Q3 2022 Great Lakes Dredge & Dock Corp Earnings Call
Good day, and thank you for standing by.
Welcome to the third quarter 2022, Great Lakes Dredging Dock Corporation 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.
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Please be advised that today's conference is being recorded I would now.
I'd like to hand, the conference over to your speaker today Tina.
Tina Baginski director of Investor Relations. Please go ahead.
Thank you.
Good morning, and welcome to our third quarter Conference call. Joining me on the call. This morning is our president and Chief Executive Officer lots of Petterson, and our Chief Financial Officer, Scott Kornblau.
Lastly, we'll provide an update on the events of the quarter and Scott will continue with an update on our financial results for the quarter Lassa will conclude with an update on the outlook for the business and 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 2021 Form 10-K and subsequent filings. During this call. We also refer to certain non-GAAP financial measures, including adjusted EBITDA, which are explained in the net income to adjusted EBITDA.
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.
During the third quarter, we continued to navigate a challenging operating environment driven.
Driven by the continued delayed bid market.
Pressures and continued impact from the second quarter site conditions claims on certain projects.
Overall year to date did volumes from the Army Corps sits at 90% of the 2021 year to date volumes as we had seen some good improvements in bid volumes during Q3.
Unfortunately, the severe delay in the big market that we have seen through Q1 and Q2 this year.
A significant impact on our fleet utilization in Q2 and Q3.
A portion of our annual revenues comes from projects bid and executed within the year, which we call book and burn.
These projects typically beach Renourishment projects and these volumes were only 53% of the 2021 bid market volumes.
When these projects get delayed or not tendered it impacts the fleet utilization for the industry, both for great Lakes and foreign competitors.
We both have the dredges tied to the dock we know work.
In September we had nine major dredges in dry dockings or IDE.
We use the time efficiently to accelerate repairs of maintenance work and currently.
The dredges are back in normal operations.
We have held numerous in constructive discussions with the Army Corps leadership, a modest impacting the mid market and how to resolve issues.
You started to see positive developments.
In the latter part of Q3, the bid market gained momentum and great Lakes won 51% of the volume of speed as we were awarded $338 9 million in dredging projects open options.
During the quarter with $452 6 million of dredging backlog and $625 7 million and open options and projects pending award.
The Army Corps continues to receive record funding. So we are optimistic that this situation is temporary and we see a return to more normal market conditions over the next quarters as more projects are scheduled to bid in Q4 and also into Q1 of 2023.
During the quarter, we have seen inflationary pressures impacting cost of labor cost of spares and consumables and sub contracted pricing.
Scott will give further details, but as an example, our cost of wire rope, which we use a lot for our winches and cranes has increased more than 100% since 2021.
And our second quarter earnings call, we elaborated on the unusual number of projects that encountered deferring.
Dissipated site conditions and mentioned that this would also impact the operations in the third quarter.
Burying site conditions on projects are not uncommon and our established methodologies for solving these contractually.
Unfortunately, this takes time on the revenue and profit recognition are delayed until these discussions are agreed upon.
As we did back in 2017, we went through a challenging environment. We are taking prompt a strong action to adjust to the situation.
We will reduce operating expense by keeping the oldest and least productive dredges at the dock with minimum Crewing. We are rationalizing our fleet of older support equipment, we have accelerated needed repairs to the most productive part of our fleet to optimize production going forward and our cost reduction initiatives.
Providing a proving out SG&A.
He is currently well below prior year, even in spite of the inflationary pressures we have experienced.
Our fleet renewal program is moving forward as planned.
The commissioning of several older stretches in 2017, we have invested in productivity upgrades. So best performing vessels, new Hopper dredge the Galveston Island will be ready for operation in the first half of 2020.
And her sister ship is expected to be ready for operation in the first half of 2025.
The delivery of the Galveston Island will provide us with added capacity and the opportunity to potentially.
Retire some of our older dredges, which will have a positive impact on our margins in the coming years.
These days, we are mobilizing our Empire offshore wind project team in Houston.
This project for Ecuador on BP.
Expected offshore rock installation started in 2025 is a solid start on our new venture to participate in the U S offshore wind market.
Okay.
And are in discussions with several other wind farm developers for projects commencing rock placements in 2025 and beyond.
