McDermott International's (MDR) CEO David Dickson on Q1 2014 Results - Earnings Call Transcript

May. 7.14 | About: McDermott International, (MDR)

McDermott International, Inc. (NYSE:MDR)

Q1 2014 Results Earnings Conference Call

May 07, 2014, 05:00 PM ET

Executives

Steven D. Oldham - VP of IR and Treasurer

David Dickson - President and CEO

Perry L. Elders - SVP and CFO

Analysts

Andrew Kaplowitz - Barclays Capital

Tahira Afzal - KeyBanc Capital Markets

Jamie Cook - Credit Suisse

Steven Fisher - UBS

John B. Rogers - D.A. Davidson & Co

Martin W. Malloy - Johnson Rice & Company

Operator

Ladies and gentlemen, thank you for standing by and welcome to McDermott International's First Quarter 2014 Earnings Conference Call. At this time all participants are in listen only mode. Following the company’s prepared remarks we will conduct a question-and-answer session and instructions will be given at that time.

I would now like to turn the call over to Mr. Steve Oldham, Vice President, Treasurer and Investor Relations. Please proceed.

Steven D. Oldham

Thank you Wendy. Good afternoon. We appreciate you joining us today as we discuss our results from the first quarter 2014 which were released through our press release and in our form 10-Q today. Joining on the call this afternoon are David Dickson, McDermott’s President and Chief Executive Officer and Perry Elders, our Senior Vice President and Chief Financial Officer.

Before turning the call over to David let me remind you that this event is being recorded and a replay will be available for a limited time on our website. Additionally our comments will include forward-looking statements and estimates.

These forward-looking comments are subject to various risks, contingencies and uncertainties and reflect management's view as of May 7, 2014. Please refer to our filings with the SEC, which are available on our website, including our Form 10-K for the year ended December 31, 2013, and subsequent quarterly reports which provide a discussion of some of the factors that may cause actual results to differ from management's projections, forecasts, estimates and expectations.

And please note that, except to the extent required by applicable law, McDermott undertakes no obligation to update any forward-looking statement.

Now with that disclosure let me turn the call over now to David for his opening remarks.

David Dickson

Thank you and good afternoon. In the two months since our last call we have taken major steps in a number of areas. We are still in the early stages of our turnaround but are making significant progress on our business improvement initiatives to transform the organization for the future. I believe we are on track for the stabilization of the company this year and transition of the business next year.

At a high level while our financial results reflect the impact of a legacy backlog and reorganization expenses we are also starting to see tangible improvement in the performance and execution of many of our legacy projects.

As Perry will highlight we recently completed our financing arrangements, which significantly enhances our financial stability and supports McDermott’s long-term goal. And with a sizeable backlog and growing market, we are confident that we are positioned to drive long-term growth, profitability, and shareholder value creation.

At this time I would like to turn the call over to Perry to discuss the first quarter financial results, after that I will return, discuss our progress to-date and the next steps in our performance improvement plans.

Perry L. Elders

Thanks David. Good afternoon everybody. McDermott reported net loss in the first quarter 2014 of $50 million or $0.21 per diluted share. The first quarter operating loss totaled $42 million. As we discussed previously, the gross profit in our backlog projects was insufficient to cover SG&A cost as well as restructuring and portion of unabsorbed fixed cost.

Our first quarter results reflect the low profitability of legacy projects in our platform. As always, projects in NOLs position are expected to have no gross profit contribution going forward and in the aggregate the nine projects on which we previously recognized losses did just that. We operated at a breakeven level in the first quarter. However there is some offsetting within that too with improvements on projects in Malaysia and Caspian, offset by deterioration on a project in Mexico. Consistent with our increased project oversight and elimination of management layers, we continually review all contract estimates including unresolved change orders and claims.

The quarter and the estimates reflect all information available to the company at that time about four test future project outcome. On one of the large projects in Mexico that we have discussed in the past, we increased the estimate of the cost to complete by $37 million due to anticipated delays to complete the project, $20 million of that $37 million charge relates liquid damages that maybe assessed because the right forecast delivery schedule.

