Q3 2021 Great Lakes Dredge & Dock Corp Earnings Call
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Good day, everyone. This is the operator speaking todays conference. He is scheduled to begin momentarily until that time to launch it will again be placed on music hold. Thank you for your patience. Once again to this conference is scheduled to begin momentarily until that time, but Lance will again be placed on music hold thank you for your patience.
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Good day, everyone and thank you for standing by and welcome to the third quarter of 2021, Great Lakes Dredge and Dock Corporation earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation. There will be a question and answer session to ask a question during the <unk>.
You will need to press star one on your telephone if you require any further assistance. Please press star zero and please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, the director of Investor Relations Ms. Tina <unk>. Please go ahead. Thank you.
Good morning, and welcome to our quarterly conference call. Joining me on the call. This morning is our president and Chief Executive Officer of lots of Patterson, and our Chief Financial Officer, Scott Kornblau Lock will provide an update on the events of the quarter. Then Scott will continue with an update on our financial results for the quarter Lasse will conclude with that.
On outlook for the business end market.
Following their comments there will be an opportunity for questions. During this call we will make certain forward looking statements to help you understand our business.
These statements involve a number of risks uncertainties and other factors that could cause actual results to differ materially from our expectations certain risk factors inherent in our business are set forth in our earnings release and in filings with the SEC, including our 2020 Form 10-K and subsequent filings.
During this call. We 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.
Long with certain other operating data with that I will turn the call over to Lisa.
Thank you Dina before.
Before we started on the results of the quarter I would like to introduce Scott Kornblau, who has joined Great lakes as a chief financial Officer, Scott will oversee our financial operations, including maintaining the financial financial integrity of our strategic plan are working closely with me as a member of the executive leadership team.
He comes to us with nearly 25 years of financial industry experience and was most recently the CFO of diamond offshore drilling.
Now I'll discuss the quarter and then turn it over to Scott for an update on financial results.
We ended the third quarter with improved results a solid backlog.
For the first half of 2021 operation saw a substantial negative impacts from COVID-19 pandemic.
Our priority has been and always will be to ensure the safety and health of all our people and.
And we believe that in this current situation vaccination is an important tool in achieving this goal.
As vaccines became widely available in the second quarter, which set a target target to have all possible organization vaccinated.
And we have now reached a hard target.
Although vaccination efforts were successful with.
Did experience some lingering COVID-19 related cost in the third quarter.
Direct COVID-19 cost for at home and onsite testing and quarantining of crews.
Our $4 $3 million into the first quarter $3 million in the second quarter.
The additional $2 $1 billion in third quarter for a total of $9 4 million in the year to date.
Indirect costs are not easily quantified.
However, we saw a decrease in our realized project margins, which we attribute largely to inefficiencies caused by COVID-19.
Today, our safety protocols on vaccination efforts allow product management to increase the supervision and the spectrum frequency on projects and vessel that we have seen performance improving and we are confident that our vaccine efforts will ensure reduce COVID-19 related impacts to operations going forward.
In addition to the COVID-19 impacts we experienced project delays due to hurricane items.
Several of our projects in the Gulf and on the East Coast were impacted and we experienced delays returning to work.
Two due to damage and debris in the ports.
One of our vessels the Terrapin island was damaged in a storm.
And that resulted in a six week unplanned drydock.
All affected vessels are back at work in the fourth quarter.
We ended the quarter with net income of $13 8 million on adjusted EBITDA was $32 2 million.
Given project activity in which we are currently engaged coupled with our backlog New project Awards, our COVID-19 mitigation efforts a few vessels in dry dock for the remainder of the year, we expect improved results in the fourth quarter of 2021.
Unfortunately, even with improving results, we do not expect to achieve of original expectations for 2021.
I will now turn the call over to Scott to further discuss the results of the quarter and then I'll provide some further commentary around the market.
Thanks, LASA and good morning, everyone. Let me start by giving you some color on our third quarter results for.
For the third quarter of 2021 revenues were $168 $6 million net income was $13 $8 million and adjusted EBITDA was $32 $2 million.
Contract revenues for the third quarter of 2021 represented a $7 $2 million or four 1% decrease compared to the third quarter of 2020. The decrease was caused by lower coastal protection and foreign revenue and the previously mentioned delays due to hurricane Ida partially offset.
Set by higher domestic capital maintenance and rivers and lakes revenue.
Despite the quarter over quarter decrease in revenues current quarter gross profit was relatively flat at $36 $3 million compared to $36 $4 million in the third quarter of 2020, as we achieved a quarter over quarter decrease in contract expenses.
Gross profit margin this quarter was 21, 5% compared to 27% in the prior year quarter. During the current quarter gross profit was negatively affected by direct COVID-19 costs of $2 $1 million. In addition to related productivity impacts and delays, which further.
Affected several projects during the third quarter of 2021, we had the dredge 53, the Alaska and the Terrapin Island in dry dock the Alaska returned to work in the third quarter. The Terrapin Island returned to work earlier in the fourth quarter and the dredged 53 is preparing to start operations in mobile.
Alabama.
Operating income for the current quarter was $21 $4 million, which is a decrease of $1 $8 million over the prior year quarter. The decrease is due in large part to a non repeating $1 $7 million lots of youth claim credit received last year Geo.
G&A expense was up slightly from $14 $9 million in the third quarter of 2020 to $15 $2 million in the current quarter, primarily due to the engagement of the Boston Consulting group discussed on last quarter's call.
Net interest expense for the third quarter, 2021 was $4 $2 million down from $6 $7 million in the third quarter of 2020, primarily due to a lower interest rate on the senior notes, which were refinanced earlier. This year income tax expense for the third quarter of 2021.
$3 $2 million compared to $4 1 million for the same quarter of 2020 and net income for the third quarter of 2021 was $13 $8 million up from $12 $5 million in the prior year quarter.
Finally, adjusted EBITDA of $32 2 million for the third quarter of 2021 was flat compared to prior year third quarter.
Looking ahead to the fourth quarter, we expect revenues to be in the range of $225 million to $235 million. As we are scheduled to have less vessels in dry dock compared to the third quarter, we expect G&A to be up a couple of million dollars compared to the third quarter based on timing of certain <unk>.
<unk> expenses, and we expect gross margin and interest expense to be in line with the third quarter.
Next let me turn to our balance sheet, where at September 32021, we had $173 $8 million in cash and continue to have no cash draws on our revolver capital expenditures for the third quarter of 2021 were $21 1 million of which $8 $3 million.
Related to the construction of the new Hopper dredge $7 $4 million was for maintenance Capex, two seven and $2 1 million for the build of the new scout, new multi cat vessels, respectively, and $600000 related to the design of the rock installation vessel with that.
I will turn the call back over to <unk> for his remarks on the outlook moving forward.
As we face the challenges and impacts of COVID-19, the U S. Army Corps of Engineers has continued to follow the big scheduled and prioritize all types of dredging, including port deepening port maintenance and expansion and coastal protection and restoration projects.
In 2020, the domestic bid market reached one 8 billion.
In 2021.
We see that is on track to be just as strong.
We expect that 2022 bids from multiple product paces support deepening in Norfolk, Freeport will be yield SEBI and additional phases of the Houston ship channel.
We'll continue for the next several years.
This port deepening projects are ideally suited for us.
Great Lakes, we can excel with our technical expertise experience safety performance in our large diverse fleet.
We continue to see support for much needed infrastructure projects, including dredging in the course of 2022 budget that was proposed by the house and Senate.
It is slated to be approximately $8 6 billion, an 11% increase over the prior year's levels.
In the Bill the Army Corps through the Hopper Harbor maintenance Trust Fund would receive 2.05 billion, which is an increase of $370 million.
Over the 2021 budget appropriations from the fund.
In addition, the U S Senate passed the $1 two trillion infrastructure Bill with the Corps will be granted. Additionally, 11 6 billion in funding to improve the nation's resilience to the textbook climate change, including projects for beach and wetlands restoration flood control and water.
Always dredging.
With a continued resolution approved in September.
The Army Corps was given an additional $5 billion put to SaaS to relief.