Very optimistic to have a call.
Work scheduled for Iraq, New rocket installation vessel actually starts operation in 2020.
As we enter the fourth quarter, we expect results to improve as our fleet is busy.
Both for Q4 and for the first quarter over the next year. We believe the fundamentals are in place for a return to a more normal dredging market in 2023.
We believe the issues we have encountered this year are short term in nature.
The ongoing demand for dredging services, and our new and upgraded dredging fleet combined with our strategy for growth in the offshore wind market is a solid path for our company.
I will now turn the call over to Scott to further discuss the results of the quarter and the year and then I'll provide some further commentary around the markets on our business.
Thank you LASA and good morning, everyone. Let me start by walking through our third quarter results and which contract revenues were $158 $3 million net loss was $9 $9 million and adjusted EBITDA was $1 $3 million.
Revenue of $158 $3 million in the third quarter decreased $10 $3 million from the prior year third quarter, mostly driven by lower domestic capital and maintenance revenue, partially offset by higher coastal protection revenue.
Third quarter 2022 revenue came in about $10 million below the guidance given on the last earnings call, primarily due to the lack of book and burn Beach and maintenance work that we typically see in the third quarter for context, we had nine dredges either idle or in dry dock in September 2022, compared to just one.
One idle dredge in September 2021.
Current quarter gross profit and <unk>.
Gross profit margin was $3 $8 million, and two 4%, respectively compared to $36 $3 million and 21, 5% respectively. In the third quarter of 2021 and was lower than the guidance given on the last call partially due to the lower than expected utilization.
In revenue previously mentioned in addition, further differing site conditions on two of the projects, we discussed last quarter contributed to the lower margin.
These impacts will be added to the claims that we are working closely with our clients to resolve.
We also experienced continued inflationary pressures on consumables. In addition to rising diesel prices, which impacted the unhedged portion of our fuel as we typically hedge around 80% of our estimated fuel usage finally, we accelerated maintenance and repairs on a number of our basket.
Those that had unexpected downtime, mostly due to the previously mentioned lack of book and burn their cost. So the cost to do this maintenance impacted the current quarter. We felt it was prudent to take advantage of the downtime to set us up for next year.
Operating loss for the current quarter of $9 $5 million decreased from prior year quarter's operating income of $21 $4 million, primarily due to the lower gross profit offset partially by a decrease in general and administrative expenses third quarter 2022 G&A of <unk>.
$13 $3 million decreased $1 $9 million from the prior year third quarter, primarily due to lower incentive expense and lower Houston relocation costs and was slightly below guidance due to the continued focus on cost savings.
Net interest expense of $3 4 million for the third quarter of 2022 came in at guidance and was down from $4 $2 million in the third quarter of 2021, primarily due to additional capitalized interest for the new builds.
Third quarter, 2022 income tax benefit of $3 $3 million compared to income tax expense of $3 2 million for the same quarter of 2021 and was driven by the lower current quarter income rounding out the P&L net loss for the third quarter of 2022 was $9 $9 million.
Down from $13 8 million of net income in the prior year quarter.
Next we turn to our balance sheet, where we ended the third quarter with $38 $8 million in cash third quarter 2022 capital expenditures were $33 $7 million, which includes $11 $1 million for our new <unk> multi cat eight $5 million for the Galveston Island Newbuild.
$8 $2 million in maintenance and other capex $5 $1 million for our second new Hopper dredge and $800000 for the subsea rock installation vessel.
I'll conclude with some commentary on the upcoming quarter.
We expect fourth quarter 2022 revenues to be between 175 and $185 million as we are already seeing an uptick in utilization as currently 11 of our blue water dredges are working two others, the Padre Island and the Ellis Island are undergoing the regulatory.
Dry dockings and are expected to get back to work at the conclusion of their shipyard stays in December .
Finally, we have brought two of our older dredges to the dock, which will drastically reduce crew and other costs that gives us the ability to quickly bring them back to work if opportunities present themselves.
We expect fourth quarter gross profit margin to be in the high single digits with some remaining drag from the issues around production and inflation encountered during the second and third quarters. The continued impact of high diesel prices on the unhedged portion of our fuel the mix of projects in backlog and the Ellis.
