Q3 2019 Earnings Call
Ladies and gentlemen, today's conference is scheduled to begin shortly please continue this standby. Thank you for your patience.
And gentlemen, thank you for standing by and welcome to the Q3 2019 greatly drayage and Corp. earnings Conference call. At this time, all participants are and they listen only mode. After the speakers presentation. There will be question and answer session to ask a question. During the session you will need to press star one on your telephone.
Please be advised that today's conference is being recorded if you require any further assistance. Please press star zero I would now like to end the conference over to your speaker today, Tina Bad Kinski. Thank you. Please go ahead.
Good morning, and welcome to our quarterly conference call. Joining me on this call. This morning is our Chief Executive Officer lots of Patterson, and our Chief Financial Officer, Mark Marinko Colossal will provide an update on the event for the quarter, Denmark, We'll continue with an update on our financial results for the quarter softer will conclude with an update on the outlook for the business.
Market for the remainder of 2019.
Following their comments there will be an opportunity for questions. During this call will make certain forward looking statements to help you understand our business. These statements involve a number of risks uncertainties and other factors that could cause actual results to differ materially from our expectations certain risk factors inherent in our business are set forth in our earnings release.
And in filings with the FCC, including our 2018 Form 10-K and subsequent filings. During this call. We will also refer to certain non-GAAP financial measures, including adjusted EBITDA from continuing operations, which are explained in the net income to adjusted EBITDA from continuing operations reconciliation.
Attached to our earnings release and posted on our Investor Relations website, along with certain other operating data with that I'll turn the call over to Lhasa.
Thank you and good morning.
As stated in our earnings release. This morning, <unk> third quarter. The company generated 8.8 million net income from continuing operation.
Adjusted EBITDA from continuing operations of 27.1 million.
Bringing full year to date net income.
Adjusted EBITDA from continuing operation to 40.9 million and 103 million respectively.
The third quarter results were in line with our expectations.
As we discussed on the last call third quarter results wouldn't be and were below those achieved during the first and second bought us this year.
Primary primarily due to several other vessels entering dried out.
We were also affected by severe weather events, such as Hurricanes, Dorian and battery impacting both the Gulf Coast on East Coast.
And we had some unplanned maintenance on on the county.
[noise] apart from the better weather delays, we experienced strong product performance, particularly on the port deepening projects in Jacksonville, and Corpus Christi brought mechanical kind of caught ahead through hedges performed above expectations.
We saw solid performance on coastal protection projects, and I've said, Virginia Beach on Cape May attributable to enhanced focus on projects coming on execution.
I really don't like suites completed the flood protection work in Houston excavating Sam from the scientific into river, we'd good productivity.
This feeds also completed a project repair on levy breach during heavy flooding in the Missouri River.
The other Simon has continued to perform well so size and power twice that of any other great lakes hopeful dredge expands the typical capabilities, we experienced previously in the U.S. with public dredges.
Arrival love the Ellis Island has increased the company's hopper dredging capacity by 70%.
Proving to be a valuable fleet additions to meet the growing demand cinemark.
International markets remain slow.
We're currently working on large land reclamation project in behind which were talking to compete mid 2020.
A large caught a dredge the Ohio.
Isn't dry docking behind for major upgrades to a engines and comps.
Upon completion of these upgrades.
We'll determine if you should continue into international markets, albeit relocated back to the U.S. estimated last year with the cut as rich Caroline.
Safe execution, a strong performance go hand in huh.
Oh safety performance improved.
The 34% decrease of recordable incidents compared to 2980.
I would comment on the future bid market later on this call under those updates I turn the call over to walk to discuss the results over the quarter.
Okay. Thank you lost so.
I will start with the quarterly results then discuss some specifics related to our business. Please remember that as of December Thirtyth 20 team all results from our Eni segment, which was sold in the second quarter had been placed into discontinued operations and therefore not included in the results that I will discuss.
For the third quarter 2019 revenues were 169.8 million net income from continuing operations is 8.8 million and adjusted EBITDA from continuing operations was 27.1 million.
Revenues for the third quarter of 169.8 million brought our year to date revenues to 547.2 million, which is 99.6 million over a year to date revenue from September 2018.
