May 7, 2013
Executives
Katherine M. Hayes - Treasurer and Assistant Secretary William S.
Steckel - Chief Financial Officer, Principal Accounting Officer and Senior Vice President Jonathan W. Berger - Chief Executive Officer and Executive Director
Analysts
Mark Mihallo - Barclays Capital, Research Division Jonathan Tanwanteng - CJS Securities, Inc. Trey Grooms - Stephens Inc., Research Division John F.
Kasprzak - BB&T Capital Markets, Research Division John B. Rogers - D.A.
Davidson & Co., Research Division Philip Volpicelli - Deutsche Bank AG, Research Division Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund A.J.
Strasser Jamie Yackow Glenn Primack
Operator
Good day, ladies and gentlemen, and welcome to the First Quarter 2013 Great Lakes Dredge & Dock Corporation Earnings Conference Call. My name is Ashley, and I'll be your coordinator for today.
[Operator Instructions] As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference, Ms.
Katie Hayes, Treasurer and Director of Investor Relations. Please proceed.
Katherine M. Hayes
Thank you. Good morning.
This is Katie Hayes, and I welcome you to our quarterly conference call. Jon Berger, our Chief Executive Officer; and Bill Steckel, our Chief Financial Officer, will discuss the operational and financial results for the quarter ended March 31, 2013.
Following their comments, there will be an opportunity for questions. During this call, we'll make certain forward-looking statements to help you understand our business.
These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in our filings with the SEC, including our 2012 Form 10-K and subsequent filings.
During this call, we will also refer to certain non-GAAP financial measures, including adjusted EBITDA, which are explained in the net income to adjusted EBITDA reconciliation attached to our earnings release and posted on our IR website, along with certain other operating data. I would first like to turn the call over to Bill Steckel, our CFO.
William S. Steckel
Thank you, Katie. Revenues in the first quarter were $188.8 million, an increase of 22% from $155 million in the first quarter of 2012.
Revenue was higher in coastal protection in both domestic and foreign capital dredging, partially offset by declines in maintenance dredging and in the demolition segment. Our dredging segment revenue of $174 million was near the record levels set in the fourth quarter of 2012.
We work safely and efficiently on approximately 20 projects in the quarter. Total company gross profit margin for the quarter improved to 13.7% compared to 12.9% for the first quarter of 2012.
The dredging segment improved gross profit margin from 13% in the first quarter of 2012 to 18% in the first quarter of 2013. This year, we experienced higher utilization of our dredging fleet, and we also executed on higher-margin projects.
In addition, the dredging segment encountered significant offshore weather conditions that negatively impacted gross margin in the first quarter of last year. Gross profit margin was negatively impacted by the demolition segment.
During the first quarter of 2013, the demolition segment experienced unexpected cost on a large project, and 3 other projects were delayed, shifting approximately $7 million in revenue to later in the year. However, demolition was able to recognize revenue on $2 million of pending change orders written down in 2012.
Demolition segment revenue also includes $6 million from the Terra Contracting acquisition completed at the end of 2012. The domestic dredging bid market for the quarter ended March 31, 2013 totaled $229 million, which is flat compared to the $230 million in 2012.
The company won 52% of the overall bid market during the quarter, which is above our prior 3-year average of 37%. Please remember that variability in contract wins from quarter-to-quarter is not unusual, and the win rate for one quarter is not indicative of the win rate the company is likely to achieve for the full year.
Through the first quarter, Great Lakes won 65.8% or $109.7 million of the capital projects awarded and 8.8% or $3.9 million of the maintenance projects awarded. There were no rivers & lakes projects bid in the quarter, and only 2 small coastal protection projects were bid.
Dredging backlog and pending domestic awards at March 31, 2013, reached $379 million, which is less than the $470 million at December 31, 2012, primarily due to the high amount of revenue that was generated in the first quarter. The company's contracted dredging backlog without pending domestic awards was $361 million at March 31, 2013, compared to $389 million at December 31, 2012.
In April, the company was low bidder on a $30 million coastal protection project in New Jersey. The demolition segment backlog was $57 million at March 31, 2013, including $3.8 million from Terra, compared to $60 million at December 31.
Demolition backlog includes a $23 million brownfield development project in New Jersey and a large demolition project we've spoken about in Columbus, Ohio. Our investment in working capital largely remained in place during the first quarter.
We were able to collect over $20 million for the Scofield project in the first quarter, which represents about half of the working capital we have invested. We will continue to recover our investment as we finish Scofield and as we execute on the next project at Shell Island.
Wheatstone working capital investments exceeding $40 million will begin to be recovered after dredging begins, which is currently planned for late in the second quarter. In addition, we spent $16 million on equipment this quarter, including $6 million on the ATB vessel.
We also paid the note related to the Terra acquisition in the amount of $19.6 million from cash. As previously disclosed, the company received the waiver for financial covenants under our revolving credit facility.
We are currently in compliance with all our ratios on this facility. At this point, I'd like to turn the call over to Jon Berger, who's going to discuss some of the initiatives we referred to, as well as strategic planning and growth considerations for moving forward.
Jonathan W. Berger
Thank you, Bill. First, I'd like to address our demolition business.
We obviously had another disappointing quarter. As Bill stated, 3 projects of backlog cannot be started in the first quarter and will be made up during the fiscal year.
We have turned a significant amount of our energies in the last 3 months into developing better controls and more focused reporting lines to deal with the issues we encountered in 2012. This has taken and will continue to take a significant amount of management time with the demolition division and our corporate accounting department, while we are instituting new project management software and working to bring divisional financial accounting back to corporate, leaving our existing staff to have them to focus on project accounting.