And Padre dry dockings fourth quarter, G&A and net interest expense should remain relatively flat from the prior quarter.
Inclusive of our three ongoing Newbuild, we expect fourth quarter capex to be approximately $55 million, taking full year capex to approximately $155 million.
During the fourth quarter, we drew $10 million on our credit facility to support the Newbuild payments.
Despite the challenges we faced this year our liquidity remains strong our notes, which were refinanced last year at a very attractive 5.25% interest rate don't mature until 2029, and our recently upsized $300 million revolver runs until mid 2027.
These well time moves along with an improving bid market support our Newbuild initiative setting us up for future growth.
With that I will turn the call back over to <unk> for his remarks on the outlook moving forward.
Thank you Scott.
As indicated earlier bidding was delayed in the first half of the year, which then impacted the 2022 utilization the.
The bid market has picked up in the third quarter, which points to improved utilization in 2023, although some of the new phases on larger port deepening projects previously plan to bid in Q4 will likely slip into Q1 and Q2 next year.
We expect port deepening projects to continue in 2023 for the ports of Freeport, SEBI, Houston Corpus Christi, Norfolk and mobile.
The LNG projects, we have bid continue to we have been continue to update their plans in light of the changing energy situation in the EU.
And early works.
On the site has been initiated.
We are in the process of updating our estimates for these projects, but final FCB.
He has not yet been authorized.
We continue to see strong support from Congress for infrastructure investments and for the dredging industry.
On July 28, this year the Senate passed their version of the water Resource Development Act.
<unk>, which includes legislation that authorizes about 25 billion to help finance 20, new or modified the U S. Army Corps of engineers projects for flood and Hurricane protection dredging ecosystem restoration and other construction projects.
It's just the house passed their version also recently the legislation is expected to be conference and signed into law by President by it in the short order.
As of July 28, both the Senate and house passed their respective fiscal year 2023 U S Army Corps of engineers budget proposals.
The Senate proposal was $8 7 billion and the house proposal was $8 9 billion.
Prior to sending to precedent Bight invoices statements here the house and Senate will meet to agree on a final amount, which will likely be another record budget for the corps.
This will be under continuing resolution until mid December this year.
And this increased budgets and the funding from the Biogen administrations infrastructure Bill support our expectation of a stronger bid markets entering 2023.
We continue to see strong prevailing activity within the offshore wind market in the United States.
Great Lakes, that's already been awarded by <unk>, The rock installation contract for the Empire wind one on two projects with installation Windows in 2025, and 26, which is expected to power more than 1 million homes in the state of New York.
And in parallel to the rock installation vessel build this first contract we are bidding for a multitude of other offshore wind farm projects, where rock installations planned for late 2025.
Major wind farm developers like Ecuador, Dominion, our oven grid and U S win is already issued RFP use and they are in the process of selecting suppliers for the wind farm developments.
We are optimistic about securing one or more of these projects to fill up our backlog, providing solid utilization for our vessel from 'twenty to 'twenty five and onwards.
In conclusion entering this year, we thought the worst effects of Covid was behind us and with solid funding for dredging.
You have a yet another good year however, the delay.
Our bid market in dredging combined with inflationary pressures supply chain constraints unchanged site conditions, some projects severely impacted our results for Q2 and Q3 this year.
In spite of these current difficulties, we maintained positive that great lakes strong performance over the past five years after our restructuring our restaurant recession program in 2017.
This allowed us to not only manage through this challenging year, but has provided us with the ability to continue our strategy of investing in our fleet to provide to prove to improve overall margin profile, while executing on our strategy to invest in the rapidly growing offshore wind market that provide client diversification.
Vacation and a new source of growth and revenue growth.
And with that.
The call over for questions.
Thank you and as a reminder, if you have a question. Please press star one one once again to ask a question. Please press star one one.
Please standby, while we compile the Q&A roster.
Our first question will come from Joe Gomes from Noble capital. Your line is open.
Yes.
Good morning, and thanks for taking the questions.
Good morning, Joe.
Kind of like to start out here.
On the second quarter call, you gave guidance, which obviously.
And below the guidance.
And just wondering if that was a month in to the quarter.
What changed in the last two months of the quarter or what was.
