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Layne Christensen (NASDAQ:LAYN)

Q1 2013 Earnings Call

June 05, 2012 11:00 am ET

Executives

Devin Sullivan - Senior Vice President

Rene J. Robichaud - Chief Executive Officer, President and Director

Jerry W. Fanska - Principal Financial Officer, Principal Accounting Officer, Senior Vice President of Finance and Treasurer

Analysts

Brandon Verblow - UBS Investment Bank, Research Division

John Rogers - D.A. Davidson & Co., Research Division

Gerard J. Sweeney - Boenning and Scattergood, Inc., Research Division

Timothy Feron - Janney Montgomery Scott LLC, Research Division

Jonathan P. Braatz - Kansas City Capital Associates

Operator

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Layne Christensen Co. First Quarter Fiscal 2013 Financial Results Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to introduce our host for today, Mr. Devin Sullivan of the Equity Group. Sir, please go ahead.

Devin Sullivan

Thank you very much. Good morning, everyone, and thank you for joining us today for Layne Christensen's Fiscal 2013 First Quarter Financial Results Conference Call. Our speakers for today will be Rene Robichaud, President and Chief Executive Officer of Layne Christensen, and Jerry Fanska, Senior Vice President of Finance.

Before we get started, I'd like to remind everyone that statements made during today's call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act of 1934. These statements may include, but are not limited to, statements of plans and objectives; statements of future economic performance and statements of assumptions underlying such statements; and statements of management's intentions, hopes, beliefs, expectations or predictions of the future.

Forward-looking statements can often be identified by the use of forward-looking terminologies such as should, intended, continue, believe, may, hope, anticipate, goal, forecast, plan, estimate and similar words or phrases. Such statements are based on current expectations and are subject to certain risks, uncertainties and assumptions, including but not limited to, the outcome of the ongoing internal investigation and to among other things, the legality under the FCPA and local laws of certain payments to agents and other third parties interacting with government officials in certain countries in Africa relating to the payment of taxes in the importing of equipment, including any government enforcement action, which could arise out of the matters under review, or that the matters under review may have resulted in any higher dollar amount of payments or may have a greater financial or business impact than the management currently anticipates; prevailing prices for various commodities; unanticipated slowdowns in the company's major markets; the availability of credit; the risks and uncertainties normally incident to the construction industry and exploration for and development and production of oil and gas; the impact of competition; the effectiveness of operational changes expected to increase efficiency and productivity; worldwide economic and political conditions and foreign currency fluctuations that may affect worldwide results of operations. Should one or more of these risks or uncertainties materialize or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those anticipated, estimated or projected.

These forward-looking statements are made as of the date of this call, and the company assumes no obligation to update such forward-looking statements or to update the reasons why actual results could differ materially from those anticipated in such forward-looking statements.

I'd now like to turn the call over to Rene Robichaud. Rene, please go ahead

Rene J. Robichaud

Thanks, Devin, and good morning, everyone. Thank you all for joining us today. Hopefully, you've had the opportunity to review our results. Many of the trends, both positive and negative, that impacted our results last year, continued to manifest themselves in the first quarter. Although we're pleased to have returned to profitability in the fiscal 2013 first quarter and equally as happy to have maintained a very strong financial position during a challenging period, quite frankly we're not satisfied with our performance. We can and we will do better as a company, especially at our Heavy Civil division. The culture we are implementing and the expectations we have placed on our people demand it. Although a number of challenges remain, some out of our control, we believe that the worst is behind us in terms of project problems and that the just ended first quarter of fiscal 2013 will mark the beginning of a new era of growth and progress at Layne.

Now onto a review of our results by division. For our Water Resources division, it posted higher revenues across a number of operations, most notably, specialty drilling, which included projects such as dewatering, well drilling in Arizona, and injection well drilling in California, Texas and Florida. Water Resources returned to profitability when compared to the fourth quarter despite lingering margin pressures on municipal hard-bid projects and the lower margin work that replaced our Afghan drilling project. As we look ahead, our municipal hard-bid business will likely remain soft for at least the next year. We're encouraged, however, by the large projects coming to market that have some private funding. We believe that public-private partnerships in building and repairing our Water Infrastructure will have multiple benefits.