Additionally, we are working very hard to work through the significant pending change orders and claims we've discussed previously. The opportunity to do business are out there.
We see better bidding opportunities focused on the type of clients we want to have going forward. Again, these include governmental agencies, utilities and Fortune 500 clients, all of which better align with our value proposition.
However, we must ensure that we are executing on the working backlog and targeting the right projects for this business. With regard to our ATB build, as previously announced, we have decided to move shipyards.
We think this change is for the best and will not significantly impact the timeline of delivery. Our current plan is to finalize negotiations with the new shipyard in early summer.
We continue to work with the architectural and engineering teams that have been working from the beginning to finalize the detailed drawings required to actually construct the vessel and are in the process of assuming all major component part orders that were placed by the previous shipyard. We continue to be excited about this vessel and look forward to the introduction of this vessel into the market.
Let me now turn our attention to our markets and updates from our call in March. The dredging market.
As Bill mentioned, we've put a strong quarter in the books for dredging and maintained a very strong backlog entering the second quarter. We like both the size of our backlog and the mix of work in our backlog.
Additionally, we see strong bidding opportunities for our markets in the remainder of the second quarter. Finally, we are all waiting for the announcement of the Miami deepening project, which we are told should occur within the next 10 days.
Let's talk a little bit about Sandy funding. Since March, 2 projects for coastal protection needed as a result of Hurricane Sandy have been awarded.
We were awarded one for $30 million. In addition, there are 11 new projects to bid in the price range of $130 million to $290 million as advertised by the Corps to bid in the next 8 weeks.
Coastal restoration. Many of you have probably seen that the State of Louisiana announced that BP has agreed to fund approximately $340 million in restoration projects in Louisiana.
Louisiana specifically identified 4 major projects they have been planning to put out to bid that have been waiting for funding. These projects have been on our radar for some time.
And though the timing of when they will come out to bid is not known, we look forward to bidding on each of these opportunities. In late April, phase one of the BP trial ended.
Phase one, just to remind everybody, is assessing blame between BP, Transocean and Halliburton for the deadly blast that occurred off the Louisiana coast. A second part of the trial starting September will consider how much oil escaped the well.
And finally, a third phase, which might begin in early next year, the judge will rule on negligence that led to the offshore spill. So the upshot of all this is that there really isn't any new news on what BP funding might occur and when from the trials, but just to give everybody an update there.
Internationally, as we have mentioned, we are diversifying our base of business with our work in Australia and more work in Brazil. Our dredges in both locations should begin working by the end of the quarter, and we expect them to be productive for the rest of the year in each market.
In the Middle East, we are waiting on a few tenders outstanding of significant size and are in discussion on potential variation orders on 2 existing projects that would increase backlog to a level of comfort we would like in the region. In Brazil, we see many opportunities for our dredge package now that it is in market.
As we have previously discussed, we believe now that the dredge is in market, it can be a very productive tool since it will not have to bear the cost of an international mobilization. Let's spend a moment on Washington.
As many of you have been tracking, the Water Resource Development Act has passed committee and was introduced to the Senate floor yesterday. The cloister vote was canceled by unanimous consent as the senators agreed to proceed today to a bill that would authorize levels of infrastructure projects to the Army Corps of Engineers, including flood management, environmental restoration, navigation and storm and hurricane reduction.
It is supposed to be on the floor today, and there should be a vote. As many of you have followed, there's concerns and been battling between EPW and the appropriators.
We understand there is some sort of compromise agreed. We haven't seen the language yet, but we do believe it will be some sort of step-up of spending on operations and maintenance over the next 5 years.
So we'll just have to wait to see what actually comes out on that. As many of you know, this is the Senate version.
It then has to go to the House. Congressman Shuster has been making the rounds and has talked significantly about a House order.
But he's talking about coming out with a House order either late in the year or maybe even working off the Senate version. So even though this is very good news that we have a word of bill coming out of the Senate today or tomorrow, potentially, it's a long way from being negotiated and voted on by full Congress and then approved by the President.
So work to be done, but I think it's very positive. Finally, we've also heard very good talk coming out of the White House on infrastructure spend in general, so I think that is a potential positive.
We are not giving guidance at this time. For those that might question, we'll assess this again at the end of the second quarter as has been our historical policy.
With that, I'd like to open it up to any questions.
Operator
[Operator Instructions] Our first question is from Andy Kaplowitz of Barclays.
Mark Mihallo - Barclays Capital, Research Division
It's actually Mark Mihallo on for Andy. The first question I had was just around the gross margin for dredging in the quarter, obviously, very good.
I guess, what are the sustainability of high-teens gross margin going forward in 2013? And in terms of Wheatstone ramping up, could that be a potential boost to margin from this 18% level?
William S. Steckel
Let me take those in reverse order. The Wheatstone -- really, it's a matter of the mix of projects in any individual quarter.
And Wheatstone, I don't think it would be appropriate going forward to just layer Wheatstone on top of where we are now. I don't think that -- Wheatstone is a good margin project, certainly.
But as you look at the margins, there will be other things moving around underneath that Wheatstone Project in our margin calculation. So I would be -- I wouldn't just layer it on.
Okay? And that's true really in all the quarters going forward.
I mean, I don't think -- certainly, it was a good quarter. Certainly, that's the kind of quarters we will have when we have good capital projects and were utilized like we are.