Strong year to date revenues are result of strong project performance throughout the domestic fleet.
Gross profit from continuing operations was 31.8 million compared to 39.6 million in the third quarter of 2018.
Gross profit margin was 18.8% compared to 22.2% in the prior year quarter.
The state as previously by loss of the decreases a direct as a direct result of dry docks in the third quarter.
Total company operating income was 18.4 million, which is a decrease of 5.3 million over the prior year quarter decreased as a result to the lower gross margin slightly offset by reduction and general administrative expenses compared to the prior year work.
Net income from continuing operations for the third quarter of 2019 was 8.8 million compared to net income from continuing operations of 11.9 million in the prior year quarter.
The reduction in net income was related to the lower operating income offset partially by a decrease in interest expense of 1.7 million in the third quarter of 2019 compared to the prior year quarter due to lower revolver usage and higher interest income.
Adjusted EBITDA from continuing operations for the third quarter of 2019 was 27.1 million, bringing total year to date EBITDA to 103 million an increase of 30.9 million over the same period in the prior year.
Next we turned to our balance sheet. We're at September Thirtyth 2019, we had 180.9 million in cash.
Our net debt at September Thirtyth, 2019 was 141.8 million our net debt to EBITDA ratio is now down to 1.08 times.
Our total capital expenditures for the quarter were 6.9 million.
We now expect total capital expenditures to be 45 million.
For 2019, which is a 5 million in 5 million dollar increase from what we have discussed on previous calls.
The additional 5 million will be invested in the existing fleet for performance upgrades as we expect the domestic market rebo be robust over the foreseeable future.
Contracted backlog at September Thirtyth, 2019 totaled 653.7 million compared to backlog at December 31, 2018 of 707 million and at September Thirtyth 2018 of 60 689.2 million.
Hi, revenues and project performance year to date have contributed to the anticipated drop in backlog.
In addition, the backlog amount does not reflect a number of domestic bids pending formal award and additional options pending on projects of approximately 70 million.
More work is expected to be bid in the fourth quarter, but not at the same level that we saw in the third quarter.
With that I will turn the call back over to loss. So for his remarks on the outlook moving forward.
Thank you Mark.
The third quarter saw a significant increase in bidding activity with oil over 1 billion of projects bid in the quarter.
Great Lakes was awarded to on a 17 million over those projects. In addition, an option on the Jacksonville project was awarded for 96.6 million, bringing the total amount added to backlog was 366.6 million.
The market will dredging services will continue to be strong and growing and we expect a bid market for the year to approach 2 billion.
Our main focus will remain on the large and technically challenging port deepening checks.
And shipping China improvement projects, driven by the larger vessels coming through the Panama Canal and new energy export facilities in the U.S.
These are projects, where we can excel with technical expertise experience safety performance and our lost.
Our screens.
The opportunities coming to the market in this category include additional faces a work in Corpus Christi, Charleston, Jacksonville portal, Virginia.
New deepening projects in Florida, Florida and in Texas.
Natural rubber and coastal erosion civeo bad weather events generates a recurring work stream for a company.
Rebuilding beaches, and restoring fraud flood control infrastructure.
New research and forecast for the changing climate on a indicate more frequent and severe weather events challenging current river in coastal defenses.
We believe Weve see an increased demand for services in years to call.
We are actively preparing for this demand increase.
Increasing the productivity in existing fleets with upgrades and new technology.
Planning for the expansion, although fleets with new dredges.
In this respect we are currently finalizing the regulatory engineering for a new mid sites help a design.
Now we had in discussions with us yards for construction pricing.
Provided the Newbuild cost meets our expectation we could start to construction as early as Q1 next year with delivery than into that dissipated towards the end of 2020 122.
Offshore wind power generation is coming to the U.S.
With more than 15 Gigawatts of power generation capacity plan for installation over the next 10 years.
In the EU the industry has developed over the last 20 years.
Which has provided the international dredging contractors with good opportunities to develop their fleets and they're sick and their skills in this growing market.
Great Lakes plan to be active in this new industry in the US provided dredging and related services Judaism, both the initial construction phase and during operations.
