Q3 2024 Great Lakes Dredge & Dock Corp Earnings Call
Speaker Change: Good day and thank you for standing by. Welcome to the Q3 2024 Great Lakes Dreads and. Corporation for the Engrins call.
Speaker Change: At this time, all participants are in the list and only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You'll then hear an automated message advising your hand is raised.
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Speaker Change: Please be advised today's conference is being recorded. I would now like to hand the conference over to your first speaker today. Can't have the Genskis director of Investor Relations. Please go ahead.
Speaker Change: Thank you.
Tina Genskis: Good morning and welcome to our third quarter 2024 conference call. Joining me on the call this morning is our President and Chief Executive Officer, Lasse Petterson, and our Chief Financial Officer, Scott Kornblau.
Lasse 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 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.
Speaker Change: These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations.
Speaker Change: Certain risk factors inherent in our business are set forth in our earnings release and in filings with the SEC, including our 2023 Form 10-K and subsequent filings.
Speaker Change: During this call, we also referred to certain non-GAAP financial measures, including adjusted EBITDA, which are explained in the Net Income to Adjusted EBITDA Reconciliation attached to our earnings release, and posted on our Investor Relations website, along with certain other operating data.
Speaker Change: With that, I will turn the call over to Lasse.
Lasse: Thank you, Tina.
Lasse: Great Lakes have a strong third quarter demonstrating excellent product performance and significant wins in the bid market.
Lasse: For the third quarter, we achieved net income of $8.9 million and adjusted EBITDA of $27 million.
Lasse: During the quarter, Great Lakes secured $543 million in new contracts, including six beach renourishment projects that captured 79% of the coastal protection market.
Lasse: and three port deepening projects.
Speaker Change: That accounted for 81% of the capital project bid market, and a significant win was the large Hopper Dredge project, Sabine Natchez's Contract 6 deepening project, with a total value of $235 million. That included both the base scope and open options.
By the end of the third quarter, we achieved a record backlog of $1.2 billion, along with an additional $465 million in pending award low bids and options, providing utilization and revenue visibility well into 2026.
Speaker Change: After the quarter closed, two projects totaling $90 million that were in low-bid spending award at the end of the third quarter converted to awarded status.
Speaker Change: In our backlog are two large port TPNIC projects related to LNG export facilities, the Port Arthur LNG Phase 1 project, and the Brownsville Ship Channel project for the next decade.
Dredging operations started on both of these capital projects in the third quarter, slightly later than previously expected, but now progressing well.
Speaker Change: The Biden administration's temporary pause on approving new LNG export licenses have not impacted our two awarded projects.
Speaker Change: Hannuus Hofodritsch, the Galveston Island, was delivered in January this year, and she has gotten off to a great start with solid project performance.
Speaker Change: We held the naming ceremony for her in the Galveston Harbor on October 25th, and she is now back at work in Texas.
Speaker Change: Her sister ship, the Amelia Island, is expected to be delivered in the second half of 2025 and will also go straight to work on projects already in backlog, as the Galveston Island did.
Speaker Change: These dredges are specifically designed to be efficient on beach rebuild projects like the six projects we recently have been awarded.
Speaker Change: and Lasse Petterson. Thank you.
Speaker Change: We remain steadfast in our long-term strategy to enter the U.S. offshore wind market.
Speaker Change: The Acadia, the first U.S.-flagged Jones Act-compliant vessel designed for subsea rock installation, is currently under construction at the Phyllis shipyard.
Speaker Change: As announced by Philly earlier this year, they have reached a deal to sell the yard to a Korean shipyard group.
Speaker Change: with regulatory approvals expected later this year.
Speaker Change: We have met with the prospective new owner and are optimistic that the high-priority and planned investments into the yard will have a positive impact on the next phases of the Acadia build, should the transaction be completed.
Speaker Change: The Arcadia is contracted to install rock foundations on Equinor's Empire Wind 1, scheduled for a 2025 start, and to perform rock placement to protect subsea cables on the Earth's Sunrise Wind project, scheduled for 2026.
