Coast Guard saying fix this, change that? What's the traditional impact there?.

Yes. You do have CapEx. The $10 million number we are talking about expense. You do have CapEx. It can be related to these drydocks but that is included in the $40 million number that we said was our expected CapEx for 2019..

Okay. Got it. That's it for me. Thank you..

Good. Thanks..

Thank you. Our next question or comment comes from the line of Poe Fratt from Noble Capital Markets. Your line is open..

Hi. Good morning. Could you give us the aging of your backlog? It went up to $707 million. Wonder if could you give us what the 2019 timing versus 2020? Any you color on the timing of the backlog would be helpful..

Yes. I can give you pretty close to what we expect. So we expect in the highs, so that $707 million, we expect in the high 70% to be earned in 2019..

And then Mark, as far as the foreign project, is that all 2019 business? Or is that going to be spread out over a couple of years?.

It's all 2019..

And then when you look at it, there with a little bit of big drawdown in coastal protection, third quarter backlog to fourth quarter backlog.

Do you see a continued draw over the course of the year? Or do you think that the awards will be enough to stabilize that backlog? And sort of just a color on where you think maybe your year-end 2019 backlog might end up?.

Yes. So we expect that we will have some awards that will bring that back to where it was, maybe even up a little bit..

Yes. I think to comment on that, through the supplemental appropriation that has been made already, those projects are coming to the market here during 2019 and we expect those projects to bid quite actively here towards the second half of the year. And that will then replenish our backlog with beach restoration and wetlands improvement projects..

Great. Mark, could you bridge, cash went up about $11 million over the course of the quarter, quarter-to-quarter. Can you just sort of bridge the cash flow for the quarter? It looks like you used about $20 million to pay down debt. Operating cash flow look like was $21 million or so.

Can you just sort of fill in the plug there? Was it all working capital or what? Could you just help me understand sort of the cash bridge, the third quarter to fourth quarter?.

Yes. So we had the CapEx in the quarter with the new clamshell that almost $14 million, $13.6 million being the major CapEx piece of that. But yes, the rest of it was working capital.

We had a little bit of limited, I would call not that material in terms of selling some assets related to our restructuring but yes, the rest of it would be, the plug would generally be working capital there..

Great. Thanks. That's helpful.

And then the $14.1 million charge, what did that take the E&I business down to as far as what's on the books right now?.

So we are in the middle of the process, so I don't want to talk about any of the details around the E&I numbers at this point in time. So I am going to have to leave it at that at this point..

You can't give me the number that was written down too?.

No..

Okay. Great. Thanks a lot..

Yes..

[Operator Instructions]. Our next question or comment comes from the line of DeForest Hinman from Walthausen & Co. Your line is open..

Hello. Good morning. Thanks for taking my questions. Congratulations on the margin performance. That's a pleasant surprise. I know you have been working very hard on improving bid discipline and you had a nice tailwind with bids coming in from a volume perspective and have been winning some of those bids.

When we look at the overall performance in the second half of 2018 and I know you stated that that was some very strong performance.

But with the full-year expectation of the Ellis Island, are we seeing a reset higher of what we should be thinking about from a gross margin perspective going forward versus what we have seen over the last three or four years in the dredging business? That's my first question..

Yes. So when we talk about from a margin percentage perspective, the kind of the gross profit margin line, our expectations for next year are to have pretty similar margins that we achieved this year for the full year. What's driving that is exactly what you said.

You have the full year effect of the Ellis Island with some offset from these additional drydock expenses, which are above gross profit next year. So from a margin percentage, it's going to be relatively flat with the full year 2018..

And I guess, maybe a different way going forward, is this a business that we think with some of the restructuring actions we have taken, bid discipline, Ellis Island, is this ex-drydocks, is this a business we should expect to generate 20% gross margins?.

Yes. Since this is a higher drydock here, yes. I would say, yes. We can approach that number, yes..

In 2019? Or you are saying ex-drydocks?.

No. in 2019, we did 19.4% from continuing operations at that gross profit line. So we think it's going to be similar next year..