A surprise during the last two months of the quarter.
Cause that Miss.
On the gross margin side.
Yes, Joe I appreciate the question so.
Really a handful of things even on the last call as Youre right. It was just three months ago, we still had expectations like we typically see in a Q3 for book and burn towards the end of the quarter that did not materialize. So utilization that we were expecting did not occur in <unk>.
Dish in the diesel impact and as I'm sure you've been following diesel has recently gone through the roof that 20% unhedged portion.
Just on some.
The old legacy bids that 20% differential came back and it was a very impactful number.
In the quarter. In addition, during the quarter two of the projects that we talked about last quarter with the differing site conditions.
Worsening differing site conditions against Lassa talked about that's a timing issue we need to take the hit now, but we will add that to our claim.
And we are having those conversations now with our customer and we're comfortable that will get resolved, but these things do take time and then the last piece of it.
Which drove higher cost was once we saw that we were going to have more dredges at the dock not working cost or a lack in book and burn we thought was a really good idea, let's accelerate repairs and maintenance that we had planned for these dredges later on take advantage of the downtime get those out of the way so when this <unk>.
It picks up we can get back to work and not have the Pos.
Can you.
Thank you for that is there any way to kind of.
Do you have a.
Our percentage of impact for these.
Four or five different.
Cost or lower Utilizations in the <unk>.
Diesel impact.
Net for gross margin.
Risk.
One was the most impactful.
So if you can rank them on a kind of break it out on a.
On a dollar basis as opposed suggests a visa.
The things that hit us.
Yeah, So Joe the four major ones that I just mentioned the impact was about the same on all of their little differences, but.
They were really had about the same impact.
The sum of those four without those if we didn't have it get it would've gotten us fairly close to where I think consensus was for the quarter. So these were things. We did not anticipate these are things that we typically do not see in Q3.
But all four of them were just as impactful as the others.
Okay. Thank you for that very very helpful.
Okay.
Any can you any impact from either hurricane.
And either positively or negatively I understand here it came right at the end of the.
In the quarter, but any.
The impact that you could see maybe on the on the positive side Arden again on the negative side from the hurricane.
Yes.
The cost to us.
There are several large beach restoration projects.
It will come as a result of hurricane Ian.
It takes a while for the quarter to get these.
Tenders out and bid before we can execute.
So we expect these to come out to bid in Q2 next year.
I'll start to come out in Q2 next year.
Execution will be in the second half of next year for those beach projects Beach restoration projects.
And Joe I will add we had three dredges in the area, but the the impact and downtime from it was very small and something that we've already contemplated for being in that area or that time of year. So it did not impact operations more than just a few days.
Okay and one last one for me if I may.
And then the news here.
Lately, obviously was the.
The acquisition of your competitor weeks by.
<unk>.
Just wondering.
Kind of getting into your guys' thoughts on how that may or may not change the competitive environment out there.
Yes.
Okay.
The news came out here in the third quarter that's key.
<unk> weeks and as you know weeks as are our second largest editor.
Yes.
I know the key with the organization from my prior life in oil and gas.
I see that as a very responsible and <unk>.
Strong.
Contractor with a very strong risk management.
Program in place.
The acquisition doesn't change side also the capacity in the industry. So so we don't really see this as a major change for us competitively.
Okay, great. Thanks for taking the questions.
Yes.
Thank you.
One moment for our next question please.
And our next question comes from Adam Thalheimer from Thompson Davis Your line is open.
Hey, good morning, guys.
Good morning, Adam.
The <unk>.
Two jobs that had.
The site conditions remained challenging in Q3 when did those jobs complete.
They both roll into next year.
And then what would be your thought I.
I guess either positively or negatively on further.
Prizes.
Both of these deals now are well over 50% done.
So.
We have a pretty good feel of what of what there but again.
It can happen, we see we do as much.
Pre work in sampling that we can prior to but we cant sample every area and it can't happen, but I would I do believe just as far as we are into these projects that we have a pretty good idea of those conditions and would not expect to see in anything getting worse.
Okay.
Got it and then the <unk>.
Nine major.
Dredges that were either in dry dock and our idle in September how many of those were idle.
Of the nine.