And which we anticipate there will be about $1 billion that will go to coastal restoration and maintenance dredging.
During the third quarter, we were.
Were awarded $300 million and new work, resulting in a year to date $37, one bid market share, bringing in our third quarter backlog to $590 million to $98 million in.
In addition to this backlog of awarded projects, we ended the quarter with $534 million in low bids and options pending award.
Included in our low bids pending.
Our two LNG projects.
That is still pending a final investment decision a notice to proceed by the client.
We are optimistic that one if not both.
<unk> and <unk>.
In 2022.
Post quarter end, we were awarded the Oak Island Beach Renourishment project for $17 1 million, the South Atlantic Regional Hollow dredging project for $25 8 million.
And we have added an additional $107 million to low bids pending award, which includes phase one of the Houston project 11 ship channel widening and deepening as announced by the Port of Houston.
To support the strong domestic market in 2020, we announced an award to Congress shipyard in Louisiana to build a new midsized hopper dredge with expected delivery in the first quarter of 2023.
The new Hopper dredge build is on budget and on schedule.
In addition to this newbuild, we continue to upgrade our existing U S fleet with new equipment and technologies to increase productivity and we believe that <unk> is well equipped to meet current demand and future growth in the market.
In support of our ESG efforts, we are committed to ensuring that all projects executed with robust environmental and safety standards that we leave the areas that we touch and an improved state as a result of the work that we perform.
To support this philosophy, we continue to build relationships with various nongovernment organizations and conservation groups that will assist in improving our environmental impact. For example, we continue to partner with Jekyll Island total hospital, whose mission is to save totals injured by metal machine and we are partnered with.
Florida Aquarium, which has a unique approach to the rehabilitation of coral reefs.
Now turning to offshore wind power generation. This new markets will provide great lakes with a strong opportunity for growth.
Biden administration continues to support offshore wind generation as a valuable source of renewable energy and in March the White House announced new initiatives.
Advanced administration's goal to expand the nation's offshore wind energy wind energy capacity in the common decade, but opening new areas for development, improving environmental permitting and increasing public financing for projects.
The Biden administrations 30 gigawatt target for offshore wind by 2030 confirms our plans to enter this market by building. The first U S. Flagged Jones Act compliant inclined full pipe vessel for subsea rock installation for the wind turbine foundations.
Anticipate to sign a contract with one builder in the fourth quarter in 'twenty to 'twenty, one with expected delivery over the vessel in the second half of 2024.
In parallel we are bidding for a multitude of offshore wind farm projects with installations planned for late 2024 and beyond.
Major wind farm developments like Ecuador Dominion.
And our and grid already issued RF Skus this year.
Our in process of selecting suppliers for the wind farm developments of the Coast New York.
Junior, Massachusetts, and Rhode Island.
Additionally, in June 2021, Bohlen issued a proposed sale notice for the New York criteria with potential for an additional $9 eight gigawatts of offshore wind power generation in New York.
As the offshore wind industry is developing here in the U S. The global offshore wind markets are booming.
With more than 200 gigawatts of offshore wind duration capacity expected to be installed globally in the next 10 years.
In conclusion, we remain confident that our operational initiatives you will see us through the short term COVID-19 challenges for this year that will assist in improving and improving the results and product performance.
Great Lakes continues to focus on strong project execution, and a safe working environment for our crews and employees, resulting in positive returns to our shareholders.
Optimistic that domestic market demand will remain strong in the coming years and the ongoing developments in the U S. Offshore wind generation will provide an avenue for growth for our company with that I'll turn the call over to questions.
Hey, good assay as a reminder to all our participants to ask a question you will need to press star one on your telephone again, Brett just started one on your telephone now please standby, while we compile our Q&A roster.
And with our first question coming from Adam Tell Hammer Thompson Davis. Your line is open. Please go ahead.
Hey, good morning, guys and welcome to the call Scott.
Adam Thank you good morning.
So thanks for all the details on Q4.
Big revenue I was just curious on the gross margin front, if there was a little conservatism baked in there being flat with Q3.
Yes.
We do have less dry dockings during the quarter I wouldn't say, it's conservatism right now when we kind of look forward. This was always the plan I think we announced in the last couple of calls that the second half should look better than the first.
Don't think we gave much guidance Q3 versus Q4, but this is aligned with our expectation that Q4 would be chunky or on the revenue side compared to Q3, but it should be in that range give a point or so either side on the margin. So I wouldn't I wouldn't.
To conclude that there's conservatism put in I think we'll be in that range.
Okay and then.
Just wanted to ask about high level.
Labor and inflation.
Just in general kind of how that how you see that impacting the business.
In Q4, and then next year as well.
On the labor supply, while we do see in the market is very tight market.
I think there are some.
Some lingering effects of the Covid.
Reducing.
Reducing the let's say number of applicants that we have.
Two new projects. So when we move it honestly, we do see some impact in a tight labor market.
And I think it's.
It's fair to expect a release on inflation on labor rates going forward.
What about fuel.
Awesome, how are you dealing with that.
While we are hedging our fuel consumption. So we include that in on new projects.
Got it and then on the rockfall vessel congrats on.
Moving forward on that how should we think about.
Capex next year.
Yeah. So.
We're still in negotiations with the <unk> right now, but I think as we have said in the past the vessel should be right around $200 million.
We'll have some critical equipment that's outside of the scope of the yard that will take on and probably in the range of $20 million to $25 million.
Upon signing with the shipyard, we will put a payment and if that happens. This year you could expect to see about a $20 million payment hit this year.
The payment schedule, though is much more back weighted in 'twenty, three and 24. So again I don't have exact number yet for 'twenty. Two is we're still going through the negotiations.
But I can tell you will be much much heavier on the second half of the build then in 2022.
Okay.
Helpful I'll turn it over thanks, guys.
And our next question coming from John <unk> Tang of CJS Securities. Your line is open.
Hi, Good morning, guys. Thank you for taking my questions. I was wondering if you could talk about your growth expectations or I guess the bid market size estimate for next year.
Just given what Youre seeing right now number one and number two given.
Given the size of your backlog heading into Q4, and obviously you talked a lot heading out into Q1 should we think of the first quarter of next year as copper one size Q4.
Or if theres anybody else, we should think about how should we do that.
Yes.
We expect a strong bid market also for next year, when you'll see the focus on infrastructure bills going through Congress and the increased.
Funds being made available for the corps of engineers.
I think it's.
We should see a bid market that is similar or better than what we saw in 2021.
In addition to that.
We do have a fairly full backlog for fourth quarter and first quarter next year.
So over the next six months I think we will see very good activities.
Still there.
There are some opportunities for vessels to enter into new contracts next year, but first quarter activity is strong.
Okay, great. Thank you and then I was wondering just.
To follow up on the Capex question I know you have plans for next year and then for the Rockwell vessel.
As it nears completion I was wondering if you could talk about the other.
Investment opportunities for new vessels, and new equipment and kind of how you expect that to trend over the next three years or so as you spend to take.
Advantage of these big opportunities that are in front of your number one and number two relative to the available financing options and the inflation thats going on out there right now.
Yes.
I'll talk a little bit about it and I'll, let Scott to talk about the financing.
We have an option to build one more hopper dredge at the Conrad yard that option will expire next year.
So we are evaluating whether we should do.
Copy of the one that we are building or if there are other types of equipment that will be.
More needed in the market that we see going forward.
So I think it's fair to say that we will either exercise the option or we will come to the market with a new type of dredge bid.
Yes.
Yeah.
Sorry go ahead John.
No go ahead first and then I'll just follow up when you're done yes.
I was just going to address the financing piece of it whether we do a new hopper or not we still have the remaining payments on the hopper, that's being built now and of course likely on the.
Rock installation vessel as well.
As mentioned, we have $175 million of cash we have an untapped revolver and we will have very favorable payment terms.
On the new vessel, meaning that there is no rush for us to make a decision with the cash on hand and the cash.
From flow from operations and the timing will be methodical I know we've already started looking at various options. If we want to do something but we do have the luxury of time to decide what we want to do if anything around the financing front.