On the other hand, we are especially pleased with the turnaround of our deepwater pipelay project in Malaysia. During the past few months we completed the installation of the project and received notice of mechanical acceptance from the customer. The offshore performance of the project during this time was excellent and represented industry leading productivity. As a result, we were able to achieve costing on the project. Additionally we recognized gain the first quarter, on a Caspian project from a customer's approval of certain change orders. We have completed the offshore scope of that project and are now in demobilization phase.

On all three of these projects in Mexico, Malaysia, and the Caspian we continue to work revolution of certain commercial matters which has the potential to reduce previously recognized losses on these jobs.

Turning to a few notable profitable projects, we completed installation of the tension leg platform on Papa Terra project in Brazil, while the project contributed some gross profit in the quarter, we continue to work with the customer and commercialize which may provide an opportunity for financial performance of the project.

On the other hand we reported a profit reduction in the first quarter, related to two EPCI projects in Saudi Arabia. Although both of these projects are in a profitable position, we reversed profit previously recorded on these projects, one of which is expected to complete in the second quarter of this year. And on the other project in Saudi Arabia we incurred weather and standby cost which we have not yet recognized the latest reimbursement which is consistent with our approach to recognizing unapproved revenue that we adopted in December 2013.

Moving to our contract with impacts from Total for the Ichthys subsea development in Australia which was the largest subsea project in the industry at the time of award. Activity remains robust and our detailed engineering is substantially complete. We committed all the cost in our procurement sub contract budget and are focused on managing our vendors and sub-contractors for quality and timely performance.

Fabrication of the subsea structures continued in our Batam, Indonesia yard and we are planning for the project offshore campaigns to begin in the second half of 2014. We are working very closely with our subcontractor [Therma] who will deploy much of the installation scope using their vehicle. We believe the team and execution plan on this project are both first class and expect that in the industry would come to the same conclusion. We remain very proud about the Ichthys project and believe it will be delivered successfully and profitably.

As I mentioned earlier, the gross profit in our backlog is not sufficient to cover SG&A costs as well as restructuring and a portion of unabsorbed fixed cost $551 million or 13% of our March backlog is from projects in our loss division. Therefore they are expecting to contribute zero revenue and gross profit in the future. However our recent awards have margins in line with our long-term market expectations, although those awards are not expected to make good contributions to 2014 earnings.

Additionally we expect to incur an incremental $33 million to $43 million in restructuring cost during the remainder of 2014 and early 2015. So like we stated in our prior disclosures, we expect 2014 to be a year of recapitalization which is now complete and reorganization which is announced and in process. To stabilize the company while we worked off legacy backlog and build both profitable backlog for recognition in future years.

Turning to our revenue pipeline, we reported a March 31 backlog of approximately $4.4 billion, of which 42% related to our offshore operations and 58% related to our subsea operations. Bookings in the first quarter totaled $166 and included a charter of the Lay Vessel 105 in Brazil. Our bids and change orders outstanding at quarter end were 3.5 billion compared to 3.6 billion at the end of the 2013, approximately 72% of that outstanding business change orders related to our offshore operations while 28% related to our subsea operations.

As mentioned in our last call, we continue to expect 2014 awards to be concentrated in the second half of the year. So our level of first quarter bookings was consistent with our prior statement, the 2014 bookings will be backend loaded. Our list of target projects total 17 billion at March 31, 2014. As a reminder, targets are those projects that we intend to bid and are expected to be awarded in the next five quarters. Approximately 78% of the value of our target projects relate to our offshore operations while 22% relate to our subsea operations.

So altogether as of March 31, 2014 the combination of our backlogs, bids and change orders outstanding and target projects, what we call our revenue pipeline, totaled $25 billion, a record level for the company and an increase from $24 billion at year end. This improvement reflects those increased industry activity and efforts made by our commercial team to identify new opportunities. Clearly there are many compelling opportunities for McDermott in the market. Demand is strong, and our company is uniquely positioned to benefit.

