Great Lakes Dredge & Dock's (GLDD) CEO Jonathan Berger on Q4 2015 Results - Earnings Call Transcript

| About: Great Lakes (GLDD)

Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD)

Q4 2015 Earnings Conference Call

February 23, 2016 10:00 A.M. ET

Executives

Mary Morrissey – IR

Jonathan W. Berger – CEO

Mark Marinko – CFO and SVP

Christopher P. Shea – President of Environmental Operations

Analysts

Jon Tanwanteng - CJS Securities

Unidentified Analyst - Stephens Incorporated

Scott Levine - Imperial Capital

John Rogers - D.A. Davidson

Unidentified Analyst - Heizmann and Company

Operator

Good day, ladies and gentlemen and welcome to the Great Lakes Dredge & Dock Corp. Q4 2015 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 follow at that time. [Operator Instructions]. As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Ms. Mary Morrissey. Ma'am, you may begin.

Mary Morrissey

Thank you. Good morning. This is Mary Morrissey and welcome to our quarterly conference call. Joining me on this call are Jon Berger, our Chief Executive Officer; Mark Marinko, our Chief Financial Officer; and Chris Shea, President of our Environmental & Remediation segment. 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 forward-looking statements can be identified by among other things the forward-looking language or the negative of these terms or other variations of these terms or comparable language, or by discussion of strategy or intentions. 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 10-K for the 2014 fiscal year and subsequent filings. During this call, we also refer to certain operating data along with non-GAAP financial measures, including adjusted EBITDA from continuing operations, which is explained in the net income to adjusted EBITDA reconciliation attached to our earnings release and posted on our Investor Relations website.

Jon Berger will comment on the company's financial results and operational performance. Mark will then provide a detailed review of our results for the quarter and year. Chris will then discuss the company's initiatives and goals for the Environmental & Remediation segment. And Jon will provide commentary on results and outlook. Jon.

Jonathan W. Berger

Thank you, Mary. I would like to start off by commenting on the Boards strategic review of alternatives. As we announced in early November we have retained Greenhill & Company to serve as financial advisor in connection with the process of reviewing the strategic alternatives. The Board and Greenhill are working together at a deliberate speed and rest assured this process has significant attention of the Board and all of my team management including Mark and myself.

We are committed to evaluating all the alternatives in order to maximize shareholder value. Since it continues to be ongoing, we will not provide further information on this call and we cannot speculate on when we will provide another update.

Now let me briefly comment on the fourth quarter and full year results. Our dredging segment delivered a solid quarter finishing off what was an outstanding year by the team. I would like to highlight one project, certainly not our largest that we worked on that included rebuilding a wetland habitat at Jesuit Bend in Louisiana. This wetland reclamation was our first mitigation bank project that we participated in. It was unique and that the mitigation credits generated will be sold to entities in need of them to offset marsh destruction elsewhere in the region and we will participate in the credits when sold.

We are pleased to participate in this important marine infrastructure project that will help save and restore Louisiana Coast. This type of infrastructure work is a natural fit for GLDD, an example of private industry doing public infrastructure work and I expect more of these types of opportunities to emerge in the future.

In the Environmental & Remediation segment, the fourth quarter continued to bring challenges adding to an overall disappointing year for this segment. Over the course of the year we took significant measures to mitigate risk exposure and reduce cost. Project controls from bid to award and to execution have been implemented.

As we announced late last year, Chris Shea joined the GLDD team as President of the E&R segment, which will provide a dedicated oversight and experienced industry leader. Chris expedited the initiatives we began earlier in 2015, reconfirmed our strategies, and add a significant management experience to the team. I will ask him today to share his observations on his first 90 days with us and why he joined.

Let me take a moment to say, I firmly believe that with the experienced leadership and enhanced controls and oversight in place, the Environmental & Remediation segment is positioned for substantial improvement in 2016. With that I would like to turn the call over to Mark to provide more detail on the company's financial results.

Mark Marinko

Thank you, Jon and good morning to everyone joining us. Recapping the company’s consolidated results we posted $223 million revenue for the fourth quarter, which is a 9% decrease compared to the fourth quarter last year. The company’s consolidated gross profit margin for the quarter was 13% versus 8.5% in the prior year period. Operating income was 7 million for the quarter compared to 3 million in the fourth quarter of 2014.

Net loss from continuing operations was 834,000 [ph] compared to income from continuing operations of 20.3 million in the fourth quarter of 2014. Adjusted EBITDA from continuing operations was 22 million in the fourth quarter of 2015 down from 32 million in the fourth quarter of 2014. With the 2014 results impacted by the 15.1 million gain on the sale of the Amboy Land which was recorded in the dredging segment.