Speaker Change: At the end of the third quarter, our offshore wind backlog was 44.6 million with an additional 12.7 million options pending award.
Offshore wind is pivotal for the U.S. to secure its long-term energy needs and objectives, and we expect this to lead to significant long-term growth opportunity for Great Lakes.
Speaker Change: Additionally, the Arcadia is well suited for international offshore wind projects, as well as rock protection over pipelines in the oil and gas and carbon capture market, and cable protection in the telecommunication and power cable sectors.
Speaker Change: We have pre-qualified and tendered on a number of rock placement projects for the Arcadia for the remainder of the decade, both in the U.S. and internationally.
Speaker Change: The very positive interest from the offshore wind developers for Arcadia is manifested by post-quarter end. We signed the first vessel reservation agreement and are currently negotiating a second.
Speaker Change: We're two different offshore wind developers for projects in the United States. We plan rock installation through 2029.
Speaker Change: And now I'll turn the call over to Scott to further discuss the results for the quarter and then I'll provide further commentary around the market and our business.
Scott: Thank you, Lasse, and good morning, everyone.
Scott: I'll start by walking through the third quarter, which resulted in revenues of $191.2 million, net income of $8.9 million, and adjusted EBITDA and adjusted EBITDA margin of $27 million and 14.1% respectively.
Speaker Change: Revenues of $191.2 million in the third quarter increased
Speaker Change: $74 million from the prior year's third quarter, primarily due to the Galveston Island actively working on projects and higher capital and coastal protection project revenues, which together made up 80% of our total revenues.
Speaker Change: for the trailing 12 months.
Speaker Change: Net income was $59.1 million
Speaker Change: and Adjusted EBITDA and Adjusted EBITDA Margin were $136.5 million and 18.4% respectively, demonstrating our strong project performance, high win rate in a robust bid market, and the many successful initiatives we've implemented in recent years.
Speaker Change: Current quarter gross profit and gross profit margin increased to $36.2 million and 19% respectively from $9 million and 7.7% respectively in the third quarter of 2023.
Speaker Change: The quarter-over-quarter increase in gross margin is primarily due to improved project performance and higher capital and coastal protection revenue, which typically yields higher margins.
Speaker Change: Partially offset by an expedited dry docking of a dredge in preparation for several jobs she has recently won set to begin in the fourth quarter.
Speaker Change: Third quarter 2024 GNA of 19.8 million dollars is 5.6 million dollars higher than the same quarter last year, primarily driven by higher incentive pay as a result of this year's strong financial results.
Speaker Change: Net interest expense of $4.9 million for the third quarter 2024 was up from $2.8 million in the third quarter of 2023, primarily due to interest related to the term loan, which closed earlier in the second quarter of this year.
Speaker Change: Third quarter 2024 net income tax expense of $3.2 million increased $5 million compared to the same quarter of 2023 driven by the higher current quarter income.
Speaker Change: Rounding out the P&L, net income for the third quarter was $8.9 million, compared to a $6.2 million net loss in the prior year quarter, and adjusted EBITDA increased from $5.3 million to $27 million.
Speaker Change: Turning to our balance sheet, we ended the third quarter with $12 million in cash and nothing drawn on our $300 million revolver, which doesn't mature until the third quarter of 2027.
Speaker Change: Total liquidity at the end of the quarter was just over $318 million, and we have no debt maturities until 2029, putting us in a great position to complete our new build program with ample liquidity.
Speaker Change: During the quarter, S&P upgraded our corporate credit rating to B- from CCC+, which further demonstrates the improvements we have made this year to our balance sheet, cash flows, and overall performance.
Speaker Change: Total capital expenditures of $38.4 million in the third quarter of 2024 consisted of $19.4 million for the construction of the Subsea Rock Installation Vessel, the Acadia,
Speaker Change: $13.6 million for the Amelia Island, and $5.4 million for maintenance and growth. Our full-year CAPEX guidance remains between $130 and $150 million, though will likely come in towards the lower end of the range.