We are actively engaging with developers some partners on project opportunities carefully evaluating the developments as the timing of these projects are being finalized and the regulatory framework clarified.
In conclusion, the third quarter's results has met expectations on positively contributed to a strong performance year to date.
With solid projects in backlog strong outlook in the domestic market and a healthy balance sheets.
We believe a year and results for places a good financial position to make timely.
Prudent investments in our fleet enhancing the current assets.
And preparing for future additions and with that I'll turn the call over for questions.
Okay.
We're ready for questions now.
As a reminder to ask a question you will need to press star one on your telephone to withdraw your question Chris The Pankey. Please standby, while we'll come out the came in a roster.
Your first question comes from John telling Jake CJ Securities.
Hi, Good morning, it's Pete Lucas for John .
Just looking at.
All right looking at your win rate was down a bit in the quarter just wondered what the driving factors were there and now that your competitors there appear to be locked up with larger projects can you expect when rates and perhaps margins to increase in Q4.
Yes, so yes, yeah, the you've seen in the past, we've had some pretty dramatic variability from quarter to quarter year to year.
And we do expect that you're right our competitors, who have by the we added new capacity to the market as well as us, adding new capacity with the Ellison 58, moving the Carolina back the competition is strong.
As as.
You see competitors vessels tied up that built gives opportunities for the other industries. So yeah. We do expect that our win rate will increase in the in the path in the future as it has in the past.
Great and can you talk about your what the dry dock schedule looks like in early 2020, and how that will impact earnings ability.
Yes. So you know this year in terms of major vessels, we had seven regulatory dry docks for 2020.
That goes down to five.
Spread out during the year.
With a little bit of flexibility in times when you do in terms of our schedule. So it will be lower in 2020.
Okay and jump into the current mid East project. When do you expect that to finish and what's the pipeline in terms of opportunity and do you see the aramco IPO impacting spending over there and helping out a bit.
Yes, the we see that project being completed in 2020.
And what we do see in the market is it is improving slightly over what it has been but it comes back from a low would it for the after this Suez Canal completion.
And with oil prices stabilizing as you say and also the some spending increasing in the middle East.
That market is improving.
Going forward.
Okay, Great and last one from me as DNA continues to be lower than expected how should we think about that trending going into Q4 end 2020.
Yep so.
In Q4 and into 2020, we look at GSK is generally about this 8% of revenue is a good way to look at it that's it moves a little bit this year based on incentive pay but it's pretty fixed number moves a little bit related to the revenues.
And actually I, if I could throw in one last one just how do you think about in terms of capital allocation looking at stock car we purchase.
So we have everything based on our cash as we've built up now over this period of time really all cap from a capital allocation everything is.
On the table every option.
But I would say as we go back to when we talk started talking about the cash 18 months ago was our first.
I'll call priority was to de lever, which we've done in terms of getting the revolver down to zero. The second piece was.
Refreshing the fleet and investing in our existing fleet. So we have done some investments this year as loss. It just mentioned we're looking at this.
Hopper dredge new build.
To make a decision in 2020 on that.
So after that then we'll look at.
These other options for capital allocation, but they're all on the table.
But right now.
No no no decision at the moment.
And your next question comes from the line of post frat with noble capital markets.
Good morning lots of good morning, Mark.
I was wondering if you could quantify the amount of idle time and it sounded like the deep dry docking.
With the entire.
Cost of the like 340 basis point change in gross margin can you just add a little more flavor on that maybe quantify the number days that on the fleet was down.
Yeah, so when we talked about the.
Three vessels.
That were in regulatory dry dock.
That's roughly about 160 days in the quarter.
So it does have a pretty good impact in terms of potential of revenue generation for per specifically in the third quarter.
And then would you are all marker all put dry docks done.
Were they done yet by the ended third quarter and sort of how should we look at the fourth quarter.
<unk>.
The topline and then potentially margin line standpoint, sure. So yes, theres one actually one.
Plan domestic dry dock left in the fourth quarter. So were about 60 days.
And when you talk about going into the fourth quarter and this will be in our Q when we release it.
The fourth quarter revenue, we expect to earn 29% of our 930 backlog. So that's approximately 190 million of revenue.