For the year the company’s revenue was 857 million, a 6% increase over annual revenue in 2014. Gross profit margin remained in line with the prior year at 11%. Operating income was also in line with 2014 at approximately 23 million. Net loss from continuing operations was 6.2 million compared to income from continuing operations of 20.7 million in 2014. And adjusted EBITDA from continuing operations for 2015 was 83 million, up from adjusted EBITDA from continuing operations in 2014 of 77 million.

2015 results include the 7 million reduction in the seller note, associated with the Magnus Pacific acquisition that the company recorded in the second quarter while 2014 results include the 15.1 million gain on the sale of Amboy Land. Taking into account these onetime adjustments, our adjusted EBITDA increased by approximately 14 million or 23% from fiscal year 2014.

Now I’ll walk through the business segment results to clarify what's driving our financial results. The dredging segment recorded revenue of 175 million in the fourth quarter down 17.5% compared to the fourth quarter of 2014. Fourth quarter revenue of the prior year included several large capital projects including the Port Miami deepening, the Suez Canal widening, and the Wheatstone LNG project.

Fourth quarter 2015 includes several large coastal protection projects in New Jersey and New York, capital projects in the Gulf of Mexico, and the commencement of the Savannah core deepening job. For the year, dredging recorded annual revenue of 681 million, a slight decrease over the last year. Major contributors to revenue includes several coastal protection projects in New York and New Jersey, capital work in the Gulf of Mexico, and on projects on the East Coast, the completion of the Port of Miami project in the first half of the year, and the completion of the Suez Canal widening last summer.

The Suez Canal widening was truly a unique contract with the participation of the world’s largest dredging companies necessary to complete the project in the mandated 10 months schedule. Contract margin on this project was higher than is typical due to the clients compressed timeline, strong productivity, and overall excellent execution.

Compared to the fourth quarter 2014, the segments gross profit margin improved to 19% from 14%, largely driven by strong performance on several domestic coastal protection projects and work on the Suez Canal project. For the year dredging's gross profit margin improved to 16% compared to 13% in the prior year period. The main drivers to the improvement in gross profit margin, a strong project margins particularly on the Suez project and on several coastal protection projects along the East Coast, as well as increased utilization of our fleet.

Dredging’s operating income improved to 18 million from 17 million in the fourth quarter of 2014, primarily driven by the higher gross profit margin. Last year includes a 15.1 million gain on the sale of the real estate owned jointly by our Amboy Aggregates and Lower Main joint ventures. For the year operating income was 64 million compared to 42 million again primarily driven by the improvement in gross profit margin.

In our Environmental & Remediation segment, the inclusion of Magnus led to increased revenue in the fourth quarter and for the year. The segment recorded negative gross margin of 10% for the fourth quarter, an improvement compared to the negative gross margin of 23% in the fourth quarter of 2014. In the fourth quarter of 2015, the segment experienced $4.6 million in losses on three projects. One project remains in backlog but is substantially complete.

For the year, the segment’s negative gross profit margin was 9% compared to gross profit margin of 2% in 2014. The main components driving the loss for the year are first project losses totaling $20 million with losses at five projects accounting for most of the losses. The largest of the three losses were $7 million on a landfill project. With the exception of the one project that is substantially complete, these projects are now complete.

Second, the negative gross profit margin was also due to decline in the amount of works executed. And third and final, increased operating overhead costs including $6.5 million in increased labor and benefits costs, primarily due to the inclusion of Magnus for the full year also negatively impacted the gross profit margin as compared to the same period in the prior year. The segment recorded an operating loss during the fourth quarter of $12 million versus a $14.8 million loss in the fourth quarter of 2014.

The fourth quarter of 2014 included a reduction of $1.1 million in the Magnus seller note which had a positive impact. For the year the segment recognized a $40.1 million operating loss versus $17.8 million loss in 2014. The loss in 2015 was negatively impacted by a $6.4 million charge for amortization of intangibles and a $2.8 million goodwill impairment, but was positively impacted by the $7 million reduction of the Magnus seller note that was taken in the second quarter. In 2014, $1.5 million in amortization of intangibles was recorded.

Now moving to the bidding market in 2015, for the full year the annual domestic dredging bid market, in which we compete, was $1.3 billion, a 15% decrease compared to the $1.5 billion domestic bid market in 2014 during which several large super strong Sandy related projects were tendered. Great Lakes won 57% of the domestic dredging projects on which we bid, valued at $738 million. A couple of jobs were quite large meaning over $100 million in contract value, which impacted our win rate percentage this year. Please remember that variability and contract wins from year-to-year is not unusual and can be impacted by the award of one or two large projects.

Breaking it down by work type in 2015, Great Lakes won 94% or $501 million of the capital projects awarded, including the $134 million Savannah and the $77 million Delaware River Port deepening projects, the $103 million Whisky Island and $77 million Shell Island West restoration projects in the Gulf of Mexico and a large LNG project in Texas. 25% or $67 million of the coastal protection projects awarded, 37% or $165 million of the maintenance projects awarded, and 11% or $4 million of the rivers and lakes projects awarded.