But I don't think it's something that you would want to necessarily bank on every quarter, quarter-in and quarter-out.
Mark Mihallo - Barclays Capital, Research Division
Okay, understood. Then second question for me is just around the coastal jobs.
That's great to hear about the $30 million job in New Jersey. In terms of kind of the remainder of those projects, of those that you actually win, when do you think the bulk of those projects could actually begin to ramp up?
Jonathan W. Berger
Yes, I mean, good question. We would hope very soon.
I mean, they should bid out now. We have some dredge availability.
We'd like to get them in the market. We think that, honestly, it's been a little slow coming out.
But we would hope that we can -- if we can win these things, get them working during the summer, so maybe even late second quarter but, certainly, third quarter, really be churning on them.
Mark Mihallo - Barclays Capital, Research Division
Okay, great. And then just one final for me, in terms of your conviction level now and eventually recognizing the change orders you discussed at 4Q, are you more or less optimistic now versus then?
William S. Steckel
I don't think we really can speculate on that right now. I mean, we are working very hard at it.
It's good to see that we have made some progress, but we said we believe we could collect a substantial portion of that. And I think that's where we are at this point.
Operator
Our next question is from Jon Tanwanteng of CJS Securities.
Jonathan Tanwanteng - CJS Securities, Inc.
Can you quantify the impact of, I guess, the other legal actions that have been called for the past couple of months and maybe if you have any other expenses related to the demolition segment, including accounting, forensic or otherwise?
Jonathan W. Berger
I mean, I would think that our G&A certainly ramped up tremendously in the first quarter associated with the forensics and things like that. And I don't believe we should have any more on the demolition forensic side.
We certainly have incremental costs as we are moving through to remediate those. But I don't think they're any way near the same volume or velocity that we saw because we'll be hiring some incremental staff and bringing them in.
As for our other legal actions, we'll have higher level of G&A throughout the year. We do believe we have some insurance to cover some of that, but we haven't filtered through that all right now.
Jonathan Tanwanteng - CJS Securities, Inc.
Okay. And then, I guess, on the revenue side for demolition.
Not including Terra, revenues were down about 75% year-over-year. Do you expect that run rate to continue?
I know you pushed down some projects, but how should we think about it going forward?
Jonathan W. Berger
It will certainly pick up. I think they have about $50 million, $53 million of backlog themselves, and a good bit of that should work through during the year.
They're negotiating another very nice contract that we've been told that we are part of one of the bridge demolitions. We haven't finalized negotiations with that, which will be both a '13 and '14 project.
So certainly, it will pick up more towards probably close to that standard kind of quarterly numbers, especially in the third and fourth quarter.
Jonathan Tanwanteng - CJS Securities, Inc.
Got it. And then on the dredging side, nice win on the New Jersey project.
Is there any kind of guess as to what portion of the outstanding -- at least, the $130 million, $290 million that's left out there that you might win? And what are the margins are on that [indiscernible] restoration work?
Jonathan W. Berger
Yes, and don't forget, it's the government estimates are $130 million to $290 million, so it's a pretty wide estimate and will really depend on the projects and where the demand is, where the market is. We think we're shaping up nicely for that business, so we hope we'll win our fair share.
And beach nourishment has historically been a nice margin business. And I think what you're seeing is, in general, there's a lot of work out there.
And where there's work, margins tend to be a little better. So we're optimistic that we'll get our fair share of that, and it will be middle to higher middle kind of margins from our historical basis.
Operator
Our next question is from Trey Grooms of Stephens, Inc.
Trey Grooms - Stephens Inc., Research Division
First question is on demolition with -- you mentioned the lower gross margins were impacted by cost overrun in the quarter. Is that -- first off, can you quantify it?
Secondly, is it associated with some of the old projects that you had issues with in 4Q or is it something new?
William S. Steckel
One, on a specific project, I don't think we quantify. But the biggest overrun was just, honestly, a missed estimate on a significant job, and it was a new one.
It was not the projects that we had our revenue reversals on that we talked about significantly, the ones in New York in that, Trey.
Trey Grooms - Stephens Inc., Research Division
Okay. And some of the things that you guys are putting in place, the controls that you guys are putting in place, I guess, would that -- would you expect -- I mean, did this surprise you?
Would you expect to see more of this going forward? Or is this -- are we at a point where we can start to kind of think about this type of thing kind of be a thing of the past, or at least not coming up as regularly?
Jonathan W. Berger
We certainly put in significantly more controls. And I assume that as a regular thing, we will control and have second and third reviews on estimates.
But it's a contracting business, and we will have ups and downs. But I sure hope that we don't have the magnitude of these going forward.
Trey Grooms - Stephens Inc., Research Division
Okay. And I guess one other question on -- and forgive me if I missed this, but on the SG&A, Bill, can you kind of go through what's a decent run rate for us?
Because I mean, it came in higher than we would have thought, and I know there was some kind of maybe nonrecurring type of things in that number. But can you give us kind of a rough guide as to how to think about SG&A and a run rate going forward?
William S. Steckel
Well, what I would say, Trey, is that there was about $5 million of cost in there that was related. There was a fair amount for severance related to our COO.
There certainly was an extraordinarily high amount for legal consulting and audit work related to year end that was part of that. Now some of that will continue on going forward.
It's a little hard to predict exactly how much. But I think that's really about the best I can say on -- in terms of run rate going forward is that we were $5 million to $6 million kind of higher than we would normally have expected to be.
But some of that is going to continue on going forward till we get through these problems.