Moving to the balance sheet, at March 31, 2014 we reported assets of $3 billion, including $317 million of cash, restricted cash and investments. At quarter end we also had approximately $308 million of debt outstanding. As David mentioned in mid-April we completed new financing arrangements which we expect to provide us with additional financial stability to execute our business improvement plans and provide the liquidity to support our growth plans which include the deliveries of LV108 and DLV2000 vessels.

The new financing arrangements totaled approximately $1.5 billion and included a $400 million three year letter of credit facility with the potential to upsize to $500 million this year and $600 million next year, a $300 million five year term loan, a $500 million of senior secured notes and $200 million of equity units. The equity notes are composed of three year amortizing unsecured notes of $47.5 million and prepaid common stock purchase contracts.

So beginning in the second quarter of 2014 we will include $33.4 to $40.8 million of additional shares in our diluted share count the exact amount of which will be dependent on our stock price until the earlier of settlement or April 1, 12017. Also beginning in the second quarter we expect to recognize our entire quarterly interest expense for both cash and funds as well as amortization of issuance cost offset by the capitalization of a portion of the interest cost related to asset under construction.

With those new financing arrangements we canceled the formal $950 million revolving credit facility and bridge loan commitment which we expect to result in a one-time second quarter 2014 charge to interest expense of approximately $28 million.

As we work through this backlog close out legacy projects and book new work we expect that McDermott impairment will be positioned to deliver improving financial and operational performance.

Now I’d like to turn the call back over to David.

David Dickson

Thank you Perry. I would now like to highlight our progress on our performance improvement plan and the next steps in our plan to actions to stabilize the business and position our company for long term growth. These steps include project execution, financial discipline, strategic focus, the Americans region and over sight and cultural change.

During the quarter we were laser focused on successful project execution and are pleased with our progress. We successfully completed the installation of the Siakap project in Malaysia. McDermott is the first contractor to install rigid real -- pipe-in-pipe in the Asia Pacific region. Our customer was very pleased with the performance of our project team and our vessels in final few months of installation as it was in line with other tier-1 competitors.

These projects not only speak to our installation capabilities but to our design procurement and fabrication capabilities of subsea infrastructure. We also completed installation of [inaudible] of Papa Terra project. This is the first geared sub drive flooring technology offshore Brazil and the first Tension Leg Platform installation offshore South America. It is one of the most challenging Tension Leg Platform ever installed and a major achievement for the organization and for FloaTEC our venture with Keppel FELS.

To support our successful project execution we have hired over 125 experience professional since November. In addition to the recently completed financing that Perry fairly detailed we have also improved financial discipline by increasing the level of responsibility and the accountability of our operations management and project teams for cash flow.

We also made progress on the divestiture of non-core assets. We the sold DOB KP1 and the former Harbor Island fabrication facility. Those assets were underutilized and the capital is better allocated to our core business. Our new organization structure is in place including elimination of management layers which has brought executive management much closer to the work face of project operations.

We are seeing results although the greatest impacts are expected to be seen over the long term. Over the next several months we implementing a plant improve our customer relationships and strengthen our business acquisition process. We have recently selected a new leader to manage our relationships with key customers globally.

We also have a task force in place focused on identifying new opportunities that fit McDermott's capabilities and competitive advantages. Additionally our offshore and subsea organizations are developing globally consistent standards and processes for bidding. We plan to leverage our strength as the leader in the offshore market to develop our growing subsea business.

I like to take a moment to discuss the Americas region which is the process of the complete overhaul. I’m proud to have very strong team working to implement McDermott best practices throughout the organization with a particular focus in the Americas. As part of the reorganization we have brought several well experienced leaders to the Americas region from the Asia Pacific and Middle East regions and from outside the company. They provide the experience necessary to develop the business including the -- in area of operational strength of the company. I visited [inaudible] recently and recognized that we have first class state of the art facility.