Contracted dredging backlog at December 31, 2015 was $678 million with an additional $83 million in options and low bids pending award. This is record backlog for dredging and is 14% higher than the backlog at December 31, 2014; positioning us well to meet our revenue expectations for 2016. Subsequent to year end we were awarded three additional projects valued at $58 million.

The Environmental & Remediation segment finished the year with $73 million in backlog, slightly below backlog at year end last year and 2014 of $75 million. With our primary focus in 2016 being to return this segment to profitability, we believe this level of backlog positions the segment well to meet its financial targets. On the balance sheet at December 31, 2015, we had $14 million of cash on our balance sheet, down from $42 million at the end of last year. We had $20 million drawn on a revolver and $82 million in letters of credit outstanding, leaving us with $108 million of availability.

During 2015 the company used 34.5 million of cash off of our balance sheet on construction of the ATB. Since construction began we have invested approximately 90 million in the vessel. Construction is on schedule and we continue to expect it to be put in the water for testing with the Coast Guard in the fourth quarter of 2016 and to be working on a project in the first quarter of 2017. Over the course of 2016 the final ATB payments will be made utilizing our cash from operations.

With that I’ll turn it over to Chris to discuss his observations on the E&R division, why he came to GLDD, and his first 90 day accomplishments.

Christopher P. Shea

Thank you, Mark. I’ll begin by providing a brief background about myself. I have almost 30 years of experience in the Environmental & Remediation's space and most recently was President of the Environment & Nuclear Business Group, a 5000 person business unit at CH2M HILL where I over saw major projects, major programs, program execution, risk management, people management, business development, and P&L.

Prior to my almost 10 years at CH2M, I’ve had increasing leadership positions at remediation contractors that compete in the very same space as our E&R segment. I joined Great Lakes because fundamentally these businesses represent an opportunity to diversify into the attractive remediation and geotechnical markets which are adjacent and complimentary to the company’s core dredging expertise. Once right sized and focused on targeted market sectors, the addition of these entities will be beneficial to the company.

The market for Environmental & Remediation and specialty Civil and Geotechnical Services in the U.S. is in the billions of dollars. And competition is fragmented with no clear self performing construction leader that dominates the space on a national basis. Our target clients will be attracted to our value proposition, our focus on safety, being a large company with a successful history and our ability to compete nationally.

In addition our comprehensive service is that makes us unique amongst service providers in this market sector. No other company in this space has the unique in water and upland capabilities offered by us, and with a focus in the emerging geotechnical infrastructure market. Heading into 2016 as an organization we believe we are continuing in the right direction and have created a strong foundation on which we can return to profitability and growth in the future.

Central to our strategy has been expediting initiatives underway in 2015 including the completion of the E&R integration and the implementation of a robust risk management and controls plan which includes processes around project and client selection criteria. We established a process for elevated review of high risk projects and created an enhanced approach for managing risks on projects from cradle to grave. We have also chartered highly qualified team members including a Chief Operations Officer and a Chief Contracting Officer in order to have dedicated management focused on ensuring our additional risk management controls are consistently utilized and maintained.

A recommitment to safety has also been brought to the forefront which is critical to being a best in class service provider. In the third quarter, we expanded the loss prevention system, LPS as it’s known to Magnus. A comprehensive management system designed to prevent or reduce losses using behavior based tools and proven management techniques. We will continue to focus on safety going forward.

We also finalized the organizational restructuring and rebranding of the business segment to Great Lakes Environmental and Infrastructure Solutions or GLIS. Which allows us to align our management resources, build on our core competencies, and leverage Great Lakes' name and strong reputation as we selectively pursue clients. Organizing our business units into GLIS benefitted the company in 2015 and is expected to generate 2.7 million in net cost reductions in 2016.

Leveraging our brand, we will focus our business development and marketing efforts on positioning ourselves for larger projects and programs that have potential for repeat business with customers who are culturally aligned with GLIS's business model and values. In summary, I'm committed to leading our team in returning this business segment to profitability, rationalizing overhead to revenues, and building a strong market presence. Jon, I’ll turn over to you.

Jonathan W. Berger

Thanks, Chris. I want to congratulate the leadership team for the improvements we have implemented in the Environmental & Remediation segment during the last 90 days. I truly am optimistic that 2016 will be a marked improvement over 2015. Our dredging segment delivered outstanding performance in 2015 and I want to congratulate the whole team. The continued success of our incident and injury-free safety culture resulted in 25% fewer incidents compared to 2014, to exceptional bidding results, project execution, and overall performance across both our domestic and international operations for 2015 earnings and year-ending backlog at record level.