Trey Grooms - Stephens Inc., Research Division
Right. No way to kind of gauge roughly how much to bake in for those ongoing issues?
William S. Steckel
No, no.
Trey Grooms - Stephens Inc., Research Division
All right. And then on the new dredge, postponing that, I guess, or finding a new builder there, is there any costs that are lost there?
Or is the -- I can't remember the exact number, I think it was in the high 90s, kind of $96 million to $98 million of CapEx associated with that new dredge. Is that still a good number?
Or is there going to be some additional costs as a result to having to move things around there?
Jonathan W. Berger
It was $96 million to $100 million, I think, was our estimate. Will there be incremental costs?
We haven't gone out to final bid. There probably will be some.
We're still in arbitration with the older shipyard, and we'll just have to see how things come quoted. But we also think that with the -- once the plans are done and the equipment is bought, we hope it won't be a tremendous increase in cost.
Operator
Our next question is from Jack Kasprzak of BB&T.
John F. Kasprzak - BB&T Capital Markets, Research Division
Can you talk about when you think demolition might return to, at least, kind of gross margin or near gross margin breakeven? Is that a 2013 event, do you think?
William S. Steckel
Yes, I think later in the year, that's what we expect. I mean, as we get a couple of these larger projects going and if we execute on them, with the additional emphasis we're placing on that operation, I think, late in the year, that is our expectation.
Jonathan W. Berger
Yes, Jack, actually, the new contracts booked in backlog have reasonably nice margins. Now we have to avoid the slippage of margin that we've had.
But we think that, that's one of the reasons why we're moving our client mix to something that we think is a more reliable, a better scoped out kind of client mix. But as Bill said, that process of moving through is certainly more painful than, I think, we've realized 6 months ago.
John F. Kasprzak - BB&T Capital Markets, Research Division
And so based on some of those changes, you give it some time to see how it plays out but I mean, I wish, I guess, is reasonable. But given the kind of deteriorating condition in demolition, is there amount of time that passes where you guys step back and go, we made these changes and it just don't seem to be working.
Maybe this just isn't the kind of business we should be in. Is that something -- is that a look you would undertake at some point?
Jonathan W. Berger
Yes, absolutely.
John F. Kasprzak - BB&T Capital Markets, Research Division
Okay. And can you guys give us some guidance on what you think D&A will be for the full year?
William S. Steckel
G&A?
Katherine M. Hayes
D&A.
John F. Kasprzak - BB&T Capital Markets, Research Division
Depreciation, yes.
William S. Steckel
Oh, D&A. I'm sorry, I though you said G&A.
No, I mean, individual items like that, Jack, are really -- I don't think it's really something that we want to be narrowing down quite that much.
John F. Kasprzak - BB&T Capital Markets, Research Division
First quarter run rate there, which, I think, was around $13 million. I mean, is there any reason to think it would be terribly different going forward?
Can you at least...
Katherine M. Hayes
Well, due to that accrual deferral we have of some expenses, that is not necessarily a number that you can take and multiply by 4. So yes, I guess, there's nothing further we can say to that.
William S. Steckel
Jack, let us look at it, and Katie will get back to you.
Operator
Our next question is from John Rogers of D.A. Davidson.
John B. Rogers - D.A. Davidson & Co., Research Division
Just a couple of more follow-ups on the demolition business. The $2 million of deferred revenue from, well, the recovered, how much is left out there?
William S. Steckel
Well, we wrote off about $14 million at year end, and that's it. I mean, we wrote off close to $14 million at year end, and we're working to recover that.
That's not necessarily the amount that is out there because part of that is margin that we never recognized. We don't want to comment about those details.
But order of magnitude, that's what we wrote off at year end, and we got $2 million of it back.
John B. Rogers - D.A. Davidson & Co., Research Division
But presumably that you'll be in negotiations for that money this year in 2013, is that correct?
Jonathan W. Berger
Both this year and next year.
John B. Rogers - D.A. Davidson & Co., Research Division
Okay. And then the $7 million of revenue that slipped in the Demolition business in this quarter, were there costs associated with that?
Jonathan W. Berger
Costs associated with that.
John B. Rogers - D.A. Davidson & Co., Research Division
I mean, was it just deferred work or it similar to change orders that you didn't...
Jonathan W. Berger
No, mostly it was deferred work that we couldn't get started either to weather or the customer was not ready for us yet, that we had scheduled to be out there.
William S. Steckel
Yes, it would be pretty minimal. I mean, the one delay was a project that was underway.
So certainly there might have been some minor stop and start kind of cost, Jack. But that's really -- it's pretty limited.
John B. Rogers - D.A. Davidson & Co., Research Division
Okay. And then the $13.3 million for the orange juice tanker, will you recover that this quarter, book it this quarter?
Jonathan W. Berger
Interesting question. They are.
They still have the ability to go back to appeal to the full second circuit. It's a very difficult and high bar to get.
If they don't do that appeal, I think that we very well could recognize it in the second quarter, but it's really not in our hands at this point.
John B. Rogers - D.A. Davidson & Co., Research Division
And then just lastly, in terms of capital spending this year, what's your estimate?
William S. Steckel
We generally spend about $30 million, $35 million a year on capital.
John B. Rogers - D.A. Davidson & Co., Research Division
Okay, and that excludes...
Katherine M. Hayes
Payment.
Jonathan W. Berger
That's kind of the maintenance...