With strong leadership in place and strength from our other operations we expect this yard will serve an international client base for projects in Mexico, the U.S., Gulf of Mexico, West Africa and other locations. We define that McDermott culture will increase the effectiveness of our structure and process changes. We are working hard to change the culture to drive innovative ideas, challenge the status quo and promote a one McDermott mentality. This will take time. However, I’m encouraged by the number of long term employees who relish the opportunity to rethink how we operate and also recent infusion of new employees. I am enjoying the opportunity to encourage these employees to spread their inspiration and creativity throughout the organization.

I have already seen improvement in our ability to identify risk and opportunities in illustrating the projects through the oversight inherent in the new organizational structure. As potential issues becoming we are working hard to address them upfront to mitigate further consequences. As opportunities are identified we are positioning ourselves to capitalize on them.

Over the past 60 days since our last call we have taken many actions throughout the company. While we are still in the early stages of our turnaround our employees are on track to stabilize the company this year and I look forward to the transition of the business next year. I appreciate your support and patience in this process and I anticipate being able to share McDermott successes with you. With that I would like to open the line to questions.

Question-and-Answer Session

Operator: (Operator Instructions). Our first question comes from the line of Andrew Kaplowitz from Barclays. Please proceed.

Andrew Kaplowitz - Barclays Capital

How are you doing guys?

David Dickson

Hey Andy,

Andrew Kaplowitz - Barclays Capital

David, so we know that and we expected a lot of puts and takes in the quarter but in the Middle East you incurred about $32 million of losses on the ZPCI project and Saudi and that region really is historically McDermott's bread and butter. So when do you think we can get past these issues and why shouldn't the Middle East as we go in to 2015 be a lot better than it is right now, maybe more towards historical margins there?

David Dickson

Andy, good question. First so let me answer the part on the changes that we've had, the numbers this quarter in the Middle East. A lot of that really is the result of where we are with our relationship with certain customers and our ability to negotiate and finalize a significant amount of changed orders and in particular related to standby and weather. What I would say is that in the last probably six weeks or so that we have seen significant progress in getting those relationships back on track, pretty clear that ARAMCO have been a significant customer for many years and we look forward to ARAMCO being a customer of ours for many years into the future but we have had some challenges and what you see is being the impact or maybe some very breakdown in communications that has prevented some of these change orders being negotiated and finalized.

Looking forward, the Middle East market remains robust, ARAMCO and both [ADMA] continue to spend money. McDermott as you know is a significant player in the Middle East and I do not see any reason why in the future why we could not get back to where we have been historically.

Andrew Kaplowitz - Barclays Capital

Okay, so David I know you got the company very focused on cash now, so when I look at the quarter working capital in the quarter was relatively neutral. You did get some decent receivables in the quarter, can you keep up that kind of performance over the next few quarters where our working capital stays relatively neutral or even is favorable for you guys?

David Dickson

I will let Perry to answer to this but what I would say Andy is I have been very pleased, I have been impressed by the team, they have reacted to my focus on cash flow and also to share with you that the incentive plans of our leadership and the cash flows is not a metric so it has lot people more focused. I will let Perry maybe add.

Perry L. Elders

Yeah, the short answer is yes Andy, takes a lot of blocking and tackling work. It doesn't just happen by itself, but we have put in place processes to continue to harvest the improvements in working capital but also as David mentioned incentives for both our regional management and our project team to drive that appropriate behavior.

Andrew Kaplowitz - Barclays Capital

So Perry do you think it can drive the result that we saw in 1Q for the rest of the year in relatively neutral working cap?

Perry L. Elders

It's going to be in that range Andy, it could move around a bit I can't promise you that we are always going to be neutral in working capital but within the constraints of our contracts, I do expect we will be able to continue to be successful in keeping working capital as low as possible.

Andrew Kaplowitz - Barclays Capital

Okay. Great, I will let other people have the opportunity. Thanks.

Perry L. Elders

Thank you.

Operator

Your next question comes from the line of Tahira Afzal with KeyBanc. Please proceed.