Our focus on higher margin negotiated business from industrial and energy clients, as opposed to hard-bid municipal projects, will continue. We are on track to generate $50 million of revenue this year from industrial clients.

Regarding our international expansion. We've generated profitable work in Mexico, booked good business in Canada and Ethiopia, and are pursuing work in Italy on the salvage of the Costa Concordia. We expect Water Resources performance in the fiscal year 2013 to be similar of that of last year, excluding any gains this year from equipment sales.

Our Inliner division posted higher revenues for the quarter, although pretax income declined from the year-ago period, primarily due to project mix. In May, we announced our third IDIQ contract with the Washington Suburban Sanitary Commission valued at up to $70 million with a WSSC option for an additional $10 million in work. Inliner has now signed IDIQ contracts with the Commission and have a combined value of up to $120 million, excluding WSSC options for a total of $20 million of additional work. Today, we have 31 crews operating in 14 states. The pipeline rehabilitation business is crucial for modernizing our country's decaying infrastructure. Our technology can accomplish this in a sustainable, environmentally friendly manner with minimal disruption. We expect Inliner to match its record performance from last year.

Heavy Civil. This division continued to struggle mightily on several projects, and it is in our mind simply unacceptable for us to ever get back into bidding and estimating so aggressively in order to keep our backlog up. In the low-bid market, competition remains intense. So although revenues were lower in the first quarter, this was in large part by design, as we continue to shift our focus towards bidding on higher margin, complex, more profitable projects that allow us to leverage our competitive assets. Profitability was impacted by the low margin legacy projects in our backlog as well as unexpected cost overruns on a number of projects, which are extremely disappointing. We continue to be proactive in aligning the expense structure of this business with projected revenues and profits. In the last 6 months, we reduced overhead by approximately $4.7 million. Beginning this quarter, we will commence the process of reducing the leadership of this division from 9 to 4 reports, and closing selected offices in order to consolidate their operations. This will result in a further savings of over $2 million annually.

Our backlog was $297 million at April 30. This backlog includes an increase of approximately $31 million from business that was moved into Heavy Civil from our Water Resources division at the end of last year. Because of our focus on profits, the quality of our backlog continues to improve. For all of this year, we expect backlog to be lower than last year but consists of progressively more profitable projects. Even though we expected that Heavy Civil's business would remain soft for the hard-bid municipal sector over the next year, we now expect that Heavy Civil will operate at a loss for this year. Quarterly operating losses are expected in the $1 million to $2 million range this year, with depreciation charges of about $1.8 million each quarter.

I want to take a moment to update you on the collaboration project that Heavy Civil and Water Resources are bidding on. This is a very large emergency drought project in the Southwest. This project involves water supply, water treatment, water transmission and is valued well in excess of $100 million and represents the type of project we believe fits well into Layne's future.

Our Geoconstruction group reported higher revenues but flat profits due to project mix. This business normally has lumpy results. Although results will fluctuate quarter-to-quarter, we continue to believe that this business will produce record results again this fiscal year.

Our Costa Fortuna affiliate in Brazil continues to perform extremely well, with higher revenues, higher earnings and the higher backlog. Our Geoconstruction team has recently been instrumental in supporting our Mineral Exploration team, our Water Resources team and even a small job with our Heavy Civil group, so the integration there continues to go well.

Regarding Mineral Exploration. The first quarter picked up where we left off last year with another record performance. Strong activity levels within each of our primary markets contributed to this. We're benefiting from slightly improved pricing and operating efficiencies.

Regarding our sales breakdown, gold exploration represents about 55% of our revenues and copper about 30% of our revenues. Thinking about our sales breakdown between major clients and junior clients, over 85% of our revenues today come from major and intermediate size clients with producing operations, leaving about 15% of our revenues coming from the junior mining communities. We can see some junior mining companies straining from the lack of access to the capital markets today. Most major mining companies, however, are happy to get dependable rigs and trained drilling crews. We expect our rig count to increase modestly this fiscal year, with the rig utilization remaining stable at a high level. We like our position with major mining companies. We also really like our investment in the Latin American affiliates, as the great bulk of their work is for majors on world-class deposits.