And we expect a slight uptick on the gross margin from where we were in.
In Q3.
That's really helpful.
And then when you look at Capex and working capital you know it looks like the third quarter working capital I know, there's a bond you pay your bond payments in the second for so theres, a little bit of Panera, there, but it looked like even ex that you had a really positive change in working capital maybe.
The change like 35 million over and above the bond interest.
So the so in terms of yeah, we didnt have any oh.
Well bore pay the our interest on the bonds in November so that'll be a fourth quarter item.
Yeah, it'd be about $13 million and when you look at it on the working capital the Big positive movement. We had was the increase in billings in excess of contract revenues in the quarter.
That will reverse overtime, so be a little bit more negative as we get into fourth quarter and into 2020 as as those get worked off so that's really the big movement related to working capital in the quarter.
Great and then it it sounds like work Capex may be you know well.
You might see a big jump in Capex in the fourth quarter and my thinking in the if I'm thinking in the 24 million ranges that inline with what you're thinking and then also you know can you give us little more color on where that money. It's going you talked about upgrading the existing fleet, but can you be a little more specific on that.
37, so we're going to but so we think were year to date 37 million in Capex. So we'll be at 45 for the year. So that's that 5 million increase I just talked about to 45.
The Big increase there is I'd say, it's kind of in a couple areas as Wassa mentioned, the Ohio dredge Yeah. That's out in the Middle East we're doing some a major upgrades to that in terms of production in power and performance.
We also did some engine upgrades to the Illinois.
The last quarter. So we're really those are the piece is looking at the existing fleet in terms of improving performance.
For the market moves forward.
Yes, I think did I answer both your questions there, yes, I think it.
Yeah, I guess year to date, you're at 37 did I hear you trademark for Capex right.
Okay got it was little lower but I might not be including that 10 million of the second payment on the clamshell Thats correct. Yeah that would include my 10 million on that correct.
Okay and.
And then when you look at.
2020 Capex.
And you know it sounds like it might be there might be a you know two scenario look at it but can you sort of give me an idea where years where are you looking right now in 2020, Capex and sure then potentially if you go forward on the medium sized copper dredge.
How much how much that would cost and that sort of what the.
2020 and 2021.
If you if you have any idea at this point in time, how that's going to land, yes. So let me give you a.
For next year.
Forget about.
Side, the new Hopper build silicon about 40 million of of Capex next year.
When we talk about the new build on the Hopper dredge as we do not have pricing yet for that it's a mid size hopper dredged will be substantially lower than the Ellis Island. Yeah. We're just starting to talk to ship yards now about that but the point on that from a cash perspective is it's about an 80.
The month to to your build so you would pay for that over that through that timeframe. So it all wouldn't be in one shot.
And I know that you're in the bidding process, but sort of frame. It at 50 million would that be a reasonable working that's committed at this point in time or sort or can you give me an idea.
Sort of where to where to think about it.
It's a it's I I just don't have a number yet to give you there's a pretty big range. So at this point I got I can't give you a number yet.
And your thinking you know five to seven.
Thousand cubic meters per cubic yard capacity sort of.
40% to 50% of what the.
Ellis Island, as I think Thats, a good range right for a mid size Hopper yep.
Got you and then lastly, you talked about the the market and looking into 2020 skills on being robust and you know it looks like the fourth quarter is the bid market. If you get to 2 billion is going to be about 550 or so.
According to what might run rate is can you talk about sort of the project mix and where.
You.
Are there is there any implication that weve seeds for is it looks like you're going to see less capital.
Projects going into 2020, and you know can you sort of give us a little more flavor on how you're looking at the 2020 bidding that.
Indeed, an environment.
Yes, you have seen the bid bid market for us this increase from last year to this year and.
I see the drivers in the market old going in the right Directionally for next year.
The other maintenance Trust fund is Oh being established at the revenues from that goes back into the corps of engineers.
Let's say funds.
We do see continued high.
Allocations to the corps of engineers.
Budgets so.
And that combined with the fact that so all the ports along the east coast analysis in the Gulf of Mexico of looking for deepening and widening.
I do see a strong bid market also in 2020 and also going into 2021.