Speaker Change: Looking forward to the fourth quarter, we expect utilization and revenue to increase from the third quarter, as we have no regulatory dry dockings planned, and every active dredge is working most, if not all, of the quarter.
Speaker Change: We also expect to see margins increase in the fourth quarter, which has historically been the case due to certain environmental windows opening up.
Speaker Change: Finally, as has been the pattern this year, the majority of the work performed in the fourth quarter will be capital and coastal protection projects, which should cap off this very successful year with another strong quarter. With that, I will turn the call back over to Lasse for his remarks on the outlook moving forward.
Lasse Petterson: Thank you, Scott.
Lasse Petterson: The dreaded industry continues to see strong support from both the White House and Congress.
Lasse Petterson: And the 2024 Energy and Water Appropriation Bill provided a record $8.7 billion to the U.S. Army Corps of Engineers.
Lasse Petterson: Additionally, the 2023 Disaster Relief Supplemental Appropriation Act allocated $1.5 billion for infrastructure repairs and beach renourishment projects.
Speaker Change: The increased budget and additional funding have supported a very strong bid market in 2024 with a robust beach route nourishment market and several port deepening capital projects.
Speaker Change: The 2025 core budget is set to be another record appropriation.
Speaker Change: On June 28, 2024, the House Energy and Water Appropriations Subcommittee passed a bill providing $9.96 billion for the Corps.
Speaker Change: $2.7 billion above the president's request
Speaker Change: This includes $5.7 billion for operations and maintenance, with $3.1 billion from the Harbor Maintenance Trust Fund.
Speaker Change: On August 1, the Senate's Appropriations Committee approved a draft that allocates $10.3 billion in total funding for the Corps.
Speaker Change: On September 25th, President Biden signed a continuing resolution for the course fiscal 2025 budget, with lawmakers having until December 20th to finalize the full year spending.
Speaker Change: The passing of these appropriations will ensure solid funding for the U.S. Army Corps of Engineers for 2025, and we anticipate that this funding will convert into firm projects and another good bid market for the U.S. threading industry in 2025.
Speaker Change: Looking further ahead, the Water Resource Development Act, or WRDA, is on a two-year renewal cycle and includes legislation that authorizes the financing of the course projects in the next two to five year period.
Speaker Change: VRDA 2024 has seen strong bipartisan support, having been approved by key Senate and House committees.
Speaker Change: Currently the two chambers are working to reconcile the differences in the respective versions of the bill and once completed the final version will be sent to the president to be signed into law.
Speaker Change: The U.S. offshore wind development and operational pipeline expanded by 53% over the past year, now boasting a potential generating capacity of approximately 80.5 gigawatts by 2025.
Speaker Change: On September the 6th, Massachusetts awarded 2.7 GW in total PPAs, which included 1.1 GW for the South Coast Wind Project, 0.8 GW on New England Wind 1, and up to 0.8 GW on the Wind Yard Wind 2 project.
Speaker Change: with Rhode Island awarding the remaining 0.2 gigawatts on the South Coast Wind Project.
Speaker Change: This growth attributed to new leasing areas and heightened sector investment provides us with a very strong long-term market outlook, supporting our revenue growth opportunity in the offshore wind market.
Speaker Change: to conclude my remarks.
Speaker Change: The company has achieved strong operational improvements and results in 2024, driven by strong product performance and higher vessel utilization.
Speaker Change: A record backdrop gives a good visibility of fleet utilization through 2025 and well into 2026.
Speaker Change: This strengthens our ability to deliver strong results, generating higher free cash flows, supporting the modernization of our fleet, with efficient dredges, and our expansion into the growing offshore wind market, and thereby generating value for our shareholders. And with that, I turn the call over for questions.
Speaker Change: Thank you.
Speaker Change: Thank you. At this time, we will conduct the question and answer session.
Speaker Change: As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced.