Okay. That's helpful. And then we gave some of the CapEx numbers. We have given a broader outlook for 2019. Just back of the envelope, I am looking at the cash flow. I always think that's very important, especially with some of the goals you guys are trying to accomplish with reducing net debt.

But $40 million of CapEx expectations you gave for revenue and backlog burn, gross margins. Is this a business that can do $65 million, $70 million of free cash flow next year, which will give us about a 10% free cash flow yield? Or sorry, much higher than that, 13% free cash flow yield.

Is that the type of forward free cash flow yield is possible for this business right now?.

The expectation at that level that's, I would say, possible. But that's a lot of everything being fully utilized. I would call it a lower drydock here. We don't expect to be at that high of a level. But we do expect some really solid free cash flow in 2019..

Okay. That's helpful. And then when we start to think about that cash, obviously a high level problem, because we can't call our bonds really I guess until 2020 and then if we even do that at 2020, it is at 1.04.

What do we do with the cash? And it sounds like we are being patient with how we are looking at adding vessel capacity and I think some previous statements were that that's not something that's really even near-term.

What do we do with the free cash flow?.

So at this point, yes, I think that's a nice problem to have. We haven't had that problem in the past. Obviously, we have focused on paying down debt. So there still is, as we have mentioned in the first quarter here, we want to pay off the remainder of that revolver and that's the first piece of that.

But as we look forward, I would think this is more of a discussion point for 2020 as opposed to 2019. But as Lasse said, we are going to look, we do have to look at the options of prudent investments in our fleet in a similar way of how we have looked at the rationalization of our assets.

And as we do invest in new assets, what do we do with the assets we have in terms of, do we retire those, keep those, based on what the market looks going forward. So it's probably more of a discussion for 2020 as opposed to 2019 because we still have a little bit more debt to pay down.

And as Lasse said earlier, we are looking at designs related to where we want to invest in dredges in the future. And we are going to do that at a prudent time. But as far as that, we still are definitely in a much better position.

But we still want to make sure we are prudent and disciplined and make sure we close it out to where we want to close it out to at this point..

And thinking about that 2020 discussion, we look at some of the Jones, dredges, the 1979 vintages and early-80s vintages.

Is that the areas where we need to think about doing replacements of those vessels or major overhauls of those vessels? Or are we thinking more internationally with those investments?.

Yes. We are looking at all those aspects as the only U.S. based dredger who has international operations. That has been a good market for us, when that market is good. And when we look at new investments, we are considering both the domestic market and also the international markets. But as Mark was saying, we want to be prudent with new investments.

We are investing into our most productive vessels at this point in time. How do we improve the availability, the reliability of our existing fleet, make sure that we optimize our uptime and through that optimize our earnings and production. And then secondly, we are looking at new investments which will be replacement investments in domestic market.

We are doing the design of new vessels at this point in time. However, investment decisions would come when we feel it's prudent..

Okay. That's helpful. And then lastly, sorry two more questions. You might have answered it and I might have missed it. On the Bahrain project, what is the revenue recognition on that project going forward? Is it over 2019? Or does that go into 2020..

Yes. It's just 2019. It doesn't go into 2020..

And should we pretty evenly weighted for the year or is it more first half?.

No. It's actually more in the first half of 2019..

Okay. And then last question, E&I sales process. I know we are not making much of comments. But just my understanding of the businesses, it's some branch offices, some rented equipment and I believe some owned equipment.

The sales process you have laid out seems to be pretty aggressive in terms of getting that finished in the first half of this year, only really four months remaining. When we think about that sale process, the business strikes me as a business that potentially could be sold as a whole.

But given the mix of the business, it might even let itself to an auction process or just sell the assets and exit that business.

Is that a potential option that gives us the confidence that we are out of this business in the first half of 2019?.

So as the press release said, I just want to stick to that press release at this point. We have hired an outside firm. We are in the middle of the process right now. And so I really can't comment anymore on that at this point in time..

Okay. Once again, congratulations on the results and keep up the good work. Thank you. guys..

Thank you..

Thank you..

Thank you. Our next question or comment comes from the line of Nelson Obus from Wynnefield Capital. Your line is open..