With the Panama Canal opening this summer, we continued to expect Port deepening projects to occur along the East Coast in order to accommodate post-Panamax vessels. As we have already mentioned we were awarded the first portion of the Savannah Port deepening, which is valued at a $134 million, as well as the $76 million Delaware River deepening project. The Delaware River is the maritime avenue for the Delaware River ports, including the Port of Philadelphia. We will be working on both projects in 2016, with the Savannah project being completed by the summer of 2018 and the Delaware River by the end of 2017. As side note our new ATB is currently booked to perform work on several projects and backlog once it is operational.

We continue to monitor our developments in Washington at the various ports and the various port cities and expect either Jacksonville or Charleston to be the next port to be deepened. Both ports and many other have benefited from the corp's new planning process, which is expedited project review and approval. Regardless of which port is ready first, 2016 Water Resource and Reform Act must pass in order for these projects to move forward. The bill is moving along in Congress and we continue to actively monitor its progress.

Federal funding is necessary for these projects, and while we are disappointed that the President’s 2017 budget request, which cuts army corps funding, we are hopeful that members of Congress will continue to support in maintaining our nation’s waterways and ports by increasing the corps’ budget like they did last year. Similar to Miami and Savannah we also continue to expect state and local port authorities to fund and execute the deepening projects ahead of the federal government schedules.

On large Sandy related coastal protection projects, approximately a $107 million remain in backlog at December 31, 2015 and we expect we will be working off this year. Looking forward there are several additional projects that we expect will be funded with the special appropriation. Based on the corps’ advertised bid schedule, we expect one or two of these bids to be tendered this year. But the bid schedule is fluid and currently and consistently has changes, changes are frequent. Regardless, over the next couple of years we expect to see Sandy related work to be tendered.

Winter storms that occur in December and January may create additional coastal protection opportunities on the East Coast. As you may have seen, the storm caused the flooding of rivers in the Missouri and surrounding states, including the Mississippi river. The Louisiana Office of Homeland Security & Emergency Preparedness activated its crisis action team to monitor requests for state assistance from parishes and is closely monitoring river levels and levies within the army -– with the army corps. Additional dredging work may arise on rivers in the region as a result of this. Any work we take on this, assistance in emergency situation will be at prescribed rental rate, which are typically lower margins than our more complex projects.

In the Gulf of Mexico in 2016 we will be working on restoring three barrier islands, a $103 million Whisky Island project, the $77 million Shell Island West, and the $27 million Chenier Ronquille on keel contract all of which are in Louisiana. The Chenier project was in low-bid pending award at December 31, 2015 and was subsequently awarded in 2016. The Shell West and Chenier restoration projects will be completed this summer while Whiskey Island project will be completed in 2017.

We also will be working on the Corpus Christi LNG project in Texas for a private client in 2016. And expect it to be complete in the third quarter. In the Middle East we are continuing negotiations on a multi-year land reclamation contract that is expected to generate over $200 million in revenue. We are optimistic that the contract will be finalized by the end of the first quarter and are looking forward to working with our client on this development project.

It is important to remember that this project is not being completed under the tight time constraints that we will require of the Suez and Wheatstone projects. As a result we do not anticipate generating the same elevated margins internationally that we had over the last few years.

Across our entire fleet there are few gaps to fill in our fleet utilization schedule than in past years. Work is more evenly spread between these three equipment types and we have a significant portion of our backlog work in to fund our budget in place. So we believe that we are very well positioned to meet our revenue expectations in 2016.

In Dredging and the Environmental & Remediation segment our focus in 2016 will be on safe and efficient execution of our work. With that I’d like to open it up for questions for Mark and I.

Question-and-Answer Session

Operator

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

Jon Tanwanteng

Good morning guys, thank you for taking my questions. The dredging backlog including the recent wins and assuming you get the award in the Mid East is almost a $1 billion which is pretty impressive, can you talk about the margin profile of that backlog in aggregate and if you can expect a year-over-year improvement given some really nice projects in 2015?

Jonathan W. Berger

So I think what's important to remember is the Suez project was one of our very high margin for us, not typical. So you would obviously see that not see that level of margin in these projects that are in backlog in particular that we talk about the [indiscernible] job that would be at a much lower margin. So you should see a decrease there when you talk about the Suez overall.

Jon Tanwanteng

Okay and on the announced 58 million that you won, that you were awarded recently were all those emergency projects, that’s been on schedule for some time?

Mark Marinko

The 58 million that we awarded at the year-end it was Chenier, so most of it was bid work. We did pick up some emergency work on the East Coast on the beach work from the North East [ph] but that was just added to the contract.

Jon Tanwanteng

Okay, Chris it is nice to hear some confidence in improving the E&R segment this year, do you guys expected to breakeven or even be profitable on an EBITDA basis for the year at all and what's the path you take to get there over the course of the year?