Okay great.
Follow up I guess I had thought that was the option that you have for them for the second Hopper is that relatively advantageous in terms of the price you would pay just given how long ago that option was created and relative to how much steel and labor costs have gone up in the past since you actually receive that option.
Yes.
I would say since it is a copy of the.
The first vessel that we are building you can see advantages by in design and also in fabrication, where you have efficiencies.
Sure, creating or building a coffee.
So yes it.
It's a good project for US if we go ahead with the new law.
Ill.
Okay got it I'll jump back in queue. Thank you.
And for the next question from.
Deforest Hinman Walter House <unk> Company. Please go ahead.
Alright. Thank you a couple of questions on the <unk>.
Rockfall vessel and you were just talking about it.
Okay.
Other hopper barge.
A high level, we're looking at steel prices.
Decade level highs.
And these projects are built over a number of years.
Is there some part of the negotiation that's going to.
Potentially allow us to lower the price.
Construction of the vessel if we do see.
The decrease in steel prices over time.
The answer is yes.
We have provisions in the contracts, which.
Well, we are taking a.
Part of the risk on the steel price developments, both upwards and downwards.
Okay, that's very helpful and as it relates to the rockfall vessel.
Is there any contingency.
Moving forward with this.
Decision.
Tied to the potential for the deal financing or can we move forward without that financing being available.
No.
Our decision is to move forward with the build.
We have had some slight delays in development of the discussions with the yards, possibly due to the hurricane Ida.
So we are moving ahead with the project I think there is.
Tremendous market for rock installation and support of the.
The.
<unk>.
The offshore wind generation towers.
And starting in 2025, 2006 that will be under supply of equipment in the market to supply the developments both in the U S and internationally. So we believe this is a very good project to move forward into that market with them we are.
Moving as quickly as we can too.
Award with a yard.
And I will add on the refinancing I know prior to my arrival.
<unk> has had conversations with do I plan on meeting with them soon as well just to understand what that could look like.
But I do know that.
It's not our only option.
We decided to move forward. So it's just it's just another tool in the toolbox that we can use if we decide to.
Okay. Thank you.
And then in the past when we were doing larger projects like the.
Ellis Island, we had some comments in terms of what we thought IRR could be or incremental EBITDA are we prepared to discuss.
What we think the potential return is on this investment for the Rockwall vessel.
What we have said earlier on the calls is that we expect the IRR to be in the same range as we get on our dredging equipment.
So.
That is and that is where we anticipate this investment to be.
Can you just remind us where that number is.
Well, we have said on the dredging side is that we have.
Looking at high teens, when it is new capacity that we bring onto the market in the low teens when it is replacement to the capacity.
Yeah.
Okay. Thank you and then just on the.
I know you mentioned it briefly but just any color on the LNG backlog in terms of notices to proceed.
Being a really interesting environment, maybe the world is recognizing some of the.
Colossal energy needs that are out there and despite the fact, we've had some rising natural gas prices in the U S. There's still.
Very meaningful spread between the cost of gas in the U S.
The.
The price of the gas and some of these markets that are importing.
Natural gas do you think this is the.
The final push that's needed to get some of these.
Projects.
To get the notice to proceed out there I know it might be some spec.
Speculation on my part asking the question, but any color that you could provide.
Very helpful for everybody.
Yes, it's interesting to see.
We have gas prices in Europe now in $2014 Btu, and we have it's $4 $5 here in the U S. So the spread is very interesting.
Clearly if you listen to.
North Sea and the news whats happening around Tellurian, where Theyre chairman Suki.
Now moving to Lori into.
The American U S stock exchange from NASDAQ.
And talking about putting together.
Bank consortium for the financing that.
That is very positive.
And similarly next decade.
Also.
Coming up with with the news.
My anticipation is that you will see one one.
Of these projects to be conservative and move to <unk>.
Next year, that's our expectation.
And if so we anticipate dredging to start late next year or maybe early the following year.
Okay. Thanks for the color and thanks for taking all my questions.
And the next question coming from.
Flat noble capital markets. Your line is open.
Great. Thank you so much.
Yes.
If we could just stick on backlog for a second Scott do you have an <unk> 18 for the backlog well first of all welcome and then second do you have an AGM for the backlog, what's going to be burned off during the fourth quarter of that backlog revenue number it's pretty high and then looking at 'twenty two if you could.
Give me an idea of sort of the backlog burn.
Yes, good morning, Po, So Q4, 39% of the backlog as expected.
<unk> earned in the quarter and then.
Don't have the exact breakout quarter by quarter for 'twenty, two but we're well covered.
For Q1, and a good chunk of that does roll into Q2.
The first half of next year.
It's pretty much fully covered and some of that rolling into Q3, but there are.
Opportunities for bidding on some projects that we have visibility to right now for the second half of the year.
Great and then when you look at the.
The option.
We're putting in the press release that low bids.
An award in options and Matt can you split out those.
Low bids versus the options I think it was $61 million of auctions in the second quarter two of a number for it etcetera.
Thanks.
Nope.
Yes.
Sure.
That's alright.
So you can get back.
Okay, Yes, if you could take a stab at looking at 'twenty two like it did 20.
The fourth quarter and then.
Trying to give me an idea or do you think you can.
22 can recover to your original expectations for 221 or.
Sort of could you start to frame your frame first half of 'twenty, two pretty well from a backlog standpoint, but can you frame the full year from a standpoint of.
Maybe revenues and Todd.
Targeted gross margin.
Yes, so we're still going through the budget process. So I will give more color on that on the next call.
I will make a couple of comments, though.
In the meantime.
Lots of mentioned the Corps budget next year's increase which obviously is a good sign to go along with the strong backlog that we have going into the year and hopefully we've seen the worst of the COVID-19 impact.
It should be minimal hopefully next year I will say, though just the way the calendar. The cycle runs 22 is a <unk>.
Dry docking period and that includes the Ellis island, which will be down.
For a period of time for Drydocking and then we also may see a slight uptick in G&A as we start gearing up for the wind side of the business. So just kind of some high level comments, but.
On the next call, we'll give a little more color on how we see the year shaping out.
And the Ellis Island, Scott should be what.
What timeframe sort of middle of the error.
Yes, it should probably be.
Middle of the year, maybe Q3.
Okay, maybe Q3, two and three.
And then when you look at the.
Right off the bat you got.
Dealing with either in Covid. Thanks for quantifying the Covid, but can you give us a little more color on the third quarter and the weather impact whether it stays there or any kind of.
Maybe.
Revenue that you might have lost that was pushed out end of this fourth quarter, because fourth quarters can be a lot stronger.
Just any kind of color would be helpful. And then I know that you didn't want to quantify the indirect costs of COVID-19, but.
Can you was it 100 basis point of margin or can you just sort of try to frame that.
Margin impact from indirect cost of Covid.
Yeah, Let me, let me take the Covid and you are right.
It's not even that we don't want to quantify it is difficult to quantify it but it's real we know it's there.
I would say that my belief is the indirect is higher than the direct the impact.
But it's difficult to put an exact number on it.
Sorry, Scott the indirect is lower than the direct.
No I would I would say that the current direct impact is higher than the direct impact of the $9 $5 million, we've seen so far year to date.
Okay Thats helpful.
And then on the weather impact on the third quarter any way to frame that from a revenue standpoint.
Yes.
In broad terms.
You could say what we saw was.
That was about.
Eight to nine days of the cutter impact revenues was moved from third quarter to fourth quarter and maybe four to five days on on three of the hoppers.
That also has moved from quarter to quarter and of course as I mentioned in my remarks, we had the terrapin got damaged installed not due to two <unk>.
But she was already at all it was.
Impacted by another vessel.
Had to spend six weeks in dry dock.
For repairs, which part of that was in the third quarter.
And any way to quantify the revenue impact.
Right off the bat.
Okay.
And then it looks like.
Your multi carrier Capex dropped from the second quarter to third quarter is that just a low in the <unk>.
Timing there or can.
Can you give us an idea of will it bounce back in the fourth quarter and maybe a fourth quarter Capex number would be helpful.
