Q1 2023 Great Lakes Dredge & Dock Corp Earnings Call
Speaker 2: Good day and thank you for standing by.
Speaker 2: Dredge and Doc Corporation Earnings Conference call. At this time, all participants are in a listen-only mode. For the speaker's presentation, there will be a question-and-answer session.
Speaker 2: To ask a question during the session you will need to press star 11 on your telephone.
Speaker 2: You will then hear an automated message advising that your hand is raised. To withdraw your question, please press star 1-1 again.
Speaker 2: Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tina Baginskas, Director of Investor Relations. Please go ahead. Thank you. Good morning and welcome to our first quarter 2023 conference call. I'm Tina Baginskas and welcome, we'll be getting started in
Speaker 2: Joining me on this call this morning is our President and Chief Executive Officer, Lassa Pedersen, and our Chief Financial Officer, Scott Kornblau. Lassa will provide an update on the events of the quarter, then Scott will continue with an update on our financial results for the quarter.
Speaker 2: Lhasa 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 may be related to your business.
Speaker 2: 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 2022 Form 10-K and subsequent filings. During this call, we also refer to certain non-GAAP financial measures, including adjusted EBITDA-
Speaker 3: Thank you, Dina.
Speaker 4: As stated in our press release, we reported improved results in the first quarter of 2023.
Speaker 4: The company showed improvements in gross profit margins and adjust the EBITDA compared to each of the prior three quarters.
Speaker 4: In this winter quarter, we continue to face weather challenges on projects in the Northeast.
Speaker 5: and
Speaker 4: As in the previous quarter, we had a lower than normal amount of capital work due to the delay in the bid market for large port deepenings and coastal protection projects in 2022.
Speaker 4: We ended the quarter with revenues of 158 million and an EBITDA of 10.2 million.
Speaker 4: Complete utilization in the first quarter was strong, but project revenues came primarily from maintenance projects which typically provide lower margin work.
Speaker 4: Fortunately, we have started to see positive developments in 2023, with both a larger number of projects coming out to bid and a better mix of projects coming to the market.
Speaker 4: in the first quarter of 2023.
Speaker 4: We had a total bid market that reached over 300 million, which is approximately 125 million greater than the first quarter of 2022, and we were low bidder on 41% of this market.
Speaker 4: We ended the quarter with $327.1 million of dredging backlog.
Speaker 4: which does not include approximately $50 million of performance obligation related to offshore wind contracts.
Speaker 4: And in addition, we ended the quarter with 516.9 million in low bids and options.
Speaker 4: pending award. Not included in the first quarter backlog numbers are two major projects on which we were the low bidder in early April , namely the Freeport deepening projects at around 160 million and a coastal protection project in the northeast at approximately 90 million.
Speaker 4: Assuming these two projects move forward to award in second quarter, we could see work commence in the second half of the year.
Speaker 4: It is positive that we have seen overall improvements in results in the first quarter and that bidding for large products here started to pick up in first and second quarter.
Speaker 4: and with expected additional projects coming to bid for the remainder of the year.
Speaker 4: However, as new projects typically take 6-8 weeks from bidding to contract award, and additionally a minimum of 4 weeks to mobilize to site.
Speaker 4: We do expect in the short term to see some continuous lowness in project revenues as We will have some dredge in drydock and some lower fleet utilization in Q2 and Q3 and Q1.
Speaker 4: That's due to this low bid market that we saw in 2022.
Speaker 4: In the last six months, we took swift and proactive action on cost reductions and fleet utilization adjustments. Last year, we retired the 42-year-old hopper dredge, the Terrapin Island, and we currently have cold-stacked two major dredges and various support equipment in anticipation of an improved dredging market in the second part of 2023 and onward.
Speaker 4: 23 through natural attrition.
Speaker 4: As we adjust to the current market condition, we remain optimistic in the long-term outlook for the treasury market, and our ongoing pre-renewal program is part of our strategy to continue to be the US industry leader in our selected market segments.
Speaker 4: After decommissioning several of our oldest dredges in 2017, we have invested in productivity upgrades on our best performing vessels and our new hopper dredge, the Galveston Island, is on budget and is expected to be operational in the third quarter.
Speaker 4: and her sister ship, the Amelia Island, is expected to be delivered in 2025.
Speaker 4: We are also executing our strategy to enter the past growing US offshore wind market.
Speaker 4: Construction of a US flag-joint second-client inclined four-pipe vessel for subsea rock installation, which will be named Arcadia, is on budget and expected to be delivered and operational in the first half of 2025.