Mark Marinko

I mean I can answer that so, we do expect kind of the EBITDA for the E&R business we believe going forward, that the kind of breakeven. In the past to get there as Chris mentioned, we do well two things, one we have the projects that were problematic in 2015 are either done or like the last one is substantially complete. And then now Chris has put in a robust review as you mentioned of these projects from the beginning to bid, I call it cradle to grave. So we pick the projects that most been our wheel house at reduce risk. So those are the -- and plus we’ve reduced some cost as Chris mentioned, the 2.7 million. So, those are the items that we believe will move us back to kind of a breakeven from an EBITDA perspective.

Jon Tanwanteng

Okay, great and just one more, were there or will there be any onetime expenses associated with reduced cost in that segment?

Mark Marinko

We had some small onetime cost at the end of 2015 in terms of severance closing an office but they were pretty immaterial. Lot of those other costs have been through attrition.

Jon Tanwanteng

Great, thank you guys. Now we haven’t budgeted anything for 2016?

Mark Marinko

No.

Jon Tanwanteng

Thanks again.

Mark Marinko

Thanks, Jon.

Operator

Thank you. And our next question comes from the line of Matt Duncan of Stephens, Incorporated. Your line is now open. Please go ahead.

Unidentified Analyst

Good morning. This is Blake on for Matt today.

Jonathan W. Berger

Okay, Blake.

Unidentified Analyst

Good morning. I know you haven’t given formal guidance but I was just wondering if you can give us some initial expectations for 2016, like dredging segment sales and adjusted EBITDA growth compared to 2015, kind of your initial thoughts there on what the growth you think could be?

Mark Marinko

Yes, Blake, we don’t feel comfortable giving guidance right now. But we -– like I think, like we said in our notes, we have a significant part of our backlog in place to execute and its focused on execution this year, but we're not going to give guidance right now.

Unidentified Analyst

Okay, understood. And then I know you mentioned your review is progressing well, can you just give a little more color on maybe any improvements, what improvements you are seeing with that process and then maybe what are your top operational priorities for coming out of that?

Jonathan W. Berger

Yes, I mean the strategic review with Greenhill, we really can’t comment on. I think coming out of the review at E&R, I think we laid in place the beginning and the middle of the year all the things that we've implemented over the last 90 days with our leadership team. I think rebranding, I think high end selection of the clients we want to work with, I think much more rigor both on the front-end and project management, all things that we were designing, we fully believe that we've implemented over the last 90 days and we’ll tighten it up. But we feel confident under the leadership team that we've put in place that we've got it in the right direction. And we feel good about the market place. So it’s important for us to get that back into a -– back into productive and absorbing overhead and then in 2017 really generating good solid EBITDA.

Unidentified Analyst

Okay, thanks. That helps a lot. And then if I could one more, you got, you mentioned the project in the Middle East, you expect it to be in excess of about $200 million and lasting until at least the first quarter of 2018. Can you give a little more detail on the timing of the ramping of that project?

Jonathan W. Berger

Yes. It’s a project that if we put the resources on it we complete it in two years. We have actually four years to complete it. So it gives us good flexibility to actually go out, continue looking for other projects. So we hope that we will be working on it in the second quarter. We've got our equipment in place, we're finalizing things right now, but we felt comfortable talking about it. But we have our equipment in place to start working on it when everything is finalized.

Unidentified Analyst

Okay. I appreciate it.

Operator

Thank you. And our next question comes from the line of Levine of Imperial Capital. Your line is now open. Please go ahead.

Scott Levine

Hi, good morning, guys.

Jonathan W. Berger

Hi, Scott .

Scott Levine

So I appreciate that you're not providing guidance here but just trying for a little bit more color, you mentioned a revenue target, which I'm guessing you guys have informally in your backlog, it’s up nicely year-over-year, is there anything we should take into consideration in terms of the project burn with some of the larger or longer term projects that might cause the burn rate of backlog to differ from what it’s been historically, just trying to get a better sense of how to set numbers here?

Jonathan W. Berger

We haven’t given that before.

Mark Marinko

Yes, we haven’t given it. I mean, I think we did say that our backlog is spread among all three segments of our equipment. So we think it’s well balanced and we think we have a vast majority of the revenue on our books that we need to execute this year, which is different than in the past.

Scott Levine

Got it, nothing abnormal then I guess in terms of the revenue burn versus what's typical, it seems like what I'm hearing?

Jonathan W. Berger

It’s fairly similar.

Mark Marinko

Yes, it will be similar.

Scott Levine

Got it. And then you have some anecdotes about the outlook. Would you say the bid market you anticipate in 2016 based on what you see roughly similar to what you saw last year, up or down, may be a little bit more color there?