Speaker Change: To withdraw your question, please press star 1 again.
Speaker Change: Please stand by while we compile the Q&A roster.
Speaker Change: Our first question comes from the line of Joe Gomez from Noble Capital. Your line is now open.
Joe Gomez: Good morning. Thanks for taking my questions.
Speaker Change: Good morning, Joe.
Joe Gomez: Very nice quarter, gentlemen. I wanted to start off for the...
Speaker Change: quarter that we're currently in. Obviously, you've got a significant amount of low bids and options pending at the end of the third quarter, but I just wanted to get your viewpoint of what you were seeing as kind of the award environment for the fourth quarter.
Speaker Change: Yeah, so as Lasse mentioned, $90 million of the amount we had in low bid pending at the end of the quarter was already awarded.
Speaker Change: We are expecting a couple of more, you know, to happen for sure this quarter. Within that, Joe, there are also about 140 million of options and that we're just waiting. You know, there's time that they have in order to exercise those options. Some could happen in the fourth quarter. Some of those deadlines are not until the first quarter of next year. So we'll just have to wait and see. But again, 90 in the bank and, you know, probably
Speaker Change: a couple of other projects we feel pretty good should get awarded rather quickly.
Speaker Change: Yeah, and I just want to add, Joe, that normally when we see a bidding cycle, the fourth quarter and first quarter,
Speaker Change: of the year is normally the lower part of our bidding market and Q2 and Q3 is really the strong bid market. So that's kind of the cycle we go through.
Speaker Change: and I'm sure you've seen the recent headlines.
Speaker Change: of Woodside Acquiring Tellurian, we feel that the prospects of that LNG project are much higher now than they have been. So the timing of that, I don't know, but that's something that's just been sitting in there for years that we feel better about now than we did at the beginning of the year.
Speaker Change: Are you seeing any delays or push outs of work on the Acadia at this point or is everything still running up-to-date of where your expectations were?
Speaker Change: Well, the sale of the shipyard has been announced and the new owner has been out in the press and really shown ambitions in the U.S. shipbuilding market and announcing investments into the yards. All that should be positive.
Speaker Change: The regulatory approvals have not been coming through yet. The new owner and author is saying that that is expected to happen here in this quarter.
Speaker Change: and then the transfer will happen. It's a share purchase agreement between the two and so the responsibility for the project is then becoming the new owner's responsibility, similar to what it has been for Aker.
Speaker Change: Okay, and then one more, if I may. I'm just trying to get a little update on the competitive environment, what you see in terms of new vessels being completed or existing vessels being taken out of the market, you know, any
Speaker Change: insight there as to whether the market has gotten more competitive or kind of stayed the same as appreciated.
Speaker Change: The bid market for 2024 has been very strong, as we have said on several calls, and that has supported the dredging fleet. We had idle dredgers last year and also in the beginning of 2024, but now our fleet is fully occupied.
Speaker Change: one of our competitors have announced the retirement of two older dredgers and I think that has already been
Speaker Change: exercised, so that reduces some capacity. We have added, you know, the Galveston Island and we took out one vessel last year.
Speaker Change: So, the capacity in the market has not really increased substantially.
Speaker Change: We also have the ability to reduce with some of our older hopper vessels and that's why we're building both the Galveston and the Amelia Island to facilitate that transfer from older vessels to newer more modern equipment.
Speaker Change: And the competitive environment today is, there's not a major change in that, really supported by the strong bid market.
Speaker Change: and that you can see in our really strong backlog.
Speaker Change: Okay, great. I'll get back in queue. Thank you. And again, congrats on the quarter.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from a line of Julio Romero from Sedati and Company. Your line is now open.
Julio Romero: Thank you. Hey, good morning, Lasse and Scott. Can you guys talk about dredging gross margins in the quarter? You know, 19% came in very solid. Scott, you mentioned that you had an expedited dry docking in the third quarter. Any way to kind of quantify the impact?