Tahira Afzal - KeyBanc Capital Markets

Hi folks.

Perry L. Elders

Hi Tahira.

David Dickson

Hi Tahira.

Tahira Afzal - KeyBanc Capital Markets

So first question is David if you look at the performance in the Middle East now to me that you have quality -- we talked about that. I assume that was all taken into consideration in terms of the potential sort of lead you could see there as you cleaned those relationships that was taken into consideration when you were looking at your liquidity issues?

David Dickson

Yeah, I think the answer is yes, Tahira if I understand your question correctly and just to kind of restate we looked at our full backlog and as we looked at where we are in those customer relationships and our cash flow forecasting all of where we stand with our customers is baked in.

Tahira Afzal - KeyBanc Capital Markets

Got it, okay. And the second question I'll sort of do in two parts and that the first part is David if you look at the senior managers you have brought into Altamira, I know they are trying to come up with a set of benchmarks and standards that the team over there can perform against and would love any update over there. And then if you look at your bid layers a lot of it as you said in terms of high profile prospects that we track seem to be in the second half with one that could potentially fall a litter closer by, any update there would be helpful. Thanks.

David Dickson

Yeah. So in Altamira side as we talked to lot about our reorganization that is in place, all of the people are in their seats. I would say that organization is still very young, it's only five weeks old. But they were generating a lot more confidence particular with Altamira yard book and the new organization is going to take some time to bed in. On the bidding side yes our bidding activity is very high today, but most of these prospects are in the process of putting the bids together and with most of the decisions or awards will happen as we said a few times will fall in to the second half of this year. I don't know if you also could add to that.

Perry L. Elders

Well the only comment I might complement with is as we put together our full cash for the business that realm which we do our planning, we take a look at the target projects and estimates which ones we are going to win. So in our forecast wins that there are other projects in our target wins that if we don't win one of the forecast items then there is others that are if you might call them back-ups to that we have confidence we could win.

Tahira Afzal - KeyBanc Capital Markets

Got it. Okay. And I guess if you are the only bidder what happens then I mean is that a Dundee or would that be a timing issue if something changed?

David Dickson

That was sort of cut to the chest to hear because actually you are talking [inaudible].

Tahira Afzal - KeyBanc Capital Markets

Yeah.

David Dickson

So yes we have submitted a price, submitted a bid to the customer. I can't comment what has been put in the press obviously we've submitted and we are waiting for the discussion with the customers.

Tahira Afzal - KeyBanc Capital Markets

Thank you.

David Dickson

Thank you.

Operator

Your next question comes from the line of Jamie Cook with Credit Suisse. Please proceed.

Jamie Cook - Credit Suisse

Hi, good evening. I guess two question just back on the bidding prospects out there I guess David can you just talk about one, has conversations improved with your customer post you guys doing -- fixing your balance sheet and I guess my concern would be because your competition knows you are in more of a challenging situation right now I mean are they using that against you, should we assume your win rate is lower relative to McDermott's past and I guess the second point is in the contracts that you’re biding, how do we think about the terms and conditions that you’re taking relative to McDermott sort of 12 to 18 months ago.

David Dickson

Okay. All I mean on the first part the refinance of the organization we just recently completed. Since then we have been embarking on an exercise obviously to talk to most of our customers throughout the globe. What has been interesting is some customers have shown an interest and some customers were actually not even aware but we have been able for example this week take advantage of the fact that it is been -- here in Houston and spent a lot of time with a lot of customers explaining the financial situation our customers seem very comfortable with the situation at year end. Yes, maybe for the last couple of months maybe the competition has tried to take advantage of that but I would say more our competitors are now looking to fight that and McDermott does have this financing in place, so I don't see that is a concern moving forward at this stage.

In terms of terms and conditions, the terms and conditions that we are looking at we’re not going take in particular different type of risk that to win work, we have a culture in the organization, quite a lot of new people joined the organization and I think that where we stand from the risk basis on T&Cs is probably in line with most of the competition and I don’t see any difference in that.