To give a number I don't want to give that number but it should not be all that different from what we have seen this year.
And.
The mix on these projects, we will focusing on the than more complex and the large of projects as we have done last couple of years.
So the mix for our focus will be those good opportunities to bid nude deepening projects.
Port widening projects combined with large beach restoration work.
For next year.
Okay, Great and then Mark can I just go back to the fourth quarter and just you had you know I think you said you gave us little flavor for that but.
So you know roughly.
Fourth quarter will be a rebound from the third quarter. The third quarter will be will take into heis hit as forwards the.
The downtime that do you guys had been talking about since the early part of the year is that is that fair.
Yes, that's fair so I just said Yale have increased revenue.
In the fourth quarter say kind of just stated we will have that in the Q.
And then I expect a slight uptick in the gross margin percentage as we have fewer vessels and dry dock in the quarter. So yes, we should be a rebound from the third we expect a rebound from the third quarter.
And then.
With the restructuring projects are programming with an outside when.
Do you you looked at 2019, it's sort of but a year, where 20, 20% growth gross margins were the sort of new normal and honestly, there's going to be some quarter to quarter change but.
Can you put a flavor on 2020 is floors, you're sort of what do you think a reasonable expectation for gross margin would be on any reason to think that 20 is not a reasonable levels starting point for 2020.
Yes, I do think that to.
Improvements over this year as well what I expect although we have come through a very dramatic improvements over the last two years. So the rate of change will not be the same going forward, but improvements into gross margins as I said last earnings call is what I expect to see going forward.
Mark you put some calls right yeah, well when you look at I think one thing to add to that as I think the question that was fixed asked earlier to have you know seven major vessels in drydock their shaking up five next year got strong market.
Yes, I would expect a again another slight uptick in the gross margin percentage as you get into 2020 versus 2019. So your 20% you know should be our baseline.
Okay, and then just on just the Nit picking one that you'd mentioned unplanned maintenance or unplanned downtime.
Thank you.
Is that a material factor wouldn't sort or can you put a little club color on that.
What they may have happened in sort of how you're trying to avert that going forward.
Yeah. It it's it has it should as an impact we had.
I'd say in terms of unplanned we had two vessels in the quarter that were unplanned and it's it's not all I'd say, it's nowhere near like the Drydock time frame, where you have vessels in Drydock for 60, or 90 days or 30 days or more but it does have a impact on the quarter. When it's on plan. So we had to unplanned kind of maintenance where you're.
There you know you're doing an engine repair.
And that does have a a slight impact in the quarter.
Great. Thanks for your time and color and on the quarter and looking forward.
Thanks, Paul.
And again as a reminder to asking the question press star one on or telephone to withdraw your question first available.
Our next question comes from the line of Deforest Hinman with Boston and company.
Hi, Thanks for taking questions from.
Shareholders.
Pretty good results.
Huh.
Can you just give us some.
Thoughts on capital allocation, one thing really stands out.
To me looking at the balance sheet.
You know having.
100 in $81 million roughly is cash 120 325 million of debt.
Uh-huh situation, we haven't done in.
In a number of years.
Sorry.
Positive improvement in the in debt to EBITDA level mathematically almost.
$2.80 a share cash.
How should we think about the.
Senior notes heading into 2020.
So good quite thanks to force Mark.
Yep, So we have that first.
Call. We can do on the senior notes in May of 2020 again, it's at a one all for premium.
As you will we are very zeroed in on that date looking at both the market will drive that kind of decision, but we'll look at whether.
It makes sense to refinance those or even bring them down potentially in may of 2020 at that 104. So that you know the market situation at that time will drive.
The math, we do at that point in time. So we are geared up to look at them in may of 2020.
Okay. That's helpful and then.
This is a very high level problem to have.
If we look back into 2017 2018 timeframe.
You know.
What is the true.
You know cash balance need so I can do some math in my head in terms of how much excess cash do we have is its 15 million as a 10 million as a 20 million to cash how much money do we need to run this business.
You know what a day to day basis.
Yeah. So.
Well I'm going to try to answer your question I hope I answered, but I.
I think about.