Gave us sort of frame the two.
2022 number a little bit but.
Maybe a capex number for the fourth quarter would be helpful. Yeah sure. So we're still on track to have $100 million of full year Capex.
65 year to date.
Through September kind of a quick breakdown on that we do have a $15 million payment on the new hopper about $11 million of maintenance Capex and the rest $8 million to $9 million or so on the scout and on the multi cat now.
I'll reiterate what I've said before that assumes that does not include anything that we may have for the new rock installation vessel, which upon execution of a shipyard contract will be in the range of about $20 million.
Yes, understood and maybe when when will the key would be out will be out later today or.
Yes.
Plan is to be a later today, if not tomorrow, okay, and any big working capital items. It just looks like when you look at the third quarter cash walk.
I'm just trying to figure if theres anything else that I'm missing as far as just.
So to look at.
Either working capital items or any other big big tax drains that would've impacted the third quarter cash number.
No I mean nothing.
Nothing out of the ordinary.
Happy to.
Work with you offline. If you are having problems reconciling to where we ended up but nothing jumps out to me that I would call an anomaly.
Yes, I just had to get that.
It looks like maybe the cash working capital.
A negative $10 million or so then Scott.
Just trying to figure out whether I'm.
Looking at other things, but I'll look at the Q and then lots of can you just overall look at the the dredging market.
Win rate it looks like for the quarter.
Went down not down but it was in sort of the high 30 level.
What when you look at competition out there can you just give.
Broad comment about whether youre seeing more competition less competition and sort of whether it's having an impact on pricing one way or another.
Yes.
Clearly with a very strong dredging market the last three years.
The industry is looking at refreshing the fleet and we do see our competition building new vessels.
Which is good for the industry, because it's been quite a long period of.
Quiet on the Newbuild front to getting the dredging industry in the U S is really.
Taking the challenge from good projects and good.
Budgets to the corps of engineers and building to service that market.
For us as you know, we took delivery of Ellis Island, which.
As the largest hopper dredge in the U S market by a large margin.
Since then we also took two vessels back from the Middle East and added to the market and we bought a mechanical dredge from quite a lot of competition and we are now building a new hopper. So we are addressing this increased market as well.
The market is strong and as you can hear and read there is a huge focus on improving infrastructure.
And both in the Senate and the House, which then gives rise to.
Two.
New.
Improved budgets for the core which is driving this.
Good markets.
When it comes to competition.
On projects is difficult to.
To say in general because every project to special but so we have won our fair share I would say of the large deepening projects.
And this is where we can excel with our expertise with our diverse fleet.
Sometimes you will see that smaller local dredging contractors are taking on.
Fairly large projects in monetary terms, but most of that is in shore and fairly easy projects to execute.
Once the projects gets complex, we can excel with our fleet and expertise.
So it's a strong market. It's a good market on both we and the competition on renewing the fleet us as is actually needed.
The aging fleet that we have an entrenched.
And.
<unk> on the Houston I'm not sure that beverage discussed that much but can you just.
Talk about when you think that will be finalized.
Process.
My understanding was that at all.
RFP process as opposed to an open bid so.
Can you help me understand when that's going to get finalized and.
And then potentially does that mean, you're in a better position on additional work within that project 11.
Yes.
As you have seen in the press the port of Houston has announced that we are the low bidder.
The selected contractor and.
Contract value of $95 million has been announced.
We are just discussing some.
Some points.
Points in the contract with some items in the contract.
We are looking forward to.
We'll award shortly.
And then.
As we are looking forward.
Phase of Houston.
It will come out very shortly.
And that is a larger contract.
Hi.
Believe that size is between 2% and $301 million that has been announced.
So there is a lot of work coming up in the Houston ship channel and winning the first phase is clearly positions us well for the next phase over the next phases.
Just to clarify in the discussions on project one and the first phase is right. There was some scope options in the debate, which is now being clarified with the port and we're looking forward to get that.
Signed up shortly.
And just if I could just squeeze one more in on the project it seemed like in the press release it was highlighted that the.
Your environmental footprint or your willingness to look at and.
Carbon emissions I guess from your fleet was.
Port and part of that can you talk about that and maybe what potential modifications you might have to make to your fleet if any.
Yes, we are putting scrubbers on.
On the.
On the vessels, which are reducing nox emissions by 85%.
And as you know.
As alluded to it's U S dredging fleet as is.
It is not all new vessels with the top.
Top technology on engine. So what we do we take the existing equipment, we add scrubbers and that improves our environmental footprint substantially.
Yeah.
Thank you so much.
And for the next question.
So John Todd One thing of CJS Securities. Please ask your question.
Hi, just a couple of follow ups from me one I was wondering what the actual cost of the dry docking for the terrapin was.
In both Q3 and Q4 number one either on a capex side on the operating side and then two does I think I heard correctly I'm struck by another vessel. So I'm wondering if there was any insurance coverage either from them their liability or from I guess the general weather.
Clause or anything like that.
Yes.
Okay.
Yes, yes.
The terrapin Drydocking is about $1 million total I don't have the exact breakout between Q3 and Q4.
As far as the damage.
It was.
Yes.
It was under $1 million well under $1 million.
We could we don't think at this point, we are going to hit our retention. So our cost it actually it's under a $5 million thats, where it looks like it's shaping up right now if it exceeds that there could be some some insurance coverage.
Okay got it. Thank you and then I was just wondering given your vaccination plans I guess the progress you've made I was wondering if you'd seen any COVID-19 costs in Q4, so far and kind of what you expect for the quarter.
Yes, so as I said, we had.
A little over $2 million in Q3, I'll tell you. The September piece of that was under a $5 million. So it is starting to trend in the right direction.
I don't think its going to be zero, but im hoping that trend of month over month going down and if we saw 400.
Standalone September my expectations, we'll still see decreased that so I would call it a $1 million right now but.
We'll give more color on the next call where it actually came up.
That of course assumes that there's no new variant that none of us have seen or can anticipate but definitely moving in the right direction.
So barring gone.
To add to that.
We are now at 100% Fox nation and in our company.
The last case positive case that we had was in September 21.
So we have.
<unk> hundred 25 staff vaccinated in total.
We have.
Now a few commendation, but very few and I think this is the way forward to make sure that we get back to normal operation. So I'm very optimistic about.
Improved and reduced corporate costs here in the fourth quarter on improved operations.
Okay, great. So as we look at 'twenty two should we think of that nine maybe $10 million Delta just Annapolis.
On an apples to apples basis of costs that you shouldn't have next year, assuming that again like you said no no other variant pops up okay.
I mean, that's fair I mean, our expectation that's a 2021 event in a non repeating costs that we'll have and we will.
Not have in 2022.
Okay, great. Thank you guys.
Again to all our participants to ask a question you will need to press star one on your telephone and he has our next question coming from Stephen Hansel from eclectic investment. Please go ahead Sir.
Thank you and congratulations on the good continued quarter.
Performance I'm curious.
As to.
The.
Shares of the bid market more on a year to date basis.
Relative to last year and.
And also for the third quarter.
And the extent to which there are projects.
In that.
Okay.
In the.
Mid market that you don't.
Bid on at all.
And.
And the extent to which it's.
Worthwhile to talk about that.
Well when we look at our bid market share.
So far this year is around 37% last year. It was 39% the year before 2006 and 18 it was 45.
The various with the size of projects being awarded on the timing of the project awards, but we should be there in the high <unk> low <unk> from year to year.
Clearly when we look at the projects that we bid we are selecting the ones that suits our fleet our expertise the best and our projects, we decided not to bid because mostly because our margins expectations on those projects.
So yes, we have a fairly robust process around selecting the projects I'll make sure that the once that we we do bid and includes $1 bid market share are the ones that will give us the best contribution for the company.
Thank you.
And again I'd like to remind all participants to ask a question you will lead to perhaps just Taiwan like a telephone.
And we don't have any more questions on the queue. At this point like that then it over to Ms Dana, but gifts gifts to continue.
