Great Lakes Dredge & Dock Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2023

There are 10 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Q3 2023 Great Lakes Dredge and Dock Corp Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. And I would now like to hand the conference over to your speaker today, Ms.

Operator

Tina Bagenkus, Director of Investor Relations, please go ahead.

Speaker 1

Thank you. Good morning, and welcome to our Q3 2023 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 the market.

Speaker 1

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 inherent in our business are set forth in our earnings release and in filings with the SEC, including our 2022 Form 10 ks 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 reconciliation attached to our earnings release and posted on our Investor Relations website along with certain other operating data.

Speaker 1

With that, I will turn the call over to Lasse.

Speaker 2

Thank you, Tina. The 3rd quarter, as expected, was a challenging quarter due to vessel dry docks and idle equipment due to the market delays from 2022 and the first half of twenty twenty three. Despite the challenges, we were successful in building a solid backlog for the Q4 and for 2024 and onwards. We continue to see positive developments with both a larger number of capital projects and a better mix of projects coming to the market, which provides us with confidence that we are on a path to return to normal operations going into 2024. Great Lakes ended the quarter with a record dredging backlog of $1,030,000,000 which does not include approximately $50,000,000 and performance obligations related to offshore wind contracts and $225,000,000 in low bids and options pending award.

Speaker 2

At the end of the Q3, 71 percent of Great Lakes backlog consisted of capital projects. In the 3rd quarter, We added $519,000,000 in capital projects, which includes 2 LNG projects. The Browns will ship channel project NextDecade Corporation's Rio Grande LNG Project and the Port Arthur LNG Phase 1 Project. The Rio Grande Brownsville LNG project is the largest project undertaken in Great Lakes history. Subcontract work on this project is anticipated to start later this year with a major dredging effort starting in Q2 of 2024 and lasting for approximately 2.5 years.

Speaker 2

Our proven performance and safety culture allows us to win and execute these projects and support the growth of LNG exports in the U. S. In addition to these two capital projects, Great Lakes added $235,000,000 in maintenance and coastal protection projects to our dredging backlog in the Q3. As we have navigated the challenges from 2022 and have seen the ramp up in bidding in 2023. We continue to be proactive on cost reductions and fleet adjustments, And we have reduced our general and administrative and overhead headcount by more than 50% during the year.

Speaker 2

As we have stated previously, we temporarily cold stacked vessels to reduce cost and these vessels can easily be reactivated as the market improved, as we did for one of our recent new projects. Our newest hopper dredge, The Cabotson Island is expected to be operational later in the Q4, and our sister ship, the Amelia Island, is expected to be delivered in 2025. In the quarter, we took delivery of our 2 multicats, the Cape Hatteras and the Cape Canaveral, which support Our pipeline operations with a stable work platform for making pipeline connections safely and quickly in most weather conditions, in line with our strong safety culture. We are executing on our strategy to enter the U. S.

Speaker 2

Offshore wind market. In July 2020, 2023, we were honored to have President Biden attend the steel cutting ceremony for Great Lakes Offshore Wind Rock Installation Vessel, the Arcadia, which marks another step forward as construction begins with expected delivery in 2025. In addition, we signed the first ever subcontract for procurement of U. S. Rock with carbon, sand and gravel, a U.

Speaker 2

S. Quarry in the state of New York. Both milestones solidify our entry into the offshore wind market, and we support Great Lakes' Awarded rock installation contracts for the Empire Wind 1 and 2 projects with estimated installation windows in 20252026. We continue to monitor developments on related offshore wind power purchase agreements after the refusal by the New York State Energy Research and Development Authority to renegotiate the agreements for Equinor and BP's Empire Wind Projects and Ersted's Sunrise Projects. We expect updates from Equinor in the Q4 on potential impacts to the development plans for the Empire Wind Projects.

Speaker 2

The U. S. Offshore wind market has seen other projects delayed or canceled due to higher interest rates and inflation. However, on October 24th this year, The 3rd round of PPAs for the State of New York saw 4 gigawatts of new PPAs awarded to 3 operators, And we continue to bid on projects with scheduled offshore installation windows in 2026 and onwards. I will now 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.