Katherine M. Hayes
That's the maintenance, which is a little higher than it's been last couple -- prior to 2012, I would say. But right now, we're estimating between $30 million and $35 million for maintenance CapEx.
Jonathan W. Berger
Right. And then we've already announced the 2 scows.
We think about $17 million that -- I guess, the vast majority of that is in this fiscal year, about $6 million.
Katherine M. Hayes
Right, but we're financing that.
Jonathan W. Berger
And we're financing that, so that wouldn't be in there. And then the ATB similarly.
Katherine M. Hayes
Right. Yes, the ATB is included in our cash flow right now is property and equipment but once we finance that.
Operator
Our next question is from Philip Volpicelli of Deutsche Bank.
Philip Volpicelli - Deutsche Bank AG, Research Division
It's Phil Volpicelli. My questions were actually about CapEx.
So the 2 scows, when will they come in and when will that financing -- it's going to be off balance sheet, if I remember correctly. When does that all happen?
Katherine M. Hayes
They should be ready to go in August or December.
William S. Steckel
And we've already got construction financing in place, and we'll roll that into a lease. That's already arranged on the scows, not on the ATB yet.
Philip Volpicelli - Deutsche Bank AG, Research Division
Okay. And so will -- that will be a footnote in the Qs and Ks in terms of the off balance sheet there?
Katherine M. Hayes
Yes.
Philip Volpicelli - Deutsche Bank AG, Research Division
Okay, great. And then with the ATB, are you starting to -- I guess when you build that, is that going through CapEx or is that going through a separate vehicle also off balance sheet?
Katherine M. Hayes
Right now, it's going through CapEx. We have not put the financing in place yet.
We are working on that. And once that does go in place, then we'll be -- in conjunction with financing, we'll be reimbursed for the money that we've already paid, and then that money will get paid directly.
So we'll have increasing construction progress and the offsetting liability.
Philip Volpicelli - Deutsche Bank AG, Research Division
Okay, great. And what was the actual CapEx spent in the quarter?
I don't think you guys released that.
Katherine M. Hayes
I think we've said in the call $16 million.
William S. Steckel
About $16 million.
Katherine M. Hayes
And $6 million of that was the ATB.
Operator
Our next question is from Rick D'Auteuil of Columbia Management.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
I think you guys laid out a little bit of your game plan on the demo side. But I'd love to hear a little detail because it's clearly not firing on -- I'm not sure I'd say, firing on one cylinder.
But the -- so you talked about putting in place some technology, new software. That will help you on the bidding side, is that what you expect?
Jonathan W. Berger
It's a combination. We use a software to do our bidding, that we're adding the project management software.
So it will be a much cleaner, smoother hand between bidding to project management. And one of the problems we clearly had is in our ability to account for all costs on a regular basis to allow us to make adjustments and manage those projects better.
So we're putting in that software, but software is just a tool. We're also realigning the project managers separately from operations and estimating so they -- we've elevated that role to give more focus on to those projects.
And we're clearly focusing our wealth on project -- accounting on project management also, so we have better controls. And we're clearly putting in more checks and balances on the bidding side and the estimating side, so from the bidding to estimating to entering.
And probably, most critically, we're looking to move our client base to a much more stable client that values, I think, our value proposition.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
So you talked about that last summer, too. But I guess we're stuck with the legacy issues until it runs off.
That the poor construction customers that are in the backlog now, do you expect that to be mostly cleaned up by the end of this year so that...
Jonathan W. Berger
Yes, I think so. And we won't get out 100%.
Obviously, we kind of had a run rate of about $100 million in that business for the last 3 to 4 years. So what we're going to try to do is weed down to the better part of those customers and replace them with the other type of customers that we talked about.
But it's a process, and we hope we'll make the right -- we're comfortable we'll make the right selection of the better kind of contractor business and then moving to the government business. But I think our legacy contracts with the legacy team should flow through and be done by the end of the year.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
What you haven't said so far is that we've upgraded our project managers. We've let go of some people that were costing us a lot of money.
Jonathan W. Berger
I apologize. Over the last 1.5 years, we've probably turned over 80% of the top-level organizational chart.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
But a lot of that was done, my recollection was, back in the more like 15, 18 months ago. I'm just in -- we were still making mistakes.
And I guess, how much of that is more recent, Jon?
Jonathan W. Berger
I think our 2 lead estimators are new over the last 5 or 6 months. We've brought in new project managers.
Our Head of Marketing is new in the last 12 months, the capture team. We brought in another senior project manager in the last 6 months to handle big projects.
So no, I think there's a lot more there than just the top level.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
Is there -- have you gotten -- based on Terra's track record, they didn't have these kind of problems historically. Is there somebody there that's kind of looking over the shoulder to help you guys out?
Can you leverage off that team a little bit because of their good track record, I guess, hopefully?
Jonathan W. Berger
Are we leveraging off that team? We're certainly trying to integrate their team well, and we're certainly leveraging off the project management skills and knowledge and infrastructure process that we've had in dredging because we certainly haven't had those in dredging.
And we're putting those controls very similarly to controls we have here.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
Okay. When I looked at the numbers, the revenue in the quarter, the organic number taking out the acquisition and demo was down 73%, what clicks with me is that there's probably way under-utilization of equipment.
As you improve your mix, do you think you can get decent utilization as you try to upgrade your client mix to the end markets that you discussed earlier?
Jonathan W. Berger
Certainly, we are. And one of the tasks we're undertaking, actually, is looking at the utilization of our yellow equipment among Terra, even rivers & lakes and demolition.