Thank you we appreciate the support of our shareholders employees and business partners and we thank you for joining us in this discussion about the important developments and initiatives in our business. We look forward to speaking with you during our next earnings discussion. Thank you.
And this concludes today's conference call. Thank you everyone for your participation you may now disconnect and all the presenters. Please hold I'm transferring you back to the speakers have conference room.
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Good day, everyone and thank you for standing by and welcome to the third quarter of 2021, Great Lakes Dredge and Dock Corporation earnings Conference call. At this time, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session.
Ask a question during the session you will need to press star one on your telephone if you require any part assistance. Please press star zero and please be advised that today's conference is being recorded I would now like to hand, the conference over to your speaker today, the director of Investor Relations Ms speaking out against guess please go ahead.
Yeah.
Thank you good morning, and welcome to our quarterly conference call. Joining me on the call. This morning is our president and Chief Executive Officer of lots of Patterson, and our Chief Financial Officer, Scott Kornblau Lock will provide an update on the events of the quarter. Then Scott will continue with an update on our financial results for the quarter Lasse will conclude.
An update on outlook for the business end market.
Following their comments there will be an opportunity for questions. During this call we will make certain forward looking statements to help you understand our business.
These statements involve a number of risks uncertainties and other factors that could cause actual results to differ materially from our expectations certain risk factors inherent in our business are set forth in our earnings release and in filings with the SEC, including our 2020 Form 10-K and subsequent filings.
During this call. We 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 will turn the call over to Lisa.
Thank you Tina.
Before we start on the results of the quarter I'd like to introduce introduce Scott Kornblau, who is joining great lakes as a chief financial Officer, Scott will oversee our financial operations, including maintaining the financial financial integrity strategic planning working closely with me as a member of the executive leadership team.
He comes to us with nearly 25 years of financial industry experience and was most recently the CFO of diamond offshore drilling.
Now I will discuss the quarter and then turn it over to Scott for an update on financial results.
We ended the third quarter with improved results a solid backlog for.
For the first half of 2021 operations saw a substantial negative impacts from COVID-19 pandemic.
Our priority has been and always will be to ensure the safety and health of all our people.
And we believe that in this current situation vaccination is an important to achieving this goal.
Yes vaccines became widely available in the second quarter, which set a target target to have all possible organization vaccinated.
And we have now reached a hard target.
Although vaccination efforts were successful.
We did experience some lingering COVID-19 related costs in the third quarter.
Direct COVID-19 cost for at home and onsite testing and quarantining of crews were $4 $3 million into the first quarter $3 million in the second quarter.
The additional $2 $1 billion in third quarter for a total of $9 4 million in the year to date.
Indirect costs are not easily quantified.
However, we saw a decrease in our realized project margins, which we attribute largely to inefficiencies caused by COVID-19.
Today, our safety protocols on vaccination efforts allow product management to increase saturation in the spectrum frequency on projects and vessel that we have seen performance improving and we are confident that our vaccine efforts will ensure reduced COVID-19 related impacts to operations going forward.
In addition to the COVID-19 impacts we experienced project delays due to hurricane either.
Several of our projects in the Gulf and on the East Coast were impacted and we experienced delays returning to work.
Due to damage and debris in the ports.
One of our vessels the Terrapin island was damaged in the store.
And that resulted in a six week unplanned drydock.
All affected vessels are back at work in the fourth quarter.
We ended the quarter with net income of $13 8 million in adjusted EBITDA was $32 2 million.
Given project activity in which we are currently engaged coupled with our backlog New project Awards. Our COVID-19 mitigation efforts are fewer vessels in dry dock for the remainder of the year. We expect improved results in the fourth quarter of 2021.
Unfortunately, even with improving results, we do not expect to achieve of original expectations for 2021.
I will now turn the call over to Scott to further discuss the results of the quarter and then I'll provide some further commentary around the market.
Thanks, a lot and good morning, everyone. Let me start by giving some color on our third quarter results for the third quarter of 2021 revenues were $168 $6 million net income was $13 8 million and adjusted EBITDA was $32 $2 million.
Contract revenues for the third quarter of 2021 represented a $7 2 million or four 1% decrease compared to the third quarter of 2020. The decrease was caused by lower coastal protection and foreign revenue and the previously mentioned delays due to hurricane Ida.
Partially offset by higher domestic capital maintenance and rivers and lakes revenue.
Despite the quarter over quarter decrease in revenues current quarter gross profit was relatively flat at $36 3 million compared to $36 $4 million in the third quarter of 2020, as we achieved a quarter over quarter decrease in contract expenses.
Gross profit margin this quarter was 21, 5% compared to 27% in the prior year quarter. During the current quarter gross profit was negatively affected by direct COVID-19 costs of $2 $1 million. In addition to related productivity impact and delays, which further.
Affected several projects during the third quarter of 2021, we had the dredge 53, the Alaska and the Terrapin Island in dry dock the Alaska returned to work in the third quarter. The Terrapin Island returned to work earlier in the fourth quarter and the dredge 53 is preparing to start operations in mobile.
Alabama.
Operating income for the current quarter was $21 $4 million, which is a decrease of $1 $8 million over the prior year quarter. The decrease is due in large part to a non repeating $1 $7 million lots of use claim credit received last year.
G&A expense was up slightly from $14 $9 million in the third quarter of 2020 to $15 $2 million in the current quarter, primarily due to the engagement of the Boston Consulting group discussed on last quarter's call.
Net interest expense for the third quarter, 2021 was $4 $2 million down from $6 $7 million in the third quarter of 2020, primarily due to a lower interest rate on the senior notes, which were refinanced earlier. This year income tax expense for the third quarter of 2021.
$3 $2 million compared to $4 1 million for the same quarter of 2020 and net income for the third quarter of 2021 was $13 8 million up from $12 $5 million in the prior year quarter.
Finally, adjusted EBITDA of $32 2 million for the third quarter of 2021 was flat compared to prior year third quarter.
Looking ahead to the fourth quarter, we expect revenues to be in the range of $225 million to $235 million as we're scheduled to have less vessels in dry dock compared to the third quarter, we expect G&A to be up a couple of million dollars compared to the third quarter based on timing of certain annual.
<unk> expenses, and we expect gross margin and interest expense to be in line with the third quarter.
Next let me turn to our balance sheet, where at September 32021, we had $173 $8 million in cash and continue to have no cash draws on our revolver capital expenditures for the third quarter of 2021 were $21 1 million of which $8 $3 million.
Related to the construction of the new Hopper dredge $7 $4 million was for maintenance Capex, two seven and $2 1 million for the build of the new scout, new multi cat vessels, respectively, and $600000 related to the design of the rock installation vessel.
With that I will turn the call back over to <unk> for his remarks on the outlook moving forward.
As we face the challenges and impact of COVID-19, the U S. Army Corps of Engineers has continued to follow the big scheduled and prioritize all types of dredging, including port deepening port maintenance and expansion.
Coastal protection and restoration projects.
In 2020, the domestic bid market reached one 8 billion.
In 2021, we see that is on track to be just as strong.
We expect that 2022 or two bids from multiple product paces support deepening and Norfolk Freeport will be studied in additional phases of the Houston ship channel that will continue for the next several years. These port deepening projects are ideally suited for us as <unk>.
Great Lakes, and we can excel with our technical expertise experience safety performance in our large diverse fleet.
We continue to see support for much needed infrastructure projects, including dredging in the course of 2022 budget that was proposed by the house and Senate.
It is slated to be approximately $8 6 billion, an 11% increase over the prior year's levels.
And the Bill the Army Corps through the Hopper Harbor Maintenance Trust Fund, which received 2.0 to <unk> 5 billion, which is an increase of $370 million.
Over the 2020 and budget appropriations from the fund.
In addition, the U S Senate passed the $1 two trillion infrastructure build where the corps will be granted. Additionally, 11 6 billion in funding to improve the nation's resilience to the effects of climate change, including projects for beach and wetlands restoration flood control.
Waterlase dredging.
With a continued resolution approved in September.
The Army Corps was given an additional $5 billion for disaster relief.
And which we anticipate there will be about $1 billion that will go to coastal restoration and maintenance dredging.