Jonathan W. Berger

Yes, I mean I think the -– yes, I think the bid market will be similar. There are some big projects still left in Sandy. We have to see him get out. I think our belief is there will be one deepening let this year, sometime during the year. So we kind of expect it to be similar to last year's where we were.

Scott Levine

Okay and then and just two quick follow ups, SG&A I don’t know if you went over this or I missed it, a little bit higher this quarter you said there were some one timers in spend, can you give us a sense of what we might look to as kind of a good go forward number?

Mark Marinko

Yes, this is Mark, sure. In the quarter we had a couple of one times we had some about 800,000 of severance related to an executive that left the company. We have some also about 400,000 of accelerated stock vesting related to the announcement of a executive retiring. Say about 1.2 million of one times there, see kind of take those out moving forward. And then going back to 2014, I want to remind people we did have a million dollar credit in there that benefitted 2014 and the fourth quarter related to the Magnus seller notes that’s why you see the large move on the G&A side.

Scott Levine

Got it, so it maybe a little closer to 20 million per quarter then going forward?

Mark Marinko

Yes.

Scott Levine

Okay and the last one I have really on E&R so, you know if I recall correctly when you guys announced Magnus I think it is indicating your thought if everything was kind of humming right, the margins in that business could be comparable to dredging, just wondering and maybe Chris take a shot at this as well, you know if based on getting that business restructured and growth opportunities you see, do you think that business has the potential for that type of margin performance or maybe a little bit more color as to what type of margins you think are achievable when you have that business kind of humming right?

Mark Marinko

And I will take that. I mean we expected it to be high single-digits, low double-digits EBITDA margin. And not tremendously different than our dredging but also don’t forget it significantly less capital expenditures on equipment. That’s where we have to get it and it will absorb. So I believe it will absorb a good amount of our corporate overhead this year in that EBITDA which is helpful for us. So that EBITDA that marks at about breakeven includes corporate overhead allocations which they didn’t have when there was standalone operations. It was important for us. So I am not sure we really add it significant overhead.

Scott Levine

Got it, but think of 2016 as maybe a little bit more of a transition year towards that type of margins you are talking about?

Mark Marinko

Absolutely. Yes, if we can get, if we can do what we want to do in 2016, 2017 will be the real year.

Scott Levine

Got it, great, thanks.

Operator

Thank you. And our next question comes from the line of John Rogers of D.A. Davidson. Your line is now open. Please go ahead.

John Rogers

Hi, good morning. Couple of things, first of all can you give us the segment EBITDA for the quarter and the year?

Mark Marinko

We don’t give that information, I would just do it at the consolidated level.

John Rogers

Okay, alright. So, I guess I am just trying to get to understanding Jon's comments about the improvement in high single-digit, low double-digit for the environmental business, what about Mark, on CAPEX, can you tell us what you’re expecting for 2016?

Mark Marinko

As I mentioned earlier we’ll finish off the ATB payments, that’s a 140 we have done about 90 say about 50 million there of payments this year but then we’ll have our standard CAPEX that we’ve had historically, no real change there.

John Rogers

Okay and that would -- because you had what $83 million this past year, so is that...?

Mark Marinko

It was 34.5ish, 35 million was the ATB.

John Rogers

Okay, so it should be closer to a $100 million this year, is my math correct then?

Mark Marinko

Yes, you are correct.

John Rogers

Okay, and in terms of the lower margins that you’re expecting in the dredging business, if I understand this right, given the balance of projects and the mix that you're expecting, I mean this is always tough business in the sense we go through these cycles every couple of years. Jon, are you saying that this is a sustainable level at this point given the kind of balance and 2015 was little bit heavier on the capital projects and some great international opportunities for you? I'm just trying to understand how you're thinking about the dredging business now?

Jonathan W. Berger

Yes, I -– listen, we had great margins on this thing.

John Rogers

Yes.

Jonathan W. Berger

For the last three years we have internationally. And I think what we’ll probably be trading off is more robust work domestically in the next year or two to balance that out.

John Rogers

Okay. But you don’t see us going back to the low margins that we had three, four years ago or that you're dropping down into the single-digits?

Jonathan W. Berger

I –- no, I don’t see that. I think there's an elevated level of work, an elevated level of work should help that and I also believe when the ATB comes online it gives us a different margin profile I hope because of its productivity.

John Rogers

Okay. And then just on the environmental side of the business. The three projects, I thought it -– after the last quarter you had talked about the significant amount of work being ending up being completed in 2016, but now it sounds like there's just the one project. I assume it’s that project up in Washington that you have to wait for the weather to improve?

Jonathan W. Berger

No, we just said, we didn’t know. We actually worked there in January and February, just had to finish up that piece of the job. So, just got substantial completion notice actually this week.