Speaker 4: Last year Great Lakes was awarded its first rock installation contract for the Empire Wind 1 and 2 by Equinor and BP. We installed windows in 2025 and 2026. We are currently bidding rock installation on several other offshore wind farm projects.
Speaker 4: with a work plan for 2025 and beyond. I will now turn the call over to Scott to further discuss the results for the quarter and then I'll provide a further commentary around the market and our business.
Speaker 6: Thanks, Lhasa, and good morning, everyone. For the first quarter of 2023, revenues were $158 million, net loss was $3.2 million, and adjusted EBITDA was $10.2 million. Revenue of $158 million in the first quarter of 2023, net loss was $3.2 million, and adjusted
Speaker 6: decreased $36.3 million from the prior year first quarter. The lower revenue was primarily due to lower capital and coastal protection revenue offset partially by an increase in maintenance and rivers and lakes project revenue.
Speaker 6: Current quarter gross profit and gross profit margin was $12.1 million and 7.7% respectively, compared to $33.1 million and 17% respectively in the first quarter of 2022. Capital project revenue in the first quarter of 2023.
Speaker 6: was one-third of the capital revenue earned in the first quarter of 2022, contributing to the decrease in margin. In addition, significant weather delays continue to severely impact a number of projects in the Northeast.
Speaker 6: Operating loss for the current quarter of $0.9 million decreased from $18.8 million of operating income from the prior year quarter. The decrease is a result of the lower gross margin offset slightly by lower G&A expenses compared to the prior year first quarter. First quarter 2023 G&A of $13 million was...
Speaker 6: was down from $4 million in the first quarter of 2022, primarily due to an increase in capitalized interest on our new build program, partially offset by current quarter revolver interest expense.
Speaker 6: First quarter 2023 income tax benefit of $0.8 million compared to $3.3 million of income tax expense from the same quarter of 2022 was driven by the lower current quarter income. Rounding out the P&L net loss for the first quarter 2023 was $3.2 million.
Speaker 6: in the shipyard for most of the quarter performing her regulatory dry docking.
Speaker 6: Our cost savings initiatives also paid dividends as spend was down in most categories.
Speaker 6: Turning to our balance sheet, we ended the first quarter of 2023 with $32.5 million in cash and $50 million drawn on our $300 million revolver.
Speaker 6: Total capital expenditures for the first quarter of 2023 were $28.7 million, consisting of $10.4 million for the Amelia Island, $9.7 million for the Galveston Island, $4.3 million for the build of the Subsea Rock installation vessel, the Acadia, and the
Speaker 6: and $4.3 million for the construction of the multi-cast and maintenance capex.
Speaker 6: Previous full year CAPEX guidance of approximately $175 million remains unchanged.
Speaker 6: As discussed last quarter, in January of this year, we applied with the Maritime Administration, or MIRAAD, which is a unit of the Department of Transportation, for Title XI financing on our new wind vessel, which typically comes with very attractive terms.
Speaker 6: The review process, which can take up to nine months, is moving as expected, but in parallel, we continue to explore other sources of capital.
Speaker 6: As Lhasa mentioned, we entered the second quarter with $327 million of backlog, but due to the delayed import deepening project bid in 2022, only $119 million of our current backlog consists of capital projects.
Speaker 6: While capital backlog will increase significantly upon the award of the Freeport job, we expect second and third quarter margins to be lower than normal due to the current mix of projects and backlog.
Speaker 6: We also have two dredges that will be in the shipyard for part of the second quarter undergoing the regulatory dry docking and a third dredge that will enter the shipyard towards the end of the quarter for plant maintenance and repairs. We have no further regulatory dry docking plans for the remainder of the year.
Speaker 6: With that, I will turn the call back over to Lhasa for his remarks on the outlook moving forward.
Speaker 6: back over to Lhasa for his remarks on the outlook moving forward. Thanks Scott.
Speaker 4: We continue to see strong support from the Biden Administration and Congress for infrastructure initiatives including funding of ports and coastal protection projects that require the use of dredging equipment.
Speaker 4: On December 29 last year, the Omniverse Appropriation Bill for Fiscal Year 2023 was signed into law, which included another record budget of $8.7 billion for the U.S. Army Corps of Engineers Civil Works Program, of which $2.3 billion is provided from the Harvard Maintenance Trust Fund.
Speaker 4: to maintain and modernize our nation's world. In addition, the Disaster Relief Supplemental Appropriation Act for Fiscal Year 2023 was approved which included 1.5 billion for the Corps to make necessary repairs to infrastructure impacted by hurricanes and other natural disasters.
Speaker 4: and to initiate beach renourishment projects that would increase coastal resiliency.