During the third quarter.
We were awarded $300 million in New awards, resulting in a year to date $37, one bid market share, bringing our third quarter backlog to $580 million to $98 million.
In addition to this backlog of awarded projects, we ended the quarter with $534 million in low bids and options pending award.
Included in our low bids pending.
Our two LNG projects.
That are still pending a final investment decision on notice to proceed by the client.
We are optimistic that one if not both will receive an RFID in 2022.
Post quarter end, we were awarded the Oak Island Beach Renourishment project for $17 1 million.
The South Atlantic Regional Hopper dredging project for $25 8 million.
And we have added an additional $107 million to low bids pending award, which includes phase one of the Houston project 11 ship channel widening and deepening as announced by the Port of Houston.
To support the strong domestic market in 2020, we announced an award to Congress shipyard in Louisiana to build a new midsized hopper dredge with expected delivery in the first quarter of 2023.
The new Hopper dredge Bill is on budget and on schedule.
In addition to this newbuild, we continue to upgrade our existing U S fleet with new equipment and technologies to increase productivity and we believe that fleet is well equipped to meet current demand and future growth in the market.
In support of our ESG efforts, we are committed to ensuring that all projects are executed with robust environmental and safety standard and I believe the areas that we touch and an improved state as a result of the work that we perform.
To support this philosophy, we continue to build relationships with various nongovernment organizations and conservation groups that will assist in improving our environmental impact. For example, we continue to partner with Jekyll Island total hospital, whose mission is to save totals injured by metal machine and we are a partner with it.
Florida Aquarium, which has a unique approach to the rehabilitation of coral reefs.
Now turning to offshore wind power generation.
This new markets will provide great lakes with a strong opportunity for growth.
Biden administration continues to support offshore wind generation as a valuable source of renewable energy and in March the White House announced new initiatives.
Advanced administration's goal to expand the nation's offshore wind energy wind energy capacity in the common decade, but opening new areas for developments, improving environmental permitting and increasing public financing for projects.
The Biden administrations 30 gigawatt target for offshore wind by 2030 confirms our plans to enter this market by building. The first U S. Flagged Jones Act compliant inclined full pipe vessel for subsea rock installation for the wind turbine foundations.
Anticipate to sign a contract with a builder in the fourth quarter of 2021 with expected delivery over the vessel in the second half of 2024.
In parallel we are bidding for a multitude of offshore wind farm projects with installations planned for late 2024 and beyond.
Major wind farm developers like Ecuador Dominion.
Good.
Our grid have already issued RF queues this year.
Our in process of selecting suppliers for the wind farm developments of the Coast New York.
Junior, Massachusetts, and Rhode Island.
Additionally, in June 2021, Bullock issued a proposed sale of notice for the New York <unk> with potential for an additional nine foot eight gigawatts of offshore wind power generation for New York.
As the offshore wind industry is developing here in the U S. The global offshore wind markets booming with more than 200 gigawatts of offshore wind duration capacity expected to be installed globally in the next 10 years.
In conclusion.
We remain confident that our operational initiatives you will see us through the short term COVID-19 challenges for this year and will assist in improving and improving results and product performance.
Great Lakes continues to focus on strong project execution, and a safe working environment for our crews and employees, resulting in positive returns to our shareholders and we are optimistic that domestic market demand will remain strong in the coming years and the ongoing developments in the in the U S offshore wind generation will provide in <unk>.
Avenue for growth for our company with that I'll turn the call over to questions.
Yes.
Hey, good asset as a reminder to all our participants to ask a question you will need to press star one on your telephone again press star one on your telephone now please standby, while we compile our Q&A roster.
And with our first question coming from Adam tell a hammer Thompson Davis. Your line is open. Please go ahead.
Hey, good morning, guys welcome to the call Scott.
Adam Thank you good morning.
So thanks for all the details on Q4.
Big revenue I was just curious on the gross margin front, if there was a little conservatism baked in there being flat with Q3.
Yes, I mean, we do have less dry dockings during the quarter I wouldn't say, it's conservatism right now when we kind of look forward. This was always the plan I think we announced in the last couple of calls that the second half should look better than the first I don't think we gave much guidance Q3 versus.
Q4, but this is aligned with our expectation that Q4 would be chunkier on the revenue side compared to Q3, but it should be in that range give a point or so either side on the margin. So I wouldn't I wouldn't.
To conclude that there's conservatism put in that I think will be in that range.
Okay and then.
Just wanted to ask about high level Les.
Labor and inflation.
Just in general kind of how that how you see that impacting the business.
In Q4, and then next year as well.
On the labor supply what we do see in the market is very tight markets.
We I think there are some lingering effects of the COVID-19.
Which is.
Reducing the let's say number of applicants that we have two new projects. So when we move to ice we we do see some.
<unk> in a tight labor market.
I think it's.
It's fair to expect a row, some inflation on labor rates going forward.
What about fuel.
How are you dealing with that.
While we are hedging our fuel consumption. So we include that in on new projects.
Got it and then on the rock fall vessel congrats on.
Moving forward on that how should we think about.
Capex next year.
Yeah. So.
Still we are still in negotiations with the <unk> right now, but I think as we have said in the past the vessels should be right around $200 million.
We will have some critical equipment that's outside of the scope of the yard that will take on and probably in the range of $20 million to $25 million.
Upon signing with the shipyard, we will put a payment and if that happens. This year you could expect to see about a $20 million payment hit this year.
The payment schedule, though is much more back weighted in 'twenty three 'twenty four so again I don't have exact numbers yet for 'twenty, two we're still going through the negotiations.
I can tell you will be much much heavier on the second half of the build then.
In 2022.
Okay.
That's helpful I'll turn it over thanks guys.
And our next question coming from John found one Tang of CJS Securities. Your line is open.
Hi, Good morning, guys. Thank you for taking my questions. I was wondering if you could talk about your growth expectations or I guess the bid market size estimate for next year.
Just given what Youre seeing right now number one and number two given the size of your backlog heading into Q4, and obviously Youtube a lot heading out into Q1 should we think of the first quarter of next year is comparable in size Q4, or if theres anybody else are you thinking about that how should we do that.
Yes.
We expect a strong bid market also for next year and when Youll see the focus on infrastructure builds going through Congress and the increased.
Tonnage being made available for the corps of engineers.
It's.
We should see a bid market that is similar or better than what we saw in 2021.
In addition to that we do have a fairly full backlog for fourth quarter and first quarter next year.
So over the next six months I think we will see very good activities.
Still.
There are some opportunities for vessels to enter into new contracts next year, but first quarter activity is strong.
Okay, great. Thank you and then I was wondering just.
To follow up on the Capex question I know you have plans for next year and then for the Rockwell vessel.
As it nears completion I was wondering if you could talk about the other end.
Government opportunities for new vessels, and new equipment and kind of how you expect that to trend over the next three years or so as you spend to take.
Advantage of these big opportunities that are in front of your number one and number two relative to the available financing options and the inflation thats going on out there right now.
Yes.
I'll talk a little bit about it and I'll, let Scott to talk about the financing.
We have an option to build one more hopper dredge at the Conrad yard that option will expire next year.
So we are evaluating whether we should do.
Copy of the one that we are building or if there are other types of equipment that will be.
More needed in the market that we see going forward.
So I think it's fair to say that we will either exercise their option or we will come to the market with a new type of the dredge fleet.
Yes.
<unk>.
Sorry go ahead John.
No go ahead first and then I'll just follow up wanted to yes.
I was just going to address the financing piece of it whether we do a new hopper or not we still have the remaining payments on the hopper, that's being built now and of course likely on the.
Rock installation vessel as well.
As mentioned, we have $175 million of cash we have an untapped revolver and we will have very favorable payment terms on the new vessel.
Meaning that there is no rush for us to make a decision with the cash on hand and the cash.
From flow from operations and the timing will be methodical I know we've already started looking at various options. If we want to do something but we do have the luxury of time to decide what we want to do if anything around the financing front.