Jamie Cook - Credit Suisse

And just last, can you give us an update on where the restructuring is relative to what you guys talking out last quarter the $55 million to $60 million I think was the number –

David Dickson

Yeah, we are on schedule in terms of the actions. We are ahead of plan in terms of the cost and so you’ll probably know to say me the range of the total estimating cost down from last quarter. So moving forward as expected we had a plan from a cost perspective.

Jamie Cook - Credit Suisse

Okay. Thank you, that’s great to hear. I’ll get back in queue.

David Dickson

Thank you.

Operator

Your next question comes from the line of Steven Fisher with UBS. Please proceed.

Steven Fisher - UBS

Hi, good afternoon.

David Dickson

Hi Steve.

Steven Fisher - UBS

Could you guys just talk a little bit more about what’s happening on this Altamira project, I know initially I had an issue with the weight of the structure but what’s kind of happened from there that’s now pushed you into the LB position and how concern should we be about further risks from here?

David Dickson

I mean since the last time we spoke Steven we continue to view the project as I discussed earlier we have often I have a different -- that cause business oversight, at the same time as we bring additional new people into the company this is the project which we had a lot of focus. It is also a project which is where we have taken a provision for the MD but is also project very early stages and we haven’t taken any discussions with the customer. So we improve the financial performance of this project.

Steven Fisher - UBS

Okay, I guess I just want maybe get your thought or more detail on the overall market I mean your $17 billion of five quarter target prospect is kind of flattish up a billion. I mean is that a sign the market's only strong enough just to kind of replace what gets awarded or do you think you some visibility to things picking up and what in your view would it take for the project activity but the activity that we have ongoing is at a very high level but that’s at various stages whether we are preparing a bit or we have submitted a bit or if we are having qualifications.

I think if we were able to comment, that there is fluctuation like I said from quarter-to-quarter. I would say that if you look at our businesses today, terminal activity in Asia-Pacific remains very robust I would say tendering in the Middle East remains very robust but we also have an increase in tendering activity with a new region in towns of North Sea and Africa and also that’s where we see growth in the future.

Steven Fisher - UBS

Okay, thank you.

Operator

Your next question comes from the line of John Rogers from D.A. Davidson. Please proceed.

John B. Rogers - D.A. Davidson & Co

Good afternoon. Just wanted to Perry your comment on the increase share count, what was the number you used or gave us, I come write down quite that fast?

Perry L. Elders

Yeah, the actual share – depended upon the stock price each quarter up until this year's convert in April 1 of '17 but the minimum 33.4 and maximum of 40.8.

John B. Rogers - D.A. Davidson & Co.

Okay, and the other details are in the Q. And then secondly David, in terms of the market activity out there -- I appreciate your comments about uncertainty quarter-to-quarter but it seems from my perspective there is a little bit more booking and lease proposal activity and I guess I’m curious what your sense for industry capacity for that and is there a point where we can really start to see some pricing opportunities or is that still – 2015-2016?

Perry L. Elders

I feel my view which – still lot of this 2015-2016, we have – been a lot of dialog about some projects that’s have been delayed also – neither markets from our customers regarding – projects and comments regarding increase in cost. From where we stand and our activity we haven’t seen that impact as yet but I would say that as you look forward to ’15 and ’16 the outlook of the market continues to look good for certainly the sector that we are in.

John B. Rogers - D.A. Davidson & Co.

Okay, thank you.

Operator

Our next question comes from the line of Martin Malloy with Johnson Rice. Please proceed.

Martin W. Malloy - Johnson Rice & Company

Good afternoon. On the Ichthys project, could you --how comfortable are you that McDermott is protected from -- if they don’t perform up to expectations?

David Dickson

Well, we talked about that before as part of the agreement as -- has lump sum scope basically it's on some turnkey basis where there is a very defined scope to install some subsea structures but pipeline – back to back for full year it’s a very defined scope of work and it has very little interface with the other parts of the project. They will commence in second half of this year and we will complete that activity before the customer arrives with his scaffolding structures and that’s the part where McDermott will then perform a lot of the offshore execution.