Speaker 4: The increased budgets and additional funding support our expectation for a stronger bid market and dredging market in 2023 and 2024. We expect these budget appropriations to support the funding of several delayed capital quarter improvement projects, including Sabine, Houston, and the City of Houston.
Speaker 4: seen bids for the port deepening projects on Norfolk and Freeport, which we have won.
Speaker 4: Included in our low bids pending are two liquefied natural gas projects that have been waiting notice to proceed from our clients.
Speaker 4: Last month, FERC approved the Brownsville LNG projects for next decade to proceed, which will enable completion of financing, followed by the issuance of EPC construction and dredging contracts.
Speaker 4: FERC also approved the Texas LNG project to proceed with potential final investment decisions later this year.
Speaker 4: Earlier in the quarter, Sempra made a decision to proceed with the Port Arthur LNG facility, and bids for dredging services are expected to be decided in the next few months.
Speaker 4: Based on this recent positive news, we are optimistic that dredging on one or two LNG projects would start in the second half of the year, and dredging to continue throughout 2024. In March 2023, President Biden released the President's
Speaker 4: This is a record amount for the President's budget.
Speaker 4: And we are hopeful that in line with recent history, Congress will increase the course budget for fiscal year 2024 when it is passed.
Speaker 4: At the end of 2022, the Water Resource Development Act of 2022, the Verda 2022, was approved by Congress and signed into law by the President.
Speaker 4: Verda 22 is on a two-year renewal cycle and includes legislation that would authorize the financing of course projects for flood and hurricane protection, dredging, ecosystem restoration and other construction projects.
Speaker 4: The law featured, among many other things, the New York and New Jersey shipping channels to be deep into 55 feet, estimated at 6 billion, as well as the Coastal Texas Protection and Restoration Program, estimated at 34 billion, which includes due to the March restoration to site Safe Gorder Texas.
Speaker 4: Gulf Coast from hurricane surges. In 2021, the current administration announced an ambitious goal of 30 gigawatts of offshore wind, the power generation installed by 2030, and provided $3 billion in federal loan guarantees for offshore wind projects.
Speaker 4: As stated previously, Equinor MVP has already awarded Great Lakes to the rock installation contract for the Empire Wind 1 and 2. We have tendered and are in discussions with several other wind farm developers for projects commencing rock placement in 2025 and beyond to ensure that we have a good work schedule for the Arcadia when she starts operation.
Speaker 4: In conclusion, our main focus this year is to keep managing through the various challenges that the delayed bid market in 2022 has presented us with, and with the goal of delivering improved year-over-year results.
We are confident we can continue to manage through the current difficult market situation and return to a more normal operating conditions toward the end of this year and beyond. And with that I turn the call over for questions. Thank you. As a reminder to ask a question please press star 1 1 on your telephone and wait for your name to be announced. To withdraw your question please press star 1 1 again and please stand by while we compile the Q&A roster.
Our first question comes from Joe Gomes of Noble Capital. Your line is open.
So I wanted to start a little bit on the competitive environment. You know, looking at some of the awards that the DOD releases. You know, it looks like Dutra got a $68 million award for Norfolk, Cashman got a big one in Baltimore. Some other ones, obviously we saw in the last week, Galveston Harbor for you guys. Just a little bit more if you touch on what that competitive environment looks like today. And you know, seeing these awards coming out, there seems to be a fair number of people that are going to some of the awards that are coming out.
way of contracting out this work. Larger projects normally split into one, two, three, four, five, six different phases.
for two reasons. One is to, as they say, increase competition on these bids because if they awarded a large contract, it would probably just be the Great Lakes and potentially weeks you could bid those projects. And secondly, it has to also correspond to the Omicore of Engineers budgets.
for that fiscal year. But there's no change in the way that they are bidding out the work in that respect.
Okay, thank you for that. And we talked in the past, you know, last year about those three large projects that you had some unusual claims on. Maybe you could give us a little update on where we stand on those claims resolutions.
Yeah, Joe. So, yeah, as you recall, we did decide to call out three because they were unusually large in the scope of claims that we typically see. Not much different from what I said last quarter. The two larger ones are moving through. We have not changed the way that we feel about those.
of CapEx in the quarter and last quarter you were looking more for that 70 to 75 million in the first quarter. I know things shift around but that's a pretty big delta there. Maybe you could give us a little more color on the CapEx.
Yeah, and it's exactly what I warned last year. We were in the midst of progress payments on the new builds. They're big payments. And if you have one or two of those slip a few weeks, it goes from Q1 to Q2. So as I mentioned, our $175 million that we guided at the beginning of the year total cap.