Okay, great and the follow up I guess I would add to that was the option that you have for the for the second Hopper is that relatively advantageous in terms of the price you would pay just given how long ago that option was created and relative to how much steel and labor costs have gone up in the past.
You actually receive that option.
Yes.
I would say since it is a copy of the.
The first vessel that we're building you can see advantages by design that also in fabrication, where you have efficiencies.
Sure, creating or building a copy.
So yes it is.
It's a good project for US if we go ahead with the new Hopper.
Okay got it I'll jump back in queue. Thank you.
And for the next question.
Deforest Hinman Walker House and <unk> Company. Please go ahead.
Alright. Thank you a couple of questions on the <unk>.
Rockfall vessel and you were just talking about it.
Okay.
Other hopper barge.
High level, we're looking at steel prices.
Okay decade level highs.
And these projects are built over a number of years.
Is there some part of the negotiation that's going to.
Potentially allow us to lower the price.
Construction of the vessel if we do see.
A decrease in steel prices over time.
The answer is yes.
We have provisions in the contracts, which.
Where we are taking.
Part of the risk on the steel price developments, both upwards and downwards.
Okay, that's very helpful and as it relates to the rockfall vessel.
Is there any contingency.
Moving forward with this.
Decision.
Tied to the potential for the Doe financing or can we move forward without that financing being available.
No.
Our decision is to move forward with the build.
We have had some slight delays in development of.
The discussions with the yards, partly due to the hurricane Ida.
So we are moving ahead with the project I think there is.
Tremendous market for rock installation and support of the.
That.
The offshore wind generation towers.
<unk> and <unk>.
Starting in 2025, 2006 that will be under supply of equipment in the market to supply the developments both in the U S and internationally. So we believe this is a very good project to move forward into that market with them. We are we are moving as quickly as we can too.
Award with a yard.
And I will add on the financing I know prior to my arrival the team has had conversations with.
I plan on meeting with them soon as well just to understand what that could look like.
But I do know that.
It is not our only option if we decide to move forward. So it's just it's just another tool in the toolbox that we can use if we decide to.
Okay. Thank you.
And then in the past when we were doing larger projects like the.
Ellis Island, we had some comments in terms of what we thought.
<unk> could be or incremental EBITDA are we prepared to discuss.
What we think the potential return is on this investment for the Rockwall vessel.
What we have said earlier on.
On the call.
We expect the IRR to be in the same range as we get on our dredging equipment.
So.
That is where we anticipate this investment to be.
Can you just remind us where that number is.
Well, what we have said on the dredging side is that.
Looking at high teens, so when it is new capacity that will bring onto the market in the low teens when it is replacement to the capacity.
Okay. Thank you and then just on the.
I know you mentioned it briefly but just any color on the LNG backlog in terms of notices to proceed we're seeing a really.
Interesting environment, maybe the world is recognizing some of the.
Colossal energy needs that are out there and despite the fact, we've had some rising natural gas prices in the U S. There's still.
Very meaningful spreads between the cost of gas in the U S.
And the.
The price of the gas and some of these markets that are importing.
Gas do you think this is the.
The final push that's needed to get some of these.
Projects.
To get the notice to proceed out there I know it might be some.
Speculation on my part asking the question, but any color that you could provide would be very helpful for everybody.
Yes, it's interesting to see.
We have gas prices in Europe now in $2014 Btu, and we have it's $4 $5 here in the U S. So the spread is very interesting.
Clearly.
If you listen to.
North Sea and the news whats happening around Tellurian, where Theyre chairman Suki.
Now moving to Lori into.
The American U S stock exchange from NASDAQ.
And talking about putting together our bank consortium for the financing.
That is very positive.
And similarly next decade is also.
Coming off with with the news.
My anticipation is that you will see one one.
Of these projects to be conservative and move to <unk> next year, that's our expectation.
And if so we anticipate dredging to start late next year or maybe early the following year.
Okay. Thanks for the color and thanks for taking all my questions.
And the next question coming from.
Flat noble capital markets. Your line is open.
Great. Thank you so much.
If we can just stick on backlog for a second Scott do you have an ATM for the backlog well first of all welcome and then second do you have an 18% backlog, what's going to police burned off during the fourth quarter of that backlog revenue number it's pretty high and then looking at 'twenty two if you could.
Give me an idea of sort of the backlog burn.
Yes, good morning, Po, So Q4, 39% of the backlog as expected.
To be earned in the quarter and then.
Have the exact breakout quarter by quarter for 'twenty, two but we're well covered.
For Q1, and a good chunk of that does roll into Q2.
The first half of next year.
Pretty much fully covered and some of that rolling into Q3, but our.
Opportunities for bidding on some projects that we have visibility to right now for the second half of the year.
Great and then when you look at the.
The option.
We're putting in the press release that low bids.
Pending award and options and that can you split out those.
Low bids versus the options I think it was $61 million of auctions in the second quarter to have a number for the third.
Okay.
For the first quarter.
Okay.
Okay.
Thank you.
That's alright.
So you can get back.
Okay, Yes, if you could take a stab at looking at 'twenty two like you did 20.
The fourth quarter and then.
I tried to give me an idea or do you think you can.
The 22 can recover to your original expectations for 221 or.
Could you start to frame your frame first half of 'twenty, two pretty well from a backlog standpoint, but could you frame the full year from a standpoint of.
Maybe revenues in.
Targeted gross margin.
Yes, so we're still going through the budget process. So I will give more color on that on the next call.
I will make a couple of comments, though.
In the meantime, as lots of mentioned the corps budget next year as increase which obviously is a good sign to go along with the strong backlog that we have going into the year.
And hopefully we've seen the worst of the Covid impact.
It should be minimal hopefully next year I will say, though just the way the calendar the cycle runs 22 is a.
A heavy dry docking period and that includes the Ellis island, which would be down.
For a period of time for Drydocking and then we also may see a slight uptick in G&A as we start gearing up for the wind side of the business. So just kind of some high level comments, but.
On the next call, we'll give a little more color on how we see the year shaping out.
And the Ellis Island, Scott should be what.
What timeframe so the middle of the error.
Yes.
Yeah middle of the year, maybe Q3.
Okay, maybe Q3, two and three and then when you look at the.
Right off the bat you got.
Dealing with either in Covid. Thanks for quantifying the Covid, but can you give us a little more color on the third quarter and the weather impact whether it stays there or any kind of.
Maybe.
Revenue that you might have lost that was pushed out end of this fourth quarter, because fourth quarter, it's going to be a lot stronger.
Im just.
Any kind of color would be helpful. And then I know that you didn't want to quantify the indirect costs from COVID-19, but.
Can you was it 100 basis point of margin or can you just sort of try to frame that.
Margin impact from indirect cost of Covid.
Yes, let me, let me take the Covid and you are right.
It's not even that we don't want to quantify it it's difficult to quantify it but it's real we know it's there.
I would say that my belief is the indirect is higher than the direct the impact, but it's difficult to put an exact number on it.
Sorry, Scott the indirect is lower than the direct no no I would I would say that the current direct impact is higher than the direct impact of the $9 $5 million, we've seen so far year to date.
That's helpful and then on the weather impact on the third quarter.
Way to frame that from a revenue standpoint.
Yes.
<unk> terms.
You could say what we saw was.
That was about.
Eight to nine days of Qatar.
Back to where it was.
Revenues was moved from third quarter to fourth quarter, and maybe four to five days on on three of the hoppers.
And that also has moved from quarter to quarter and of course as I mentioned in my remarks, we had the terrapin got damaged installed not due to to read it but she was already at all it was.
Impacted by another vessel.
<unk> had to spend six weeks in dry dock.
For repairs, which part of that was in the third quarter.
Okay.
And any way to quantify the revenue impact LASA.
Right off the bat.
Okay.
And then it looks like.
Multi tad capex dropped from the second quarter to third quarter is that just the low end.
Timing there or.
Can you give us an idea of where the bounce back in the fourth quarter and maybe a fourth quarter Capex number would be helpful.
Gave us that.
Sort of frame, the 2022 number a little bit but.
Maybe a capex number for the fourth quarter would be helpful.
Yes, sure. So we're still on track to have $100 million of full year Capex.