Regarding our Energy business. Revenues and pretax income were impacted by low natural gas prices, which are down significantly from last year. Prices realized were just above cash production costs of about $2 per million BTU. We are focused on alternatives for the E&P business, including a sale. Our carrying value for this business is approximately $50 million. Our emerging Energy Services business will provide responsible water management solutions to leading oil and gas operators. This is a large market opportunity and a strategic fit with our core competencies in water development, management and construction. We are developing total water solutions, targeting the unconventional oil exploration and production market. These solutions will integrate our water sourcing, transfer and treatment services. Layne has the background, the technology and relationships to build this business. We have drilled hundreds of oil and gas wells, we've drilled over 50,000 water wells, more than any other company. We've developed and acquired proprietary treatment technologies. Our initial effort will be based -- will be paced from an organic buildup this year. We expect to increase traction next year with several large independent and major E&P companies. Our revenue goal for 2016 is $200 million, and so we plan on building a sizable business.

I'd now like to turn the conversation over to Jerry Fanska.

Jerry W. Fanska

Thank you, Rene, and thanks to each of you guys for participating in today's call. On a consolidated basis, Q1 revenues increased $9.1 million to $276.5 million, led by higher revenues at Water Resources, Inliner, Geoconstruction and Mineral Exploration, which like last year turned in a record performance. These results were offset by lower revenues at Heavy Civil and to a lesser extent, Energy.

The cost of revenues for the quarter rose to $221.6 million or 80.2% of revenues for Q1 FY 2013, from $200.2 million or 74.9% of revenues for Q1 of fiscal 2012, due primarily to margin pressures across all divisions except Mineral Exploration and cost overruns in Heavy Civil. An increase in the number of bidders for traditional competitive bid situations across our domestic market has produced an environment of decreasing prices. These pressures, as well as cost overruns, have sharply dropped our margins.

Selling, general and administrative expenses were essentially stable at 14.7% of revenues for the first quarter of 2013 as compared to 15% of last year. On a dollar basis, SG&A rose to $40.6 million or -- from $40 million in the prior period, primarily due to increases of $1.9 million in legal and professional expenses, offset by operating tax reductions of $1.2 million and other cost-reductions.

Depreciation, depletion and amortization increased 4% to $15.7 million for the first quarter of FY 2013, compared to $15.1 million in the last year. The increase was primarily the result of normal property additions.

Equity and earnings of affiliates increased 66.2% to $7.8 million for first quarter of 2013, compared to $4.7 million in the first quarter of last year. The Geoconstruction affiliate in Brazil accounted for $1.8 million of the increase, which resulted primarily from a large foundation project at a river crossing in the Amazon. The remaining increase reflects our Mineral Exploration affiliates in Latin America, primarily working for gold and copper producers in Chile and Peru. The interest expense increased to $0.6 million for the quarter from $0.3 million last year, reflecting increased borrowings to fund working capital. Other income net was $1.1 million in the first quarter compared to $6.9 million in the last year's first quarter. That included a gain of $5.1 million on the sale of a building in California. The remaining income in the first quarter and last year consists of a combination of gains on equivalent sales and foreign exchange.

Income tax expense for the quarter was $2.9 million for an effective rate of 42% as compared to $9.7 million for an effective rate of 41.5% for the same period last year. As we sit today, we expect an effective tax rate of about 42% for this year.

We reported net income of $3.7 million or $0.19 per share, compared to net income of $13.1 million or $0.66 per share in the last year's first quarter. Last year's first quarter included a gain of $5.1 million or $0.15 per share related to the sale of our facility in California.

Our cash position at April 30 was $47.2 million. We have working capital of $156.5 million. The long-term debt less current maturities of $77.7 million, and equity of $454.9 million or $22.98 per share.

So with that, I'll turn it back over to Rene.

Rene J. Robichaud

Thanks, Jerry. We are continuing to evolve from a company comprised of highly skilled yet organizationally isolated businesses into an integrated, collaborative enterprise focused on devising and delivering total solutions to a global client base. We believe that this strategy while still in its infancy, is powerful enough to allow us to capture additional revenue, pursue and win complex projects, broaden our global reach and distinguish Layne from its competitors. It will also place us on a sustainable path to profitability and enhance the shareholder value. Thank you for your attendance today. We are happy to answer your questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Steven Fisher from UBS.