Someone else asked, on the WIN projects that you've tendered bids on for additional work, any kind of timing as to when we might see some progress or some awards on that? Yes, and the
projects that we have bid. And it's due to permitting, it's due to supply chain issues, it's due to changes in design on these wind projects where everybody wants to have larger turbines in because that's the most economical solution. But we are –.
we have bid and it's due to permitting, it's due to supply chain issues, it's due to changes in design on these wind projects where everybody wants to have larger turbines in because that's the most economical solution. But we believe that one of these
projects that we have tendered will be awarded also this year. And then for execution potentially in 25, 26, 27.
that we have tendered will be awarded also this year, and then for execution potentially in 25, 26, 27. Great, thank you very much.
Thank you. Thank you. One moment for our next question. And our next question comes from Adam Thalheimer of Thompson Davis. Your line is open. Hey, good morning, guys. Congrats on the improved results versus Q4. Hey. Good morning. Do you have any line, because the bidding environment that you guys talked about is pretty compelling, do you have any line of sight to bringing the cold stacked vessels back into service?
Yes, we do. And we have to adjust the capacity that we have out there in the market to the bid market that we see. And we are...
optimistic to bring those vessels back into operations as soon as we are now starting to work on these new projects that are coming in. So the answer is yes, and that is our plan. Okay, good. That's what it sounded like and then you said Q2, Q3 margins below normal, so my question is, how do we get the
It's just not going to be there. So even with this Freeport award lots of said these jobs take some time to get started We're probably full-blown on that, you know, possibly the end of Q3, but it's going to be Q4 So, you know, I mentioned we're at a hundred and twenty million dollars in change of capital backlog right now
And then, and utilization rate ticks down in Q2, up a little in Q3, and then up more in Q4. That sounds fair. What are your thoughts on kind of Q3 utilization versus Q1? Yeah. I mean, so right now, there still is some white space in Q3.
right now, but we have a number of vessels that are already completely fully booked for the rest of the year including Q3 and we have a you know a little white space to fill but we're not concerned about it at this point.
Is it too early to start getting even more excited for 24?
Yeah, it's interesting to look at this market even though it's quite depressing at times. When we as the largest trading contractor in the US, our focus has always been on the large and complex projects and the bid delay from 2022 and I just want you to understand
bid market here for 2023. The signs for Q1 and what we see for Q2, Q3 looks very good, which then ends up with a very good 24 when it comes to execution. So I'm optimistic and with the development that we see on the LNG side where we already have two projects where we have negotiated contracts.
One of them is most probably going to be executed late this year and onwards and that is a good situation to look at.
All right, good color. Thanks a lot. Thank you one moment for our next question.
And our next question comes from John 10110 of CJS Securities. Your line is now open.
Good morning. Thank you for taking my questions. I was wondering what is the risk here from the debt limit if the USD faults and then just the impact on budgets and government? How are you planning for that if something does happen? Are you referencing the Title 11 financing that were?
are using this situation to negotiate a lot of different issues. I think the probability or my expectation is that the debt limit will be raised and hence there is no impact on the financing of the US government.
I do believe that the discussion that is coming up here towards the end of the year, when it comes to approving the federal budget for 2024, you will see more of these discussions and potential continued resolution for a while, as we have seen in previous years.
Okay, great. And then what are the other capital projects that could still make it into Q4 this year? You have some of the LNG projects that could start. You have reports. What else is in the pipeline that could actually still start this year and get that margin back up?
Yeah, we are hopeful that some of these coastal protection projects that was part of the supplemental funding could come to bid and be executed towards Q4. That is good work, good margin work
So in addition to the port deepening projects, the coastal protection projects that were in that bill could come out and get executed in Q4.
Okay, great. Scott, could you – I don't know if you said this before – could you give us a better cadence for the remaining capital spending in the year?
Yeah, again, subject to flip to the left or the right a bit, but to round out roughly $175 million, looking at about $55 million each of Q2 and Q3, and then about $35 million in Q4. So, thank you very much.
Understood, thank you. And then lastly, just looking at lower utilization in Q2, are you planning to co-stack more dredges or are you going to keep them hot? Just expecting a bit more work in Q3 and then going Q4. Yeah, I mean, we do have, as I mentioned, there is some white space to fill. We are going to be, as we mentioned, aggressive taking costs out and putting vessels on the dock if we do not see anything. So we'll continue to monitor that, but we are not going to be able to do that.
time planning to do. We can shut them off quickly and turn them back on just as quickly.
development and initiatives in our business. We look forward to speaking with you during our next earnings discussion. Thank you. This concludes today's conference call. Thank you for participating and you may now disconnect.