We're 65 year to date.
Through September kind of a quick breakdown on that we do have a $15 million payment on the new hopper about $11 million of maintenance Capex and the rest $8 million to $9 million or so on the scales and on the multi cat now.
I'll reiterate what I said before that assumes that does not include anything that we may have for the new rock installation vessel, which upon execution of a shipyard contract will be in the range of about $20 million.
Yes, understood and maybe when when will the key would be out will be out later today or.
Yes.
Our plan is to be a later today, if not tomorrow, okay, and any big working capital items. It just looks like when you look at the third quarter cash walk.
I'm just trying to figure if there is anything else that I'm missing as far as just.
So to look at.
Either working capital items or any other big big cash drain that would've impacted the third quarter cash number.
No I mean nothing.
Nothing out of the ordinary.
Happy to.
To work with you offline. If you are having problems reconciling to where we ended up but nothing jumps out to me that I would call an anomaly.
Yes, I just had to get there.
It looks like maybe the cash working capital was a negative $10 million or so then Scott I was just trying to figure out whether I'm.
Looking at other things, but.
Look at the Q and then lots of can you just overall look at the the dredging market.
Your win rate it looks like for the quarter.
Went down not down but it was in sort of the high 30 level.
What when you look at competition out there can you just give up.
Broad comment about whether youre seeing more competition less competition and sort of whether it's having an impact on pricing one way or another.
Yes.
Clearly with a very strong dredging market the last three years.
Sure.
The industry is looking at refreshing the fleet and we do see our competition building new vessels.
Which is good for the industry, because theres been quite a long period of.
Quiet on the Newbuild front to getting the dredging industry in the U S is really.
Taking the challenge from good projects and good.
Good budgets to the corps of engineers and building to service that market.
For us as you know we took delivery of Ellis Island, which is the largest hopper dredge in the U S market by a large margin.
Since then we also took two vessels back from the Middle East and added to the market and we bought a mechanical dredge from one of our competition and we are now building a new hopper. So we are addressing this increased market as well.
The market is strong and as you can hear and read there is a huge focus on improving infrastructure.
And both in the Senate.
<unk>, which then gives rise to two <unk>.
New.
Improved budgets for the core which is driving this good market.
When it comes to competition.
On projects is difficult to.
To say in general because every project is special but so we have won our fair share I would say of the large deepening projects.
And.
This is where we can excel with our expertise with our diverse fleet.
Sometimes you will see that smaller local dredging contractors are taking on.
Fairly large projects in monetary terms, but most of that is inshore and fairly easy projects to execute.
Once the project's gifts complex, we can excel with our fleet and expertise.
So it's a strong market. It's a good market on both we and the competition on renewing the fleet us as is actually needed.
The aging fleet that we have in <unk>.
And again, congratulations on the Houston I am not sure that that was discussed that much but can you just.
Talk about when you think that will be finalized in sort of the.
Process.
My understanding was that RFP process as opposed to an open bid so.
Can you help me understand when that's going to get finalized and.
And then potentially does that mean, you're in a better position on additional work within the project to 11.
Yes.
As you have seen in the press the port of Houston has announced that we are the low bidder.
The selected contractor and.
Contract value of $95 million has been announced.
We are just discussing some.
Some points in the contract with some items in the contract.
We are looking forward to.
All award shortly.
And then.
As we are looking forward.
Phase of Houston.
It will come out very shortly.
And that is a larger contract.
Hi.
Believe that size is between 2% and $301 million that has been announced.
So there is a lot of work coming up in the Houston ship channel and winning the first phase is clearly positions us well for the next phase over the next phases.
Just to clarify in the discussions on project one and the first phase is really there were some scope options in the debate, which is now being clarified with the port and we're looking forward to get that.
Signed up shortly.
And just if I could just squeeze one more in on the project it seemed like in the press release it was highlighted that you.
Our environmental footprint or your willingness to look at it.
Carbon emissions I guess from your fleet.
Port and part of that can you talk about that and maybe what potential modifications you might have to make to your fleet if any.
Yes, we are putting scrubbers on.
On the.
On the vessels, which are reducing nox emissions by 85%.
And as you know.
Alluded to at the.
U S dredging fleet as is.
It is not all new vessels with the top.
Top technology on engine. So what we do we take the existing equipment, and we add scrubbers and that improves our environmental footprint substantially.
Thank you so much.
And for the next question.
So John Todd One thing of CJS Securities. Please ask your question.
Hi, just a couple of follow ups from me one I was wondering what the actual cost of the dry docking for the terrapin was in.
In both Q3 and Q4 number one either on a capex side on the operating side and then two does I think I heard correctly was struck by another vessel. So I'm wondering if there was any insurance coverage either from their liability or from I guess the general weather.
Clause or anything like that.
Sure.
Yes.
Yes, yes.
The terrapin dry docking is about $1 million total I don't have the exact breakout between Q3 and Q4.
As far as the damage.
It was.
Got it.
It was under $1 million well under $1 million.
We could we don't think at this point, we are going to hit our retention. So our cost it actually it's under a $5 million, that's where it looks like it's shaping up right now if it exceeds that there could be some some insurance coverage.
Okay got it. Thank you and then I was just wondering given your vaccination plans on I guess the progress you've made.
Was wondering if you'd seen any COVID-19 costs in Q4, so far and kind of what you expect for the quarter.
Yes, so as I said, we had.
A little over $2 million in Q3, I will tell you. The September piece of that was under a $5 million. So it is starting to trend in the right direction.
I don't think it's going to be zero, but im hoping that trend of month over month going down and if we saw 400.
Standalone September my expectations, we'll still see decrease that so I would call it a $1 million right now but.
We'll give more color on the next call where it actually came up.
That of course assumes that there's no new variant that none of us have seen or can anticipate but definitely moving in the right direction.
So barring gone.
To add to that.
We are now at a 100% Fox nation.
Company.
The last case positive case that we had was in September 21.
So we have.
<unk> hundred 25 staff vaccinated in total.
We have a.
A few commendation, but very few and I think this is the way forward to make sure that we get back to normal operation. So I'm very optimistic about it.
Improved and reduce the COVID-19 costs here in the fourth quarter and improved operations.
Okay, great. So as we look at 'twenty two should we think of that nine maybe $10 million Delta on just.
On an apples to apples basis of costs that you Shouldnt have next year, assuming that again like you said.
Another variant Pops up.
Yes, that's fair.
Sure I mean, our expectation is that.
<unk> 2021 event in a non repeating costs that we'll have we won't have in 2022.
Okay, great. Thank you guys.
Again to all our participants to ask a question you will need to press star one on your telephone and he has our next question coming from Stephen Hansel from.
Eclectic investment. Please go ahead Sir.
Thank you and congratulations on the good continued quarter.
Performance.
I'm curious as to.
The.
Shares of the bid market more on a year to date basis.
Relative to last year and.
And also for the third quarter.
And the extent to which there are projects.
In that.
In the <unk>.
Mid market that you don't.
Bid on at all.
And.
And the extent to which it's.
Worthwhile to talk about that.
Well when we look at our market share.
So far this year is around 37% last year it was 39% the year before 2006.
2018, it was 45.
The various with the size of projects being awarded on the timing of that project awards, but we should be there in the high <unk> low <unk> from year to year.
Clearly when we look at the projects that we bid we are selecting the ones that suits our fleet our expertise the best and our projects, we decided not to bid.
<unk>.
Because our margins expectations on those projects.
So yes, we have a fairly robust process around selecting the projects I'll make sure that the once that we we do bid and included our bid market share are the ones that will give us the best contribution for the company.
Thank you.
And again I'd like to remind all participants to ask a question you will need to press star one like a telephone.
And we don't have any more questions on the queue at this point like to turn it over to Ms Dana, but gifts gifts to continue.
Thank you we appreciate the support of our shareholders employees and business partners and we thank you for joining us in this discussion about the important developments and initiatives in our business. We look forward to speaking with you during our next earnings discussion. Thank you.
And this concludes today's conference call. Thank you everyone for your participation you may now disconnect.