Brandon Verblow - UBS Investment Bank, Research Division

This is Brandon Verblow in for Steve. My first question relates to the Heavy Civil business, I guess you talked about your new strategy there bidding on some higher margin projects and I'm wondering if you've -- what progress you've start to see on that front and when do you think -- you think we'll start to see a meaningful impact on the results from that strategy of bidding on higher-margin projects?

Rene J. Robichaud

Not until next year, Brandon. This year we'll probably be losing $1 million to $2 million a quarter in Heavy Civil at the operating income line. That will include about $1.8 million every quarter of depreciation.

Brandon Verblow - UBS Investment Bank, Research Division

Okay. So you think it could have a noticeable impact on next year's results?

Rene J. Robichaud

Yes, it should.

Brandon Verblow - UBS Investment Bank, Research Division

Okay. And my next question, are you able to quantify the impact of the Mali unrest in West Africa?

Rene J. Robichaud

It's a little tricky. We probably lost a good 20 days of operating, probably 13, 14, 15 rigs. It's disruptive to break it down. It's disruptive to put them back. The cost of moving everybody out of Mali and then getting them back in, we've not added it all up, but it was a significant hit. Certainly, a couple of million dollars.

Brandon Verblow - UBS Investment Bank, Research Division

Okay. And so it sounds like that's resolved now, that you've moved people back in or is it still...

Rene J. Robichaud

Yes. We are up to work again in Mali. Everybody's back in, all the rigs are working. The issues today aren't so much a junior military coup, but early rains in West Africa. So we're -- we struggle with weather at this time of year, every year. And we -- I mean I say all this, they're still producing tremendous results. But we're going to go through ups and downs that will keep us from absolutely astounding results.

Operator

And our next question comes from the line of John Rogers from D.A. Davidson.

John Rogers - D.A. Davidson & Co., Research Division

A couple of things. First of all, in terms of the Heavy Civil business, Rene has mentioned the $1 million to $2 million per quarter. But is that at about $75 million revenue run rate or is that revenue level? I'm just looking at your backlog there and kind of where you were in the first quarter.

Rene J. Robichaud

Yes. We're at -- well we're at $72 million obviously for this quarter. I would assume that it will come down some, but you wouldn't think drastically for the year.

John Rogers - D.A. Davidson & Co., Research Division

Okay, okay. I just -- and in terms of the project in the Southwest that you referred to, when will you know on that?

Rene J. Robichaud

I wish we -- it would be that simple. It's between municipality and engineering community. People are trying to put together very rapidly solutions for just an awful drought situation. And we should know in the coming months. We're putting together -- I would say a terrific team of a total solution that -- where Layne can be involved in the design, the build, the construction of it, not only from a Heavy Civil but also from our Water Resources group. So our teams are very excited working together on these large projects.

John Rogers - D.A. Davidson & Co., Research Division

Okay. But is it -- I mean, do you expect that we'll hear something over the next -- I hope 6 months or 3 months?

Rene J. Robichaud

Oh, yes. I think so, right. It's not up to us but certainly the impression we get is, this is an accelerated project. This project was on -- was planning on being developed probably next year or the year after. Now they're trying to go, "We need it now."

John Rogers - D.A. Davidson & Co., Research Division

Okay. Good. And then in -- just on the Minerals Exploration side of the business, I appreciate the breakdown in terms of customers. Do you have any sense on what price levels, especially the gold miners need to keep up the level of exploration that they're currently operating at?

Rene J. Robichaud

Well let me focus on the...

John Rogers - D.A. Davidson & Co., Research Division

I mean I know it's graduated, but...

Rene J. Robichaud

Yes, but -- I mean there is a cash cost profile of all the world's operating mines, if you will. And what would be a -- if you took a weighted average or just a simple average, what would be the cash cost to get gold out for the average mining production. I don't think that's the way to look at it. Let's look at it in terms of junior mining companies that don't have any operating income today, and they've got cash on their balance sheet. And the way that they develop the business is to explore for deposits that they have found, and we do the exploration for them. They burn the cash on their balance sheet and then they issue more stock at whatever price the market thinks their deposit is worth. Today, it's not the absolute price of gold that matters, which is at a very high level. It's the trend of where the price of gold is going. It's so uncertain that these junior mining companies aren't capable of raising new capital, and so their cash burn becomes more of a concern to them.