Yes, well expect that we had we had the two the two that were in dry dock and then others were either between job getting ready to go to the backlog or book and burn that we thought we would have that we didn't and some of them are already had scheduled repairs and maintenance. So a mix of those but we just decided it was prudent let's take advantage of it.
And do it but then as I noted as we sit here to date 11 of our vessels are working so that was temporary and we are getting our dredge is back to work.
Okay, that's what I'm trying to get a sense of whether any of them still idle today are everybody is working today.
So yes, so as I mentioned, we have 11 working we have still the two in dry dock and then we have taken two to the dock and we are going to drastically reduce cost on those two but we can quickly bring them back if opportunities present themselves. So when we get when we get the <unk>.
December we'll have the two hopper finished their drydock. Besides those two sitting at the dock.
It looked it looks pretty good for Q1 right now we still have we still have some <unk>.
Space to fill but nothing that is unusual and we've had some really good momentum in Q3 and the bid market.
Okay.
So I don't know if it words in your mouth, but when do you.
When do you think we get we can get back to historical high teens gross margins.
So one of one of the challenges we have right now even though we did see a much stronger bid market in Q3. It is the mix of work we do not we have not seen the level of capital projects. This year bidding that we have in the past year to date the cap.
Little project bid market is half of where it was.
A year ago, and as you know thats the high margin work that we do very well on.
So the current mix of backlog has lower high margin work than we typically see the good news, though is between now and the end of the first quarter, we have visibility to nine capital projects to be bid LASA mentioned a number of them.
In his commentary so we do see it coming but these are jobs that got pushed to the right that should have been already and have not but are on the slate now too is the way we see it to bid in.
In Q1.
Okay. So this.
You mentioned six of them in the press release, Freeport's, Sabine Houston Corpus Christi, and Norfolk mobile.
Those bids are actually earlier in 'twenty three versus later.
That is correct.
That's encouraging and then last one the Ellen the large LNG project can you just update us on the timing of when that.
Mike first flip into backlog and then actually flip into construction.
Yeah.
As I said.
These projects are waiting for a final investment decision by the developers.
And that final investment decision is dependent on several things one is a long term supply contracts.
Also financing from the banks on the back of those supply contracts.
The.
We are seeing that the developers are updating their brands, we all been asked for price.
Re.
Re estimates.
So.
If there is a positive.
Later this year on one of them, we would see dredging starting in the second half of next year.
Great.
Okay. Good luck in Q4, thank you.
Thank you.
Thank you.
One moment for our next question please.
Our next question will come from Jon <unk> from CJS Securities. Your line is open.
Hi, good morning, and thank you for taking my questions.
Scott I was wondering if you could break out in Q4 would you expect to be the impact of these lingering.
The effect from change orders as well as inflation.
Drydocking expenses and then second.
Maybe if you could answer what amount of expenses did you pull out from 'twenty three on a maintenance basis.
Just with the idle time that you had.
Yeah. So.
Looking at the continuing impact again.
I still think we're going to see some pressure on diesel.
These last couple of weeks it it continues to increase.
To levels, we haven't seen.
In a very long time.
As I mentioned earlier I don't think we'll see any continuing furthering differing site conditions on those projects. So I think I think we have a pretty good feel of the estimates of those.
I guided to the high single digits and then we have the drydocking it contemplates everything.
That I just spoke of.
<unk> drag on some of them and then I think we'll see continued inflationary pressure. So so all of that is baked into the to the guidance.
That I gave on that and I'm sorry, what was the second part of the question how much maintenance did you Colin.
Yes so.
During the quarter I'm going to say.
There were I think we have planned maintenance on a handful of vessels already there were three others. In addition to the dry dockings that were planned to be done either in Q4 or the first half of next year.
That we did so between between those unplanned once it was probably $4 million to $5 million.
Okay, Great that's helpful.
Second just on your hedging program with your you mentioned your 80% hedged on some legacy contracts what is your level of hedging.
Projects that you are signing now.
Yes, so we don't we don't change the <unk>.
Lots of fee around our hedging program, we will as we put on new bids we still do that 80%, but we will put in the bid at the current rate and then we will go ahead and hedge that portion. So we've always had this 20% exposure sometimes it works in our favor most of the time it is.