So, from my perspective as I said the risk sits with -- and as I said before when you look at the risk profile of the activity is that Edema has to perform is -- it is well within capabilities from their fast track record.

Martin W. Malloy - Johnson Rice & Company

Okay. And could you provide us with any more specifics since you become CEO in terms of changes that you made to the bid approval process or risk management and being able to respond when projects start to have difficulty?

David Dickson

Well we do know we have created so as far as in our organization I have talked about business oversight we do have the -- group headed up by a long term employee McDermott high employee McDermott, very potential employee at McDermott who is looking at over the project assurance and we have also changed the reporting process internally where we both report projects but we also put the regions of the business, the checks and bounces on that are significant never the best than we had before.

So that's kind of the main area we also and our critical projects we never had weekly and some of them daily progress reports so allows us to wrap very quickly if that we have an issue and this is all for McDermott. So we have as I said before we now have an executive team that is significantly closer to the business. Actis for example as a project director is sending a higher level we put -- higher level it is, it is only higher level reported issues that allows the executive team to see and then react to the -- that we have to do and this is something that introduced by Steve when he came would allow came on board for the project such as [inaudible[and Papa Terra and has shown to be extremely successful.

Perry L. Elders

And the two other things that you previously discussed Marty our structural changes to our revenue recognition, we had the total policy in December that precludes project teams from recognized unapproved revenue without kind of executive level approval. So we built in and inspected it and then further working to limit the amount of unapproved revenue that will perform for any customer. So there is two customer changes the risk as well.

Martin W. Malloy - Johnson Rice & Company

Thank you,

Operator

Your next question comes from the line of Will Gabrielski with Stifel. Please proceed.

Unidentified Analyst

Yeah. Thanks. Good evening.

David Dickson

Hi Will.

Unidentified Analyst

Can you if you don't mind just quantify the percentage of revenue in Q1 that maybe was coming from a loss position?

David Dickson

Let me see if I can give that number I don't have it off the top of my head though.

Unidentified Analyst

All right. I will keep going while you look in the interest of time. When do you guys think possibly you had to crossover point where you are generating enough project income that offset everything else that's happening here included the added interest burden, second half 2015, do you have the line of sight on when you think that's going to happen?

David Dickson

Will could you repeat that question again>

Unidentified Analyst

Oh sorry. I was just asking when you thought you may hit that crossover point or you are generating enough project EBIT to offset some of the cost right now that you are under absorbing as well as the added interest burden?

David Dickson

Yeah. So maybe deal it from an EBIT line first, as we mentioned in our last quarter release call as well that I reiterated earlier today kind of this quarter and it's kind of what we saw for the first half of the year, as we burn through the restructuring charges, which we said will be front end loaded that burden starts to lighten in the second half of the year and then further and tying in to your first question. Well I believe the number is in the $200 million range because our demand of backlog attributable to the loss project went down from $700 million to $500 million just short of $200 million in the quarter.

And so as we burn off those last jobs and they become a smaller and smaller portion of our quarterly revenue volume we’ll start to see the term not in a place to kind of give you a prediction as to which quarter will turn to a breakeven or profit from the EBIT standpoint but certainly as it relates to the additional interest cost which you can calculate from the coupon and the amortization of the initial cost, it's going to be substantial. So from a net loss standpoint or net income standpoint we won’t be able to cover that interest certainly this year.

Unidentified Analyst

Okay, fair enough. And then just a follow up on Altamira and some of the comments that have already been discussed but I guess it seems like vanguard vessel from [Dockwise] and today there was another announcement at OTC that someone else wants to build one of these heavy marine transport vessels, does that play into consideration or calculus of what you think Altamira should be focused on, is that a competitive threat or is that something that you can take advantage of at Altamira and start shipping structures as far as you could have hired these vessel entering the market.