John Rogers - D.A. Davidson & Co., Research Division

Sure. So I guess and the follow-on to that would be, I mean are we at a level where they're cutting back exploration?

Rene J. Robichaud

Oh, there are and that's why mining companies, mining exploration companies that trade publicly, the stocks have come down because those that are really dependent on juniors, right. They can see that their business is going down. We've had some marginal impacts from junior companies. A couple in Tanzania, for example have stopped their programs, but we pretty quickly find larger companies that want to use our trained people and very high-quality rigs.

John Rogers - D.A. Davidson & Co., Research Division

Okay. And the better pricing that you talked about for rig rates in 2000 -- in calendar '12, are those fully in your numbers now?

Rene J. Robichaud

Yes, I would say that we are starting to see all of the benefit, in the first quarter we did, of all of our price increases we got last year. Last year was a big year for us in trying to get back from depressed levels. And we're going to benefit for the full year of all of the price increases last year. Getting more price increase this year will be harder. Clearly, we can get some. We can get some in some places and not in others.

John Rogers - D.A. Davidson & Co., Research Division

Okay. And then lastly, maybe for Jerry too, it's -- the increased debt levels that you reported at the end of the quarter, was that just terming out some short-term debt?

Jerry W. Fanska

That's -- it's mainly working capital build. You mean increase from the end of the year?

John Rogers - D.A. Davidson & Co., Research Division

Yes, sorry, from the end of the year.

Jerry W. Fanska

It's mainly working capital build. Usually, in the first through probably the third, halfway through the third, we usually build some working capital. There's a lot of construction business, so you -- the summer months will increase. So it's pretty well driven by working capital needs that over time should come down as the year progresses.

John Rogers - D.A. Davidson & Co., Research Division

Okay. And I'm sorry, and lastly, in terms of your decision on the Energy business, when -- is that something that you're just looking for indications of interest? Or have you made the decision that you will seek a buyer?

Rene J. Robichaud

Yes, we'll -- yes, we've had a number of industry players indicate their interest in our properties. And we will decide whether or not there's a fair value to come from that process in the coming months.

Operator

And our next question comes from the line of Gerry Sweeney from Boenning.

Gerard J. Sweeney - Boenning and Scattergood, Inc., Research Division

A question on, well say, One Layne. Now we -- you've talked about the potential for some cross pollinization maybe cross-selling of the Heavy Civil into MinEx and dewatering, et cetera, et cetera. But can you give a little bit more clarity or talk about some of the opportunities out there. How big they are? When they could start kicking in? Obviously, this is going to be a multiyear process, but it is one of the, I'd say one of your key drivers or processes or strategies going forward?

Rene J. Robichaud

Yes, it is. I mean the -- we -- that the concept that all of the division presidents and our team here at headquarters agreed to was, we have not encouraged enough our ability to sell jointly. It's not that we didn't in the past encourage it, it's just we didn't do it enough. So now we're kind of trying to turbo charge that and put some light on what have each of us done to be part of a greater whole. And so you look at the MinEx business for example, I mean, they're completely focused on core drilling for delineating deposits for our clients but they're not focused on getting water to our mine sites or dewatering where that's a big problem. And now, we've agreed, okay, we're going to look at all of our mine sites around the world and figure out where the water problems are such that we need to cross-sell that. And if we don't, I'd like to know about it. And so I'm focused on it and the division presidents know that.

Gerard J. Sweeney - Boenning and Scattergood, Inc., Research Division

How much of a challenge is that going -- taking -- going into the MinEx side obviously, I mean, you're experiencing having your rigs in foreign countries, but what about bringing in other services into those foreign countries? I mean, is that a difficult process? I mean, do you the -- how would that evolve over time?