Relatively flat and then we have a quarter like this.
It really it really hit us so the philosophy hasn't changed it's just we now know when we put in new bids we are going to bid. It at these higher prices and then hedge 80% of that right away to take that risk off the table.
Understood. Thank you and then finally in your discussions with the Army Corps. What gives you the confidence that awards will improve.
Proved to a more normalized rate my understanding is that.
But there are lack of manpower and I don't know how quickly that that something like that could be turned around.
Yes.
In our discussions with the Army Corps.
We are highlighting the issues that we see compared.
By year on the bid volumes coming out.
And we have seen good pickup in the third quarter.
We have had detailed discussion on the core deepening bids that is scheduled to come out of schedule Corelogic fourth quarter. We know they are slipping into into Q4 Q1 of next year.
The corps is well aware of the issues.
Are very keen to get back to a normal bid volumes.
What gives me.
The reason for optimism is the fact that funds are now being made are available for the quarter for these projects.
And our strong work on the Harbor maintenance Trust fund over the last years.
Sure that funding going forward.
Yes.
Got it thank you Ross.
Thank you.
One moment for our next question.
And our next question will come from Andrew Casella from Deutsche Bank. Your line is open.
Hi, Thanks for taking the questions I wanted to ask just remind US again when you bid on a project how quickly did you start mobilizing and getting funding for that I guess as we think about the comments you were making on some of the capital projects that are bidding in the first quarter or is that does that essentially assume that youll be mobilized as soon as you make the bed or just remind us again on that mechanism.
Yes, typically what happens is that you bid to work.
If you are the low bidder that takes.
Four to five weeks to get that confirmed and turned into being a contract and then it takes us some weeks to mobilize on the projects. So.
Typically between six and eight weeks.
Could take longer but if we want to go quickly on to the job.
That's the timeframe.
Got it so with that in mind I guess.
So up to the question about kind of getting back to the high teens margin certainly with the understanding that the mix given needs to include some of these capital projects that seems like that's a second half 'twenty three event versus it being anytime sooner.
Yes, I think thats okay.
Okay got it and then just as far as.
Some of the cash sources and uses as we think about next year and obviously with EBITDA running at these lower levels I mean definitely you're going to.
With the Capex program definitely going to strain liquidity a bit can you just remind us again, how youre thinking about capex for 2023, and then just any comments on kind of how youre thinking about working capital.
Yes sure. So we expect I gave 155 to 100 roughly for 2022, we expect next year to look about the same.
As we continue with the Newbuild programs will take delivery of the Galveston Island.
In the first part of the year, but we'll continue with the progress on the second Hopper and the wind vessels. So capex should remain relatively.
Flat.
We did recently Upsized, our revolver and the plan all along.
Was that we would use the revolver as short term bridge financing during this newbuild period.
So even in light of the 2022 results that did not change the way we were thinking about it we had always anticipated that our capex driven by the Newbuild program would exceed operating cash flow starting in 2022.
We will take delivery of the Galveston next year and in 2025 have all of the new <unk>.
The vessels in our tool kit quickly start building up cash again and quickly get the revolver paid off starting in 2025.
Yeah.
Okay got it and then final question for me as you think about bidding on new contracts.
This period of excess inflation and just how I guess brought its been is there a way to change some of the contractual mechanisms where you make it either more formulaic, where you're more protected I guess.
And kind of when you make the bid versus when it's executed just curious if there is a possibility of kind of changing some of those mechanisms on a perspective basis.
Generally when you do a written re bid for the Corps you cannot change those conditions.
Conditions, while we do do is to update our cost estimates and make sure that we include for the increased cost of consumables.
And fuel and so forth.
If its RFP there are it's a different.
<unk>.
The vendor could be different contractual requirements you could have a data.
Wages being put to your execution plan to your people your experience on the type of equipment that you bring to the client. So there you have a better opportunity to.
To change some of these.
These items set otherwise fixed.
And I'll add it's one.
One of the advantage of the diversification, we're looking at to get into the offshore wind business. Those are more traditional RFP type contract or were able to negotiate in escalation clauses and things like that to help de risk. Some of these issues that we've seen.
Okay got it thanks, so much ill get back in the queue.
Thank you.
One moment for our next question please.