David Dickson

Absolutely, and I said before the Altamira yard is something which has impressed me since I joined the organization in terms of its capability with a change some leadership and increase supervision. The yard is really well position to deliver projects across the world and so for example today we’re building some live in quarters for the [Mata Mira] project in Angola with ultimate customer being Chevron and I think we see several more of these opportunities in future.

Unidentified Analyst

Okay. I appreciate it. Thank you.

David Dickson

Thank you, Will.

Operator

Our next question comes from the line of [inaudible]. Please proceed.

Unidentified Analyst

Hi, good afternoon. Just coming back to Ichthys, just over the last couple of quarter there has been some mix mashes I’m just curious has there anymore margin degradation at all in that project and if there were maybe could you just discuss maybe what has driven that obviously your discussions has been quite positive but I get sense there was some conflicting messages on that.

Perry L. Elders

Brian it's Perry. We’ve not disclosed margin on specific jobs. So as you know Ichthys very early stages from a percentage of completion standpoint. So we are not in the position to speak about the margin on that job but I think you’re hearing our comments correctly we’re very pleased with the job in terms of the progress and the outlook.

Unidentified Analyst

Okay, fair enough. And secondly just on the extra interest expense that’s going to be layering into P&L I’m just curious as far from the technical standpoint how is that treated from a tax standpoint, does that fall straight through to the bottom line or is that a taxable item?

Perry L. Elders

It unfortunately will fall straight into the bottom line, it will either be kind of US or Panamanian based and we don't expect to be able to recognize the benefit on it.

Unidentified Analyst

Okay, fair enough. And just lastly on your CapEx outlook I seen your 10-Q the CapEx outlook for the DLV108 and DLV has come down to about $325 million over ’14 and ’15 I think previously it was $450 to $500 could you just maybe discuss what has changed in that payment schedule there.

Perry L. Elders

Partly is payments that we have made in the first quarter, and -- the 108 and we have been shifting payments around on that. But in terms of the scheduled delivery for the vessels and then as it relates to the 108 we had intended to put some back deck equipment on it that have been postponed and we will evaluate at a later date. It’s not needed for the initial work that will be used in the 108. So there is both payments made and a reduction in the initial configuration of 108.

Unidentified Analyst

Great, thank you very much.

Operator

Our next question comes from the line of Steven Fisher with UBS. Please proceed.

Steven Fisher - UBS

Great, thanks for taking the follow up, just a real quick one here to clarify I guess maybe that the expectation. I know you I expect the bookings to be back end weighted but just a kind of curious about how back end weighted you are thinking I mean should we expect that Q2 maybe is similar to Q1 thereabout and then starts to pick up from there?

Perry L. Elders

I think that Q1 was very consistent with our kind of expectations and the guidance that we are trying to provide for the full first half. So both on a profitability standpoint and a bookings perspective.

Steven Fisher - UBS

Okay, great, that’s all I have, thanks.

Operator

Our next question comes from the line of [Kate Sullivan] of CLSA. Please proceed.

Unidentified Analyst

Hi, thank you. Can you talk a little bit about way the Summer the Ocean 105, the charter so I mean and how that could impact America results going forward, I mean would it be enough I mean enough to make a difference to the projects currently in the loss position, could you just talked about the progression of that 200 day contract a little bit.

David Dickson

Yeah, you are referring to the job that we booked with Petrobras, the vessel will go to work later this year on that project. It goes for just over 200 days. It will contribute some profit but as it relates to Americas being able to cover all of their kind of overhead cost and restructuring cost that project is not expected to deliver that much profit to bring America back in to profitability this year.

Unidentified Analyst

Okay, thank you very much.

David Dickson

Thank you.

Operator

That concludes our question session. I would now like to turn the call back over to Mr. Steven Oldham. Please proceed.

Steven D. Oldham

Thank you again for participating today, we look forward to seeing many of you at upcoming investor conferences. We hope you would join us for our next conference call scheduled for Monday, August 4th. Operator, this concludes our call.

Operator

Ladies and gentlemen, that concludes today's presentation. You may now disconnect. Have a great day.

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