John Rogers

Okay. And in terms of the bid opportunities there, how do you think about that business now, given that the struggles I guess over the past year, what's your capacity in that business, given the people and the equipment and the expertise that you’ve got to take on work and…?

Mark Marinko

Yes, I mean we are -– and there are segments within that work.

John Rogers

Sure.

Mark Marinko

And our real bread-and-butter work, we feel very good about, we have real expertise and there's some really nice bidding opportunities. On the services segment, other than the oil & gas part of that which has slowed down, we think we're in good position there and we actually executed pretty well on that. On the fuel remediation side we've become very much more focused on selective projects and not getting beyond our skies and if we just stick to the selective projects, we’ll be in fine shape. So we're not really looking to grow revenue substantially there at all, what we're looking to do is just to get back to that balance that we had before and execute well and then we’ll move from there.

John Rogers

Okay, Jonathan approximately $180 million in work that you are doing in the environmental business, how much of that is that bread-and-butter type work versus the discreet projects?

Jonathan W. Berger

Yes, well over a $100 million.

Mark Marinko

Yes, about 50% or more is real bread and butter, geotechnical and other stuff. And then there's probably another 15% that of what we call services work, which really moves along to backlog, 15%, 20% which is good solid kind of work. And so it’s really that 25% to 35% that we're just getting much more selective on. We're tightening up our bidding processes, our controls. We're looking to do some of that on a team -– on a time-and-materials basis. And so that gives you a rough idea.

John Rogers

Okay. No, that’s very helpful, especially with the project loss information, you get a better sense where you're at. Okay, thank you, I’ll get back in queue.

Mark Marinko

Sure.

Operator

Thank you. [Operator Instructions]. And our next question comes from the line of Boris Heinemann [ph] of Heizmann and Company. Your line is now open. Please go ahead.

Unidentified Analyst

Hello, everyone. This -– I had a couple of questions. Chris, you have a lot of experience in the space, could you kind of give us your thoughts on if you’ve executed a turnaround in the past and if you have generally how long does it take? And then when we look at that 72 million of backlog in the fourth quarter, how much of that has been a bid within your 90 days there when do we start to put those?

Christopher P. Shea

Thank you for the question. When we look at the companies that I worked for they’ve been private employee owned. But I have taken over division segments that were in need of turnaround. I’ve also been involved with integration of acquisitions, new companies, integration of business units so I feel pretty comfortable with that aspect of the job and what I need accomplish here. So we’re focused on that. I think that’s moving ahead well and to answer your question there I feel very comfortable with that.

The second part of the question had to do with the backlog that we have, approximately 10 million of that was bid in one in the fourth quarter during my tenure. We’ve instituted a very rigorous approach to review of bids, review of proposals, review of contracts. We elevated existing resources and focused them in these key elements of the capture of new work. So we’re feeling optimistic about our ability to go forward and avoid these nearly loss making projects.

The other key element, last year the team was very focused on closing out and completing these challenged projects. With that getting behind us like we’ve been talking about on the call, I am optimistic about our ability to find more opportunities, be more externally focused, and selectively capture the right projects going forward.

Unidentified Analyst

You know maybe just little bit more clarity on the timing side, I mean you have a lot of experience. It sounded like when you came in you were kind of reviewing the bid book that we had and you have done this for a long time, 30 year so I mean are you seeing some of those older bids that you weren't involved in or could be problematic, bid to low then taking to consideration some of risks and in six months can this thing really be improved or is it -- it is going to look pretty challenged for the rest of the year and then 2017 we might see some better results?

Christopher P. Shea

When we break down that backlog, a significant chunk of it is time and materials. And we would carry that forward. There is other elements that we’re carrying forward that were delayed last year that are going to pick back up and that work in particular is right in the wheel house and some of the geotechnical construction where we’ve historically done quite well. Another portion of our business is services business which is for the most part time and materials and has had a historic good record going forward.

We will continue to focus on the higher risk projects as we go forward and make sure that we have got elevated review and we’ve implemented a watchless approach for our top projects and they get hit by various levels of management including elevated executive level review on a monthly basis. So we’re optimistic, the best part is we worked off a number of those challenges, and what we have in backlog for the most part is really good. But we still have to focus on all of our work and all of our projects and this business, the remediation business is all about changed management and managing unknown. So we on a day to day basis we’re focused on that and need to be focused on that.

Unidentified Analyst

Okay, thank you Chris and this is question not for Chris rest of the executive team. Would the weak performance that we have in the environmental services, and obviously you are doing the strategic review, has the board given us any mandate in terms of how long we’re willing to continue to generate losses in the environmental services that’s the first part of the question? The second part is if we had to exit the environmental services business, are there any legacy-type items in there that we’d have to address or is it just as simple as selling the equipment and being done with that business?