Our next question will come from John Ken Zhang from CJS Securities. Your line is open.
Alright, thanks for the follow up.
My question is just on the offshore wind industry I was wondering if you could just give us a little more color on the health of that.
Of that market.
Yesterday that.
Massachusetts Commonwealth Wind project was endangered due to rising costs number one are you bidding on that and number two are.
Are there any other project.
That kind of headwind.
Headwinds.
Yes.
In general.
There are a number of projects that are scheduled for stocks instead.
Installation, and 25, and 26% and 27.
We have bid bids out for all of the ones that are now starting up and I'm being planned here in the early phases.
There will be some movements on these projects, we know that from from history and large projects. There are hearings there are.
Approvals that needs to be.
Obtained.
And there has been some.
Talk about supply chain on generators.
That is delaying some of the plans for the developers there is also a trend towards larger.
Generators currently looking at.
15 megawatts per tower.
There are talks about a 20 megawatts.
<unk> clearly the economics of the developments are better with larger.
Generators on a per item.
So these things are.
Included in the developers consideration, but we are.
We are fairly optimistic.
Several of these projects will go forward with rock installation in 2025 and 26.
As I said, we already have a contract in place with Ecuador, and BP core Empire wind.
And we need one more contract to have a good year.
Utilization as we get into 'twenty five 'twenty.
Got it.
More question just on the language that you used in Europe .
In your prepared remarks in the press release over performance obligations and option versus your prior I guess low bid pending award just whats the difference there and is there anything we need to be thinking about.
Yes.
It's no different we just we just clarified and use different terminology. The low bids always included options as well. So we just put that clarifying language, but you don't need to think about it any different than you have been in the past should we think about performance obligations that backlog.
Yes, yes, they will they will eventually turn into backlog.
Okay, that's fair.
The Ecuador project.
So the backlog that we listed excludes the Ecuador project. So you will see us starting to refer to dredging backlog.
So the backlog numbers. Our dredging then in addition, we have the Ecuador contract.
Understood. Thank you.
Thank you.
One moment for our next question please.
Our next question will come from Andrew Casella from Deutsche Bank. Your line is open.
Hi, Thanks for taking the follow up just I'm not sure. If you guys disclosed this but do you have.
I guess the total quantum of claims youre kind of making on these two site condition issues I guess I'm just trying to understand what the P&L opportunity is ultimately and then.
Any sense of.
When you potentially could kind of resolve that since it's been a lingering issue and it seems like you will see it.
It seems like it's been going on for a couple of quarters now.
Yes, and yes.
So as long as I said.
These are not unusual these happen.
These have been quite often what's unusual is the size of these <unk> that we had multiple larger ones hit hit in the same period. So again. This is normal normal operation I will tell you and in addition to these two again there is a number of these just normal course of business that we have all along.
Between all of the potential claims right now it's in the $10 million to $20 million range.
Not that we will necessarily settle every single one of these 100 cents on the dollar but our success rate has been very good in the past that we do expect to get a large portion of that these do take time, though.
Getting our discussions with our clients getting them to agree that there is merit to it that typically it's fairly easy we can all agree that we thought the conditions, we're going to be X and they turned out to be why then is quantifying the impact of those differing site conditions that just take a little time to.
Work through so I don't expect either of these that I called out to get resolved this year.
But we have a lot of people focused on it we have ongoing conversations we're motivated to get these done but I do think it's going to be a first half of next year.
Got it and just as far as the mechanism with that do you have to I mean is this a rolling process where you'll.
Youll have the I guess the quantum of the issues you had in the second quarter you go to the <unk>.
The customer try to get those back then you have additional ones in third quarter or do you have to kind of wait to the end of the project to to go back and I guess resolve all of them all at once.
Yes at tip typically the resolution occurs at the end of the project the conversation start immediately.
Okay, great. Thanks, so much.
Thank you as a reminder to ask a question. Please press star one one.
One moment for our next question.
Our next question will come from William CLA from <unk> capital markets. Your line is open.
Alright, good morning, gentlemen.
Good morning, three questions.
The question is.
A question as to whether the differ.
Difficulties in the Mississippi River Lowe drafts and that sort of thing.
It represents an opportunity for <unk>.
Or not.