Speaker Change: to the third quarter margin, and then secondly, can you kind of talk about the several jobs, recently one, that are expected to begin in the fourth quarter for that dry dock vessel?
Speaker Change: Yeah, so we had a vessel that we were unsure of the timing of the dry dock because we weren't going to invest in it until we had clear visibility to backlog and then the explosion of the third quarter we all of a sudden added three jobs for her, all beach jobs, so beach renourishment jobs. So we went ahead and pulled that into the third quarter. It was about a
Speaker Change: I'm not quick enough to do the math on the margin impact, but that's what it was. But now she's ready to go, and it says we'll commence these beach projects now. Again, that'll go well into 2025 for her.
Speaker Change: Okay, excellent.
Speaker Change: You said margins expected to increase in the fourth quarter. Is that a year-over-year comp or sequential?
Speaker Change: Yeah, from the third quarter, you know, as I mentioned, we've talked about this before, we historically see the fourth quarter being a very, very strong margin quarter. There are certain environmental windows that open up. There's jobs we cannot do until the beginning of the fourth quarter, and we're able to typically get higher margins for that. So if you just go back and look historically in normal years, you'll see fourth quarters typically have it, and there's going to be no exception here. So the work that we will start commencing is a lot of this environmental window work that comes with higher margins than the third quarter. You go back and look at last year's fourth quarter, you know, the first three quarters of last year were somewhat marginal, and then we saw the explosion in the fourth quarter.
Speaker Change: Very helpful. Last one for me is just the backlog growth in capital projects you saw in the third quarter was really outstanding there.
Speaker Change: Yeah, how do we think about 2025 kind of margin potential and, you know, balancing getting excited about the mix of capital projects along with just kind of the puts and takes of
Speaker Change: of the business.
Speaker Change: Yeah, generally, the large backlog that we have in place gives us very good visibility of the utilization for next year, and most of that utilization is on capital projects and beach renourishment projects. So
Speaker Change: That is typically good margin activity for us, so that is a positive sign.
Speaker Change: Again, as I said, the budget for the Corps, once that gets approved, it's up to the Corps to convert those funds into projects.
Speaker Change: and, uh...
Speaker Change: If they are performing similarly in 2025 as they did in 2024, it should be a good bid market.
Speaker Change: Scott, you want to? Yeah, I do want to add, and I'll give a lot more color on the year-end call because, you know, as you know, we're still planning 2025, but the way the calendar is falling, 2025 will be a higher dry docking year than than 2024. So, you know, we will have that, but the backlog is solid. The visibility we have to revenue for next year is extremely high. A number of vessels that are fully utilized for next year and well into 2026.
Speaker Change: Great context there. I'll pass it along. Thanks very much.
Speaker Change: Thank you. Our next question comes from the line of Adam Salheimer from Thompson Davis. Your line is now open.
Adam Salheimer: Hey, good morning guys. Nice quarter.
Adam Salheimer: Hey thanks, good morning. Can you give additional color on the
Adam Salheimer: If you get both of the reservations, you already have one, but if you get both, are you trying to say that your capacity would be booked into 29, or are you just saying that the reservations are between now and 29?
Speaker Change: That gives us the opportunity to secure a backlog for the vessel once those contracts are being, or those reservations are being converted into contracts.
Adam Salheimer: And the execution of this work that these agreements cover is from 28 and onwards.
Adam Salheimer: And it gives a solid, let's say, utilization of the vessel here in the U.S. market for that period. It's not giving us a full utilization, but it gives a solid foundation for utilization of the vessel.
Speaker Change: Got it. Okay. That's helpful. And then, maybe it's just me, but it sounded like you were more bullish on additional L&G awards. Is that including, like, Tellurian flipping from low bid?
Speaker Change: into into yeah the Tudorian
Speaker Change: We just have to follow what Woodside decides to do on the project, but again, it's a very strong opportunity. They do have FERC approval for the project, so it's not affected by the Biden ban on new approvals.
Speaker Change: So that's good news for that project.