And I think there is some opportunities there that we have redundant equipment, where we could eliminate some of that equipment. And certainly, Terra, having access to some of that NASDI equipment will also put it into a different situation when they look at bidding projects.
So the upside is, you're absolutely right, we think there are some efficiencies in our equipment. We've had meetings to address that, and we do hope to get some better utilization out of our construction equipment.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
Okay. And then just on the Miami -- do you expect -- we had heard that maybe by May 10, so the end of this week, they may have a decision.
If you do win that, what would you expect the start time to be?
Jonathan W. Berger
At this point, I don't -- we have some revenue built into our model, if we win it. But it's not a tremendous amount for 2013 because a lot of it is [indiscernible] costs and mobilization, getting the team in place, getting people organized in the schedule, getting the field office set up.
So I don't think at this point, you'd see tremendous dredging by -- in '13. And we've started the same things you have.
I mean, we're sitting here as you are, everyday changes. It could have been last week.
Now we heard it's the 10th. Now we may have heard of 15th.
It's a little bit of a tennis ball.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
Okay. On the beach work in the North East, is that still ongoing?
I mean, we're about to enter the beach season in another month or so. So what's the status of that work?
I thought they wanted to have that all of done by Memorial Day.
Jonathan W. Berger
Like we said, there's -- I think, there's 11 projects on the radar to bid in the next 8 weeks. The Army Corps, and I think we've certainly, and I think the industry has been a little frustrated.
They couldn't have gotten the work out there quicker. And it's going to be ongoing throughout the year.
I mean, like I said, government estimates are $130 million to $290 million on those 11 projects themselves.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
But -- so in fact, those communities let the restoration work go on right in the middle of the summer or...
Jonathan W. Berger
Well, I mean, they have no beach otherwise.
Operator
Our next question is from A.J. Strasser of Cooper Creek.
A.J. Strasser
So first of all, I wanted to just congratulate you. I think that dredging segment is, by my math, had you not had any losses in demo, you would have had a $30 million EBITDA number.
So the business, at least, on the Corps, is doing phenomenally. I just wanted to just focus in a little bit on the demo side.
Could you share with us how much of the $12.5 million operating loss or so came from that missed estimate that happened in Q1? Can you frame it for us, at least?
Jonathan W. Berger
No. I mean, we try not to comment on individual projects.
A.J. Strasser
I mean, what we're trying to -- and I think what the market is trying to understand is just -- again, I don't think anybody is sitting out there and expecting you guys to get to even normal gross margins when it comes to the demo side. But just bring us to the point where we can see it be breakeven.
And I guess how much of Q1 was sort of anomalous? So that when we look to Q2 and Q3, we can say we're going to be at least approaching a breakeven level, if nothing else goes wrong.
That's all the clarity, I think, that we're trying to understand here.
Jonathan W. Berger
Right. And we think -- Bill, help me if I'm wrong from the numbers side -- that we think the true operating was probably about half of that, about $5 million loss for the quarter.
And we believe that we should -- second, third and fourth quarter, our expectation is for it to be -- is to step up and get breakeven for the rest of the year or maybe even a little better.
A.J. Strasser
That's great. So based on the sort of role off of legacy margins, with the combination of Q1 maybe being anomalous, is it possible that Q2 and Q3 could be close to breakeven, is that sort of the goal here?
William S. Steckel
I think that might be -- that's certainly on the aggressive end. Now certainly the wildcard in that is any of these recoveries that we get, so that will certainly help.
But I think on an operating basis, I don't think it's realistic to expect that Q2, we're going to be back to that kind of a performance. So I would just be a little bit cautious about the speed of it.
Jonathan W. Berger
But we do believe, especially with our operating EBITDA, that we should get close to about breakeven. And that excludes the recoveries, as Bill said, and we're working hard on those recoveries.
And if we get what we expect to get, we should be on -- for the next 3 quarters in total, we should be a positive EBITDA for the rest of the year. As Bill said, that requires us to get these big recoveries, which we know we're entitled to and we're working really hard on.
A.J. Strasser
Okay. And then in the past, you guys have been kind enough to share with us sort of utilization and weather quarter to date.
And obviously, that is probably the 2 biggest ingredients to having a really strong gross margin in the dredging business. Can you just maybe share with us, as we stand today, how utilization and weather have been to you guys, just kind of broadly speaking?
Jonathan W. Berger
I think we've had no real anomalies in weather. Utilization, we need -- in kind of the short-term, we need these Sandy projects to get out.
We've positioned ourselves very well for those Sandy projects. We have availability.
We've watched the bidding market very closely because we think those are going to be very nice projects, very suited to our equipment. So we need those to come out as scheduled, at the latest schedule, and we need to be able to mobilize to get them out there.
A.J. Strasser
Okay. And then just lastly, Jon, kind of high level here, I know it's been alluded to before, but I think the market could use your perspective on this.
It's certainly been holding back the stock. I mean, can you just give us your kind of confidence level as -- and or at least your sort of thought plan here as what do you see in the demo side in terms of potential margins or -- and if you can't capitalize in this business, is it fair to say that at some point, in order to create shareholder value, you'll let it go or prudent to the point where we're no longer seeing these losses?
It's just...
Jonathan W. Berger
Let me answer. Yes, I think that there are ample opportunities for that division to operate at margins that are acceptable to us.
And we think that there are ways to incorporate that with Terra and with rivers & lakes and our Corps dredging business. But if we cannot get this thing operating at a level that is acceptable to us, we are going to cut it down and/or we will figure out a way to generate shareholder value for us.