And then second.
And excuse me, if I'm not up to date.
This is for you Brian .
Uh huh.
Troublesome.
Or maybe a two minute update.
Sort of the state of play if you will generally speaking.
A lot of discussions it seems to be going on about the Jones Act.
And the impact country LTV.
Yes.
Yes.
Levels in the Mississippi River.
Extraordinary low which gives the challenges for the navigation.
On the river.
We have.
We have several projects in the area and we have been asked if we have a large cutter dredge available to go in and help us.
And so it add some work is typically work.
For us this on the rivers and lakes part of our business.
And.
So that's work that is different from previous years, where previous years, who have much more sedimentation in the outer part of the.
Desktop, which.
Which is not happening this year.
Which then gives.
Worked for for Hopper dredges typically.
So the nature of all that work has changed.
I don't know what you are referring to with the Jones Act could you clarify.
Oh.
Next quarter, if Oh, sorry, there shouldnt be while it seems to me that it's been all of that.
Discussion about the benefits of.
Waving at or eliminating it.
I think as well.
Let me relate to the LNG market.
Yes.
But I'm not I'm not up to date on that topic. So, let's just see if I can.
I can give a quick comment that is that the support for the Jones Act and the provisions of the act is extremely strong in Congress.
There are.
Very strong support for.
The Jones Act from a national security point of view.
And that is in support of both domestic.
Shipping and also for dredging.
Every time there is.
And natural disaster that hits.
There are speculators oil traders that are speculating in and getting dispensations for delivery of.
Of LNG.
Diesel.
That happened this time too.
This dispensation that there is a system in place for waiving, The Jones Act and.
Time of National emergency.
We don't think this time was a national emergency, but there was a dispensation given.
Sure.
Okay. Thanks, so much Lisa.
Yes.
Thank you.
One moment for our next question please.
Okay.
Our next question will come from Stephen Hansel from eclectic investment partners. Your line is open.
Please check that your line is not on mute.
Thank you.
The.
Can you speak to the projected economics of the.
Within farm.
Business relative to other parts of your business.
Yes.
Take that.
We have said all along that the margins that we will see on the wind business are at the upper echelons of what we see on our most lucrative capital projects.
On the dredging side, so our expectation in the early years and we think we can push it after that is that we are in the <unk>.
30%.
Low to mid 30% range.
Range margins and again I think we have expectations that we can continue to push on that.
And.
Are there any.
Different competitors that you expect in that business.
Yes currently.
There are two components to this part of the work needs to be a can be done by international contractors, if they go to Canada and pick up the rock there.
Yeah.
And the other part is strictly Jones Act.
Clearly there is.
Opportunity for competition on the Internet with international contracts for Us.
Such as Pascal this in <unk>.
<unk>.
<unk>.
Which are the active contractors in the North sea.
And then on the Jones Act.
There is no other rock installation vessel being built.
And I would like to just make a comment also in the United States for the next 10 years. The plans off of 30 Gigawatts of offshore wind capacity of generation capacity to be installed.
In Europe . They are looking at 200, Gigawatts, which will put a very high demand on all the international vessels to participate in that market.
We do believe that we have a very strong competitive position here in the United States in the U S market.
Okay.
Final question did you consider.
I think the stock.
Sort of.
Signaled an early warning, but did you consider giving one.
Uh huh.
During the quarter win.
It came more obvious.
<unk>, we're going to be.
Significantly different from.
What had been projected.
So.
Topline, we were I think fairly in line with consensus.
We have been.
Signaling for some time that we would continue to feel a lot of the pressures that we felt in Q2 that those would continue into Q3.
I don't know if everybody contemplated in.
What we were saying.
As the truth, but it was something we believe so this was except for that book and burn piece, which again, we really thought we would start seeing a pickup enable to put vessels to work and didn't.
Again, we knew all of these other pressures that we saw we're going to continue and I think we signaled them pretty strongly on the last call that this would continue for some time.
Okay. Thank you very much.
Thank you.
I am showing no further questions from our phone lines I would now like to turn the conference back over to team up against this for any closing remarks. Thank.
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.
Thank you. This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
The conference will begin shortly to raise your hand during Q&A you can dial star one one.
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Okay.
Okay.
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