The requirements of what we Wanna Rick required to pay we have our senior notes at this point in time, you have 26 million of interest you have to pay 13 million every six months. So I look at that number one number two I look at the Capex to keep the fleet going.
And to give you as I, just say stated we talk about 2020 being about 40 million.
You know it's not that will include some growth capex the maintenance Capex, let's say to keep the fleet going is closer to 30 million dollar number. So when you take the 30 with the 26, you're talking about kind of.
I want to have that cash balance around 50 million.
In terms of those types of needs.
So roughly right now using that math give $130 million an excess cash.
If we think about the 325 this kind of the permanent.
Capital.
Yes, yes, that's one of the ways, we're looking at it right.
Okay, that's very helpful.
And then.
In terms of the [noise].
The new Hopper dredge, we're thinking about.
In the past I think we had made some comments this is a number of.
Years ago It was.
Some commentary about potentially international dredge.
Shipyards lacking workers.
Maybe you could give some financing to build a vessel internationally can you help us understand the state of the.
The domestic.
Shipyards and how they're looking at.
Getting.
Good to do some vessel construction.
I'll stop there.
Yeah, we are going through a prequalification round, though with the different the yards in the U.S. and we have received very strong interest in the project.
So.
We are looking forward to receive the bids over the next month and.
As we see it there there is a very strong interest in this project.
Maybe asking the same question differently or their order backlogs larger would you characterize them as well.
I would.
Characterize it as low.
Okay.
And can you just remind everybody the.
Capacity, that's that's come back all done added.
To the domestic fresh market.
Yes over the.
Last couple of years. So we have had a significant increase to our fleet a first of all we got the Ellis deliver which I said in my remarks that increased a healthy capacity by 70% for the domestic.
Market.
Then we took back on mechanical dredge from Brazil, which.
We have added to our fleet here and it's been working very well on the deepening projects.
And then we took back the Carolina, which is a large cotton dredge from the middle East last year.
She is almost us a large and strong S that because we have Texas.
Hi, Io is in the same category.
And then we bought a mechanical dredged from a competitor and we have at full utilization of her since.
We put her on deepening project. So in all we have added four.
Major dredges to all capacity over the last two years.
This has been absorbed by the market.
And so it just underline sets. So there is a good strong domestic market for four dredging it services.
No I was asking about the.
North America as a whole for competitors, but you mentioned earlier.
Yes, well you know our own capacity as doses to a heart, but on the.
On the competitors aside.
One of our competitors us other the one large hopper dredge or mid size to larger help address.
I'd also taken delivery of a large causes rich.
And then another competitor is in the process of building a cottage rich.
When we think about.
The fleets that are out there and we have made disclosures on some of our age.
Continue to make disclosures on the age profile of.
Some of the dredge dredges.
Well, we see competitors, adding.
New dredges or the net capacity adds or will the or are they replacing a vessel, let's 30 or 40 years old.
Yes currently the added capacity Oh, the capacity that has come to the market has the capacity.
But yes as you know we went through a.
And a restructuring process two years ago, and we decided to take out some capacity that was approaching 60, 60 years and as the dredges get up to that age or the the cost of keeping them in class and maintain just goes up to the extent, they're not profitable.
It anymore and that's why we did the rationalization, we did two years ago.
And when you discussed the mid size Hopper earlier.
Would that be focused on a.
Particularly market, we would be good at or project type two we'd be good.
So we are looking at dredged that's a can address the market in general.
Both the beach work and also a deepening work.
In the plan B to retire one of our older vessels, if we did do that project.
Well I said, we are looking to make a final investment decision here over the next months.
And part of that sees clearly we would like to see this us out of capacity to the markets.
And then us we see.
Either the market develops a or we see is somewhat dredges may need additional funds and capex to be stay in class, we made and retire the older dredges, but initially we see this added capacity.
Okay. Thanks for taking the questions.
Yeah.
And there are no further questions at this time I will now I'll turn the call back over to the presenters for closing remarks.
Thank you we appreciate the support of our shareholders employees business partners and we thank you for joining us in this discussion about the developments and initiatives in our business. We look forward to speaking with you during our next earnings discussion. Thank you.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.