Rene J. Robichaud

Well we've -- yes, so we've learned a lot about moving rigs and people around the world because of the great expertise Mineral Exploration has developed. With them as the tip of our spear, our Water Resources guys are following through. We did great work and have continued to do great work in Mexico for our mining clients there with their major water problems. And that's what I consider a great part of One Layne. I talked about earlier this emergency water management project over $100 million. That is a -- we have tremendous collaboration, even on Friday of last week, our senior teams from Heavy Civil and Water Resources getting together to strategize on how to put the best possible solution forward for this client. There are many examples like that. The Costa Concordia, the cruise ship that is lying on her side off the coast of Italy. And it's lying on the ledge and we can't have it fall off that ledge because then the salvage will be even worse than it is. So we had our Geoconstruction team fly over to Italy and negotiate a deal on how -- on helping to salvage that. It turned out the Geoconstruction team realized that they needed our Water Resources team to really take the lead because their specialty drilling could do the work. So the fact that we had these teams brought Layne a full solution to the client in Italy, and we've been awarded this -- a part of this salvage operation.

Gerard J. Sweeney - Boenning and Scattergood, Inc., Research Division

Okay, have you internally thought about this -- the size of these opportunities obviously, I mean they're wide and far ranging but because looking for some quantitative process or thoughts behind it?

Rene J. Robichaud

Yes. I'd like to do that for you, but I can't. It's -- until we really start, I'll be able to give you examples every quarter of what's going on. Things that have worked because we're regularly more in contact with each of our divisions and all of the opportunities we see for each other. We had 2 weeks ago, the top 125 leaders around the world for 2.5 days together talking about each other's businesses, talking about One Layne and what that means for each other, completely standardizing the way we go to market from a branding standpoint and what our brand means in terms of our promise to clients. I mean it was terrific. We had such great feedback from everybody going -- we're just glad to be together, working together for the good of our clients.

Gerard J. Sweeney - Boenning and Scattergood, Inc., Research Division

Shifting gears a little bit, not to beat a dead horse on the Heavy Civil side. But would you look at Q1 as sort of maybe the trough you'd spoken about drawing that line in the sand in terms of bidding for or putting a margins on new projects and from -- I guess, previous calls you talked about 18 months for the [indiscernible] group, so it's been 6, 9 months since you've -- 9 months since you've really taken over. Can we see this as sort of the trough in the Heavy Civil side and are you seeing any improvement? Or how much improvement in the backlog?

Rene J. Robichaud

The backlog we've shrunk on purpose. As Jerry said, we still have about $300 million, but of that $300 million, $30 million was contributed from our Water Resources business to our Heavy Civil. You want to talk about One Layne, there's our Water Resources giving people and equipment to Heavy Civil. But the point of Heavy Civil is our backlog is not a healthy backlog today. It's good work but we won't be profitable work for the balance of this year. So all the new projects that we come on, we bid on a lot of projects. The amount of projects that are out there, we can bid on. In some cases, we lose by more than the margin we put on. And it's just -- it's still a very competitive market.

Gerard J. Sweeney - Boenning and Scattergood, Inc., Research Division

Sure. But I mean, in terms of -- you said incrementally improving throughout the year but still for a loss for every quarter?

Rene J. Robichaud

Yes we -- I mean we...

Gerard J. Sweeney - Boenning and Scattergood, Inc., Research Division

Would that be a fair assumption?

Rene J. Robichaud

Yes, we expect to lose $1 million to $2 million of operating income from our Heavy Civil division every quarter. And that's about a cash breakeven when you think depreciation is $1.8 million.

Operator

And our next question comes from the line of Ryan Connors from Janney Montgomery Scott.

Timothy Feron - Janney Montgomery Scott LLC, Research Division

This is actually Tim Feron filling in for Ryan. I just wanted to ask a question about your Geoconstruction business. I believe you guys indicated last -- on the last call that, that business might not really pick up until May. And given that, that's not in the current numbers, should we expect a better run rate over the balance of the year? Or will some of that work pulled forward into the first quarter? As it looks like you guys had a pretty good first quarter.