Speaker Change: And then, Scott, you also commented on Q4 margins.
Speaker Change: What are your expectations on Q4 top line?
Scott: It's going to be, as I mentioned, every active vessel will be working, and some of them the entire quarter have really good visibility to it. The revenue will start with it too. It's going to be a very, very strong quarter on revenue, and as I mentioned, with the mix of projects that we have, the margins should, you know, we'll see an increase from the third quarter.
Scott: I will tell you, because it's going to come out in our queue in a little bit. Anyways, we always put how much of our backlog will be earned in the rest of this year. We'll be reporting it'll be in the upper 10% of the $1.2 billion backlog will be earned in the fourth quarter.
Speaker Change: Thanks for that and then just lastly on
Speaker Change: I guess I'm not asking for U.S. capital revenue next year, but I'm just trying to think through.
Speaker Change: the seasonality of capital next year because I feel like other than what you just mentioned about the dry docking I feel like you're
Speaker Change: The revenue burn for capital should be pretty even next year. Is that a fair statement?
Speaker Change: of next year. So yeah, when I kind of look at the, you know, the big project that we have won, Freeport, we just mentioned Sabine. We won Mobile earlier. You know, those are all relatively long projects that should be executing for a good part of next year.
Speaker Change: Good update. Thanks, guys.
Speaker Change: Yep, thanks.
Speaker Change: and Lasse Petterson. Thank you. Bye.
Speaker Change: Thank you. Bye.
Speaker Change: Thank you.
Speaker Change: I'm not sure what's happening with the moderator, but if Abel, I think Tom Tendleton is next in line from CJS.
Tom Tendleton: Yes, go ahead John, your line is now open. Hi, thank you for taking my questions and really congrats on the nice backlog and the wins in the quarter. My first question is could you comment on the next decade project and if that will continue to 25 and you know if it doesn't will you still be effectively fully utilized?
Speaker Change: Yeah, we have no other information on that project other than what the next decade have said and that is that they are continuing on the project until they hear otherwise.
Speaker Change: So, we're in full blast on the project.
Speaker Change: We have a solid backlog, so should there be a delay, we can move the dredges over to other projects.
Tom Tendleton: So...
Speaker Change: At this point in time, I don't have any other information. Yeah, and a couple of months ago, FERC came out and they said that they were going to do a supplemental statement on the project. You know, FERC is definitely supporting this thing going forward. Next decade, it filed a petition against the hearing, and again, everything is moving full steam ahead, and the project is doing very, very well.
Speaker Change: Okay, great. Thank you. And then, if you could, what is your expectation for a comp and the GNA going forward? You obviously earned a nice bonus there, but I was wondering what the run rate should be as we think about modeling?
Speaker Change: Yeah, well, I mean, if you just, obviously, you know, most of the incentive is done a year at a time, so I'll talk about the fourth quarter. My expectation is G&A for the fourth quarter comes in between $18 and $19 million, and then everything gets reset, and, you know, we'll do a refresh.
Speaker Change: for next year. So I'll give some more commentary on 2025 G&A on the next call, but you know, I would imagine it to more normalized, you know, plus a little bit more for wind as we get, you know, much closer to getting on revenue with the Acadia.
Speaker Change: Okay, great. And then it's great to see you getting the reservation agreements for 28 and beyond, but I was just wondering what the prospects were for utilization of the CADI in, you know, late 26 and into 27 at this point. Are you seeing any progress there?
Speaker Change: Well, the status is, as we said on the last call, we have the Empire Wind project and we have the Ersted Sunrise project. There are new options being discussed on those projects.
Speaker Change: So we have partial utilization in 26 and 27, will be from top later.
Speaker Change: Okay, great. Thank you again.
Speaker Change: Thanks, John.
Speaker Change: Thank you. This concludes the question and answer session. I would now like to turn it back to Tina for closing remarks.
Speaker Change: 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.
Speaker Change: Thank you for your participation today in today's conference call. This concludes the program. You may now disconnect.