Hi Lasse. A remarkable paydown of debt, extremely remarkable. Just a couple of questions and I know you want to keep avoiding questions about the environmental side. But you do have a number in the K of $78.8 million, I believe, for the total assets in that division.

And so would that be appropriate to use as a number that we would subtract the write-off from? I mean that's just a technical question. It's just a yes or no..

I don't recognize that number, Nelson..

Well, it's under segment information in your K. Environmental and infrastructure, that's note 18, it shows total assets of $78.8 million for the environmental and infrastructure business..

Yes..

So that means it's in there. If you don't want to deal with it, we can forget it. But I mean there was a base..

Yes. That's only obviously, so technically that calculation, no, that's not right. You have to look at the assets and liabilities of the business. But obviously that number is from last year's K. Things have moved from there. But anyway, that's just to answer your technical question. No, that's not how you would calculate it..

All right. Fine.

If you were to make a decision to invest in a fleet, I guess it may depend on exactly which type of dredge or whatever that you determine you wanted to order and you put the order in, how long would it take on average between when you put the order in and when it would be ship-ready?.

It depends on the size and the type of vessel. But the reason for doing the design now is we are then accelerating the schedule. So we have everything ready to put it into a shipyard when we make the investment decision. So from this point on, when we have the design ready, it will take between two and two-and-a-half years..

Well, so it's a long lead time and okay, interesting. And finally, what is it in the international market? Obviously the competitive picture there is quite different.

But can you give us a sense of why you have a level of confidence that things will improve and that we can be competitive there? Is it simply capacity utilization of your competitors? Or are there any other factors to take into consideration internationally? Because it is a tougher slog..

Yes. For us as U.S. based dredger, I do believe that from 128 year old history that we have competence and the knowledge to be able to compete head on with the international competitors on projects. It depends on the nature of the project. It depends on the nature of the equipment that is being utilized.

So the fact that we have been successful working internationally for many years, I think that is something that we should recognize. And we are, at this point in time, in the international market looking at fleet utilization that is probably in the range between 50% and 60%.

And in order to move the needle on that international market, you need a good oil price, which drives the Middle East market. And then you need larger infrastructure projects that are being discussed but has not been funded.

There is a huge project going on in Europe linking the northern part of Europe to the southern part of Europe, which includes work in between Denmark and Germany. That's one of these projects. There is discussions about a second canal between the Med and the Caspian Sea.

Once these larger projects, such as it happened with the Panama Canal and the Suez Canal, when they kick off, it requires a huge fleet of oil dredges to carry them through. And that is what I think will be the signs of recovering international markets..

Okay. Thanks. And finally, just to reiterate, I think the greatest challenge, at least from my perspective was debt reduction and the magnitude of that reduction is sort of unprecedented in terms of my experience. And congratulations, it really has some transformational implications..

Thank you Nelson..

Thank you. Our next question or comment comes from the line of William Feeley from Feeley Capital Markets. Your line is open..

Good morning gentlemen. I am just curious, in the Mid-Atlantic this winter we had kind of a couple of hellacious weather events, cold in one case and a lot of snow in another.

I am curious, how your utilization on projects in that area worked out vis-à-vis your planning for weather days?.

Yes. We have a long track record in the dredging business and we have been doing these projects over and over in the different ports. So we have good estimates on how weather impacts us. Clearly, there are years where the weather impact is stronger and years where you have less weather, but over time it evens out.

So we include that in our estimates for the project. And that's really how you handle it..

So nothing unusual in this year's cycle from heavy weather exceeding your allowances or the other way around?.

Well, on average I would say, no. But we have seen some very strong weather on the East Coast of the U.S. here during, let's say, the latter part of the year. On Charleston for instance, the sea state has been extraordinary. But we have been able to work around that and get good performance on the project.

And then on other geographies, we have seen better weathers. But on the average, I would say, it's an average year..

Great. Thanks very much..

Thank you. I am showing no additional questions in the queue at this time. I would like to turn the conference back over to management for any 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 again during our next earnings discussion this spring. Thank you..

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