Jonathan W. Berger

I’ll jump in, this is Jon. One, the Board is looking at all strategic alternatives and as I said I don’t think that we could really comment on any specific segment. We do think we're doing all the right things on the environmental business. I think things that we've executed over the last three months were all the things that we've been putting in place. We've just probably sped it up a little bit now that we have a new leadership team.

Like any construction business, if we were to want to wind down a business, you have a set of contracts with people and things like that, that you have to deal with. So it’s not necessarily very clean when you exit a contracting business. But as I said, right now we think we have this under control. Board is -– it’s gotten the Board’s attention. As part of the strategic alternatives we're looking at everything, but we think we have the right answers to get it in place and we think we can get it in place.

Unidentified Analyst

Well, your comments earlier on the call seems more like a wait-and-see approach, where you’ve talked about obviously, you brought Chris in and then you have a new branding initiative and you talk about how this business is going to benefit us going forward, but at the same time we're doing strategic review. Should we think that the strategic review’s conclusion is going to be we just hold onto this business and see how Chris performs or do we still look to maybe potentially sell this business?

Jonathan W. Berger

We're doing all the things to create value for the company and for the division. So at this point I'm not sure I should answer any more than that.

Unidentified Analyst

Okay. And then my last question is on the ATB. You mentioned that it’s already booked. Can you tell us how long it’s booked for, when it goes off on its first contract?

Jonathan W. Berger

No. We have -– as you know we have significant backlog, we have places to take it when it hits the water, and it can do work that other pieces of equipment do. So we will just look at the schedule, look at the work that comes out and determine the best place to put it. But it’s always important to know where you –- when you build the new dredge, it’s important to get it in the water and get it working on a project first because you always got to shake it out and so we know where it’s going.

Unidentified Analyst

Okay.

Jonathan W. Berger

But there's plenty of work for the hopper business and we don’t think it will be a problem keeping it employed.

Unidentified Analyst

And then versus our original expectations versus timing of completion and then how it’s performing well to the budget, how is that looking?

Mark Marinko

It is where we expect it to be and we expect execution of the rest of the construction as of late last week when I got my last report is we're on target to have it in service at the beginning of 2017.

Unidentified Analyst

And on budget?

Mark Marinko

Yes.

Jonathan W. Berger

Yes, from the construction, yes.

Unidentified Analyst

Thank you.

Operator

Thank you. And our next question is a follow up from the line of Matt Duncan of Stephens, Inc. Your line is now open. Please go ahead.

Matt Duncan

Hi, I just had one follow up. I just wanted to clarify you mentioned three E&R projects in the quarter that caused losses of $4.6 million. Were these the same three projects that were mentioned last quarter, I think two of which you said were delays and then one was for by the delay of key materials, that was like a $4.3 million loss?

Jonathan W. Berger

Yes. So they’re -– of the one -– yes, I'm just checking. I think its two of the three. We had a smaller loss on a project come up. But otherwise they were the same one. Two of the three.

Matt Duncan

Okay. And so you only have one of these outstanding, you said it’s substantially complete, so it should be finished in the first quarter?

Jonathan W. Berger

Right. Correct.

Matt Duncan

Okay. And you expect it to have any more losses before closing it out?

Mark Marinko

No.

Matt Duncan

Okay. Great. Thank you.

Operator

Thank you. And our next question comes as a follow up from the line of John Rogers of D.A. Davidson. Your line is now open. Please go ahead.

John Rogers

Just one quick thing, in terms of your debt position and cash burn, I mean with your CAPEX plan, and I know you're not giving guidance but do you have sufficient capital? I mean it sounds like you may have to dip in especially near-term, I think when payments are due, expand the debt levels little bit further?

Mark Marinko

Yes. So we…

John Rogers

I mean are there initiatives or anything that we have to you are thinking about?

Mark Marinko

Yes, so we will -- we always use our revolver a little bit and so we will continue to do that. And we believe in 2016 we will hit 20 million at year end. So, maybe because of the additional ATB payments, little bit of elevation there on the revolver. But as I mentioned earlier we have a lot of availability on the revolver and we were at year-end within our covenants.

John Rogers

Okay, and Mark are this -- that ATB, is supposed to be in the water fairly early this year, is that right?

Mark Marinko

No, it will go through in really fourth quarter is when it does its sea trials.

Jonathan W. Berger

And there is two parts, there is the barge and there is the tug. And one will get in the water a little earlier and won't anticipate it and we will do the sea trials but we expect it to be operational in late at the end of the year or the beginning of the first quarter. That is 27 yes, the end of this year, early 2017 is when we are expecting it.

John Rogers

Okay, great. Thank you.

Jonathan W. Berger

Sure.

Operator

Thank you. And I am showing no further questions at this time. I would now like to turn the call over to Ms. Mary Morrissey for closing remarks.

Mary Morrissey

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

Operator

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

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