I am -- right now, I'm committed to the business. I'm committed to it till I'm not committed.
But be sure, we're here to create shareholder value, and it has not gone unnoticed to us that we've got to get this thing to a position where it's productive.
A.J. Strasser
That's great to hear. I mean, I guess, just following up on that, when you look at legacy margins in the demolition business and you look at the margins that you're currently bidding, how much of a gap is there between that so that we can get a sense here of what will happen once we're through with these legacy margin projects?
Or what are we talking about here? They doubled the margin.
Is there 1,000 basis point [indiscernible].
Jonathan W. Berger
I look at the margins and backlog of the new work we're bidding, and they are in those -- they start off in the 10% to 20% margin businesses, minimum 10%, probably up to 20%. But we have to be able to execute on that, and we haven't done a good job.
We haven't proven to ourselves over the last 2 or 3 years we can, and we need to drive back to those numbers. And we need to drive back to being able to -- it's not acceptable to me if we have -- if we're waiting 2 years to collect on the revenue that we do generate, and it's a fight every time.
And I have to employ lawyers and outside accountants to be able to prove to our clients. So we've got to drive it to a margin that could provide a good return on our assets.
Like I said, we see bidding opportunities out there. The big projects and backlog start out at very acceptable margins to us.
We've got to be able to manage through that with little slippage, and it's something that we haven't done. I'll also that say though, that over the last 3 or 4 years backwards, our margin may have looked better.
But I think we probably -- the problems we're paying for now really were associated with those projects back then, and we just didn't -- obviously, we didn't recognize that properly when we bid those projects and managed it. So -- but it's a long way of saying we will either get it right, pair it back to it's productive, or we'll find a way to create value for our shareholders in other ways.
Operator
Our next question is from Jamie Yackow of Moab Partners.
Jamie Yackow
I mean, not to beat a dead horse, but on the demolition side, I mean, maybe you guys -- can you guys elaborate a little more specifically what went wrong with the bid miss that caused the shortfall? Are the bidders still with the company?
Is this project completed? If it's not, when do you expect it to be completed?
What are the expenses going forward?
Jonathan W. Berger
Project runs through the second quarter. We have certainly put way more better controls in the bidding process.
The bid miss has to do with actually recovery of metals, and we've certainly -- are shoring up our processes to make sure that misses like that don't happen.
Jamie Yackow
All right. I guess, and then, just -- I mean, can you quantify kind of the loss that you guys expect going forward from this project or for the second quarter?
William S. Steckel
No. I mean, yes, the worst of -- the way percentage of completion works is you have to recognize a loss when you know it.
So we've taken the pain, so to speak, already, and the project will run out now through the second quarter.
Jonathan W. Berger
Yes, so basically, I mean, a way of saying it, is we have work to do, which will be at 0 margin. But we've done our analysis correctly, we've taken that loss in the first...
William S. Steckel
We've recognized the cost, yes.
Jamie Yackow
And are the bidders still at the company?
William S. Steckel
Not exactly sure on that -- yes, that one in particular. He is, I think, yes.
Jonathan W. Berger
It is, but it was more of a systemic issue, I think. And other people missed it, too.
And we've put different processes in place, especially for projects of reasonable size.
William S. Steckel
It's a bit of a unique project, too. In retrospect, I think probably it could have been done better.
It certainly could have been done better. But really, I mean, to your point, I mean, you really have to take these things back to the fundamental process of estimate, how you estimate them and getting that right, then handing it off to operations, and operations then executing the project in a way that correlates to how you estimated it and having the controls and the reporting in place to manage that properly going forward.
And that's what we're doing. We're pushing the process review and the people review and the post-mortem of all these things all the way back to the fundamental process that starts a chunk of business for us.
And that is -- that's what we're doing. And it does take some time.
I don't think we can say that it turns around magically just overnight. But it's -- you've got to take it back to, how did we estimate it, did we estimate it right, then how did we execute it, are those things aligned and then managing the project properly.
And we're doing training with project managers. We're doing training with the financial team.
We're taking a hard look at where estimates went wrong or we can learn from those things. And that's -- it is a very root-level fundamental analysis and process review that we're going through.
Jamie Yackow
Great. I mean, you guys, you spoke to the recovery in metals for the miss.
I mean, can you just elaborate a little more where the mistake was made on that front and are you confident going forward that this won't happen again?
William S. Steckel
Well, on that particular project, I mean, it's a bit of a unique demolition because it's not just the total knockdown, it's a removal, a surgical removal. And the effort that it took -- it takes to get the metals out is extremely challenging and probably wasn't estimated as well as it should have been.
So it's more a matter of getting the metals out as opposed to the metals not being there, so to speak.
Jamie Yackow
Right. Okay.
And then, I guess, is there -- just lastly on that front, is there any recourse to recover some of these losses with the customer?
Jonathan W. Berger
Not in that situation. We certainly looked at the contract in great detail.
Jamie Yackow
Okay. And I guess lastly, just switching gears, the asset sale that you guys had planned for the fourth quarter, I mean, is there any update on that front?
William S. Steckel
That has not been executed yet. We're still working on that with the folks in the Middle East.
Operator
Our next question is from Glenn Primack of PEAK6.
Glenn Primack
I don't have any questions regarding the demolition. You've already fielded some dynamite ones there.
Going back into the K and the shareholder letter, you had a comment in there that the replacement value of your fleet was worth $1 billion. I'm just wondering, how do you get to that number?