Rene J. Robichaud

We expect to have a good second and third quarter. We've -- we booked some business in the first quarter but didn't start ramping up until the month of May. And we're starting to ramp up particularly in the Miami area of some really interesting and innovative new foundations being put in a very high water table area, which has gotten a lot of the construction market excited down there. We've put in a lot of bids recently. People who want to have the same sort of foundations put in, which materially accelerate the ability to put in a building. So we're excited about the future of our Geoconstruction business, both domestically and in Brazil.

Timothy Feron - Janney Montgomery Scott LLC, Research Division

Okay. That's helpful. And just with Mineral Exploration, have you noticed a change in tone with any of the major miners in terms of their outlook as some of the commodities have come under pressure? Or are they still going forward with plans they had previously?

Rene J. Robichaud

Yes. I would say most major mining companies are happy to get any of our rigs that come free and our trained crews. BHP has very publicly said, "We want to take a pause." And it's part in my mind of negotiating with the Chinese on iron ore, long-term iron ore deals and other base metals, of course. So I think take BHP at its word. When they say they want to take a pause, they will take pause.

Operator

[Operator Instructions] Our next question comes from the line of Jon Braatz from Kansas City Capital.

Jonathan P. Braatz - Kansas City Capital Associates

A question on the Amazon project. Is that a sort of a onetime boost to your affiliate earnings? Or is that something that will continue into the second, third and fourth quarters?

Rene J. Robichaud

Yes, that project will continue on for most of this year. It's not done. But I think just to the best of my knowledge, nobody has tried to put this sort of piling opportunity or pilings across the Amazon River before. So just doing this brings new opportunities to our Geoconstruction business. It's really quite impressive work. We're delivering hydropower, hydro line, hydropower lines across the Amazon for building the electricity infrastructure of Brazil.

Jonathan P. Braatz - Kansas City Capital Associates

Okay, okay. So we should see that type of contribution continue into the remaining part of the year?

Rene J. Robichaud

We expect our Brazilian affiliates to perform very well for the balance of this year and frankly for many years to come, because the Brazilian construction market is about as exciting a market as we can think of.

Jonathan P. Braatz - Kansas City Capital Associates

Okay, okay, okay. How much of that might be related to Olympic and World Cup activity?

Rene J. Robichaud

Quite a bit.

Jonathan P. Braatz - Kansas City Capital Associates

Okay, okay, all right. Secondly, who's -- you alluded to the project in the Southwest. Who's -- what agency or -- is overseeing that project? Who makes the -- who's making the final determination of who wins that project?

Rene J. Robichaud

Well, I think when you talk about a project that big, I don't know if it's one person. It's a combination of local municipalities, engineering teams coming together on what's needed; what to phase-in; at what point; who will be the best suppliers for each phase. It's a -- these are complicated decisions. I don't know, I wouldn't want to point out just one person and have you try and call them and go, "Hey, is Layne going to win?"

Jonathan P. Braatz - Kansas City Capital Associates

I'll make multiple calls, okay.

Rene J. Robichaud

Well good luck with that. I really can't have -- start giving out names and things for people to call and betting on the future.

Jonathan P. Braatz - Kansas City Capital Associates

Okay. And lastly, going back to the Heavy Civil area, when you talk about the operating losses for the remainder of the year. Are those losses mostly related to the initial bids that you won the business with? Or are you assuming some cost overruns in addition to that margin associated with the bid?

Rene J. Robichaud

I think it's a combination. Because 2009 was so bad, 2010 and 2011 bids were very low to keep the business going. And when you don't have -- and combined with that, right, we would put very low margins on a project. And we probably, in way too many cases, I'm going to say we believed that we could do the work more cheaply than actually is the case. And so we were a little optimistic about our own capabilities. We have great people in our Heavy Civil business. Don't get me wrong. They are very capable. And when they do a job, they will do it well. But I -- we got caught up in the downturn and not wanting to rightsize the business to use an old term. Today, we are rightsizing the business.

Operator

And this concludes our question-and-answer session for today. I would like to turn the conference back to management for any final remarks.

Rene J. Robichaud

We really appreciate you participating on our conference call. We look forward to better performance going forward and to being with you again in 3 months. Thank you.

Operator

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program and you may now disconnect. Everyone, have a good day.

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Source: Layne Christensen Management Discusses Q1 2013 Results - Earnings Call Transcript

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