And then is there a split on that between dredging and the demolition?
Katherine M. Hayes
That's primarily related to our dredging fleet, and it's really a barriered entry. That's kind of why we put that out there because if we rebuild the fleet -- if somebody tried to come in and rebuild our fleet as it is today, it would cost them over $1 billion to do that.
There's high barriers to entry in dredging, and that's one of them. It's a fact that to rebuild our fleet and to try to compete with us is very difficult because of the size of our fleet.
Glenn Primack
Okay. Because that's just a really big number relative to your market cap.
Jonathan W. Berger
It is and -- but understand, in fairy tale land, if someone gave us $1 billion, our fleet -- and said you can reproduce it and have it here tomorrow, our fleet would look totally different that it looks today. So -- but it is a big number, no question about it.
Glenn Primack
[indiscernible] you beat it, do some work on that in order to come up with that. There's no schedule or anything that supports it within the [indiscernible]?
Jonathan W. Berger
No.
Operator
Our next question is from John Rogers of D.A. Davidson.
John B. Rogers - D.A. Davidson & Co., Research Division
Quick follow-up. I guess, first of all, in terms of your tax rate, should that return to a normal rate mid-30s?
William S. Steckel
Yes.
John B. Rogers - D.A. Davidson & Co., Research Division
Okay. And then secondly, just on the dredging business, if you kind of look at the first quarter and go back, I mean you mentioned the better utilization, but do you have any sense how much of the better margins were utilization versus pricing?
What's that mean for -- what's embedded in backlog now versus where we were 1 year ago or...
Jonathan W. Berger
Well, I think our margin in backlog is better because -- and that is associated with the mix of business. And our belief is that we're entering a period of significant capital work and also for the next couple of years, with Sandy, significant deep work.
Katherine M. Hayes
I think both utilization and contract margin definitely contributed to the improved gross margin. So I think it was definitely a combination of the 2 of them.
Jonathan W. Berger
Yes, absolutely.
John B. Rogers - D.A. Davidson & Co., Research Division
Okay. Because the pricing or the contract margins are a little more sustainable or, at least, reliable versus getting better weather equipment.
But Jon, the market conditions that you're talking about, I mean, you're seeing that in the bid market in other words. Is that fair?
Jonathan W. Berger
Yes. Certainly, we're seeing in our backlog maintain, right, it has some significant capital project in it and the beach projects.
And we also believe that Sandy projects coming out should be beach nourishment at solid margins.
William S. Steckel
I think we've said before that as we look at the Sandy projects, that we're -- as a matter of course, we're maintaining some discipline here and not necessarily being the first to bid and the lowest to bid. We're trying to look at the overall market, the overall utilization in the market and bid those very wisely.
And that doesn't necessarily mean that you bid and win the first job. So I think that's part of what figures into how we look at this going forward.
Operator
Our next question is from Rick D'Auteuil of Columbia Management.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
On Australia, it sounds like late Q2, I think last time we talked, you were expecting a start in April. Is it -- are the delays related to the housing infrastructure being built still for the workers or...
Jonathan W. Berger
Yes, and just the -- yes, so we've had to adjust our -- the dredge scheduling. Actually, the lead contractor on the business is dredging right now.
Our equipment should -- is mobilized right now. It's going to get there and should be there in May and we'll start dredging.
Don't forget, though, we did have some revenue associated with Australia in Q1. Obviously, the people we had, the big move from the U.S.
to Singapore. In the second quarter, we'll have a slow move ongoing right now in the second quarter from Singapore to the project site.
So we did have revenue in the first quarter for Australia. But the big digging revenue will start kind of middle to, I guess, end of May.
The dredge should be on-site and ready to work.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
But the revenue you got is low margin, just to keep you in the game, while the delays went on, right? Is that correct?
Jonathan W. Berger
No, we haven't dealt with the delays. No, it's -- and how we take the margin ratably over the whole project, so the revenue we had was at the project margin.
There clearly is a claim for delays, and that is to be negotiated with our client.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
Okay. Beyond the Miami port deepening project, what else is -- is Savannah still out there?
Is anything working its way through the pipeline that you're hearing that there might be RFPs out this year?
Jonathan W. Berger
I don't know if this year but, certainly, Savannah is working through the process. And probably, it would be the next one.
We've heard some private LNG coming up. Also, those are clearly kind of RFP different speculations.
But Savannah is clearly working through the process, and it's probably a '14 bid, I think.
Richard G. D'Auteuil - Columbia Funds Series Trust I- Columbia Small Cap Core Fund
Okay. And then as you look at the pipeline of opportunities within the demo side up for government utility and Fortune 500 businesses, is there sufficient work out there that you guys are a good fit for to kind of fill your backlog backup?
Jonathan W. Berger
Yes. We do believe there is.
And we won't 100% get around leaving the contractor business, but we're going to pick and choose the contractors we like doing business with who have a little different level. And Terra also has some very nice bidding opportunities.
I think in our press release, we announced a project they jointly are working with our rivers & lakes division, which is a very, very nice remediation project that should go on starting in -- or mobilized towards the end of the second quarter, third and fourth quarter. And also there's an opportunity to do work in '14 on it also.
So between them, we do see solid opportunities to maintain that level of business with a different client mix, yes.
Operator
I'm not showing any further questions in the queue, I'd like to turn the call back over to Katie Hayes for any closing remarks.
Katherine M. Hayes
Thanks very much. Thanks for joining us today.
We look forward to speaking with you after our second quarter conference call.
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.