Speaker 3

Thank you, Lasse, and good morning, everyone. For the Q3 of 2023, revenues were $117,200,000 Net loss was $6,200,000 and adjusted EBITDA was $5,300,000 Revenue of 117 point The quarter over quarter decrease in revenue was primarily due to lower utilization for the hydraulic fleet as that segment of the market has remained soft. However, we do expect hydraulic utilization to improve during the Q4. Despite the lower quarter over quarter revenue, including $36,000,000 less capital revenue, Current quarter gross profit and gross profit margin increased to $9,000,000 7.7 percent respectively compared to $3,800,000 2.4 percent respectively in the Q3 of 2022. The increase in gross margin is primarily due to improved project performance and lower operating costs due to our continued focus on cost reductions.

Speaker 3

3rd quarter 2023 G and A of $14,200,000 is $900,000 higher than the same quarter last year, primarily due to higher incentive pay, profit sharing and severance pay in the current year quarter, partially offset by lower costs $4,000,000 from the prior year's quarter net loss of $9,500,000 driven by the improved gross profit. Net interest expense of $2,800,000 for the Q3 2023 was down from $3,600,000 in the Q3 of 2022, primarily due to an increase in capitalized interest related to our newbuild program, partially offset by current quarter revolver interest expense. 3rd quarter 2023 net income tax benefit $1,800,000 compared to $3,300,000 of net income tax benefit in the same quarter of 2022 due to the higher current quarter income. Rounding out the P and L, net loss for the Q3 of 2023 was $6,200,000 an improvement from a $9,900,000 net loss in the prior year quarter. Turning to our balance sheet.

Speaker 3

We ended the Q3 of 2023 with $14,100,000 in cash and $55,000,000 drawn on our $300,000,000 revolver, which doesn't mature until the Q3 of 2027. Total capital expenditures for the Q3 of 2023 were $46,600,000 which includes $28,400,000 for the construction of the subsea rock installation vessel, the Acadia, $10,100,000 for the Galveston Island and $2,200,000 for the recently delivered multicast. So far in the Q4, we have paid an additional $42,000,000 for new build payments and currently have $85,000,000 drawn on the revolver. Full year CapEx guidance of approximately $145,000,000 is down $30,000,000 from previous guidance due to the timing of milestone payments on the Acadia, which we expect to take delivery in the first half of 2025. As previously discussed, in January of this year, we applied with the Maritime Administration or MRAD, 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 3

The review is ongoing and a few weeks ago we hit a key milestone with the commencement of an independent financial assessment It was just the next step in the process. But in parallel, we continued to explore other sources of capital. Post quarter end, We closed on a sale leaseback of various support equipment, bringing in approximately $29,000,000 of cash. Looking towards the Q4, we expect utilization to greatly increase from the Q3 as most of the non cold stacked vessels are scheduled to work And there are no planned dry dockings. We should also see a larger amount of revenue coming from capital and beach projects, which typically come with higher margins than maintenance projects.

Speaker 3

With that, I'll turn the call back over to Lasse for his remarks on the outlook moving forward.

Speaker 2

Thank you, Scott. For the 9 months ending September 30, the bid market, not including LNG and offshore wind projects, was 1,800,000,000 of which Great Lakes won 31%. The increase in the bid market was driven by a strong market for capital projects, which has already seen 7 bids for port improvement projects, including ports such as Freeport, San Juan and Norfolk. The total capital bid market for port improvement projects through the Q3 totaled $459,000,000 of which 39% of the market Year to date was won by Great Lakes. We expect the budgeted appropriations to support the funding of several previously delayed capital port improvement projects that are still expected to bid before the end of the year, including Sabine, Houston and Mobile.

Speaker 2

We continue to see strong support from the Biden administration and Congress for the dredging industry. In March this year, President Biden released the President's fiscal year 2024 executive budget. The proposed amount for the core targets $7,400,000,000 which is a record amount for a President's budget. In June this year, the House proposed an increased 2024 budget of $9,600,000,000 for the core, which is $910,000,000 above the fiscal year 2023 and includes $2,800,000,000 of the Harbour Maintenance Trust Fund and the $1,500,000,000 for flood and storm damage reduction. In July, the Senate Committee for Appropriations past the budget, which targets $8,900,000,000 for the core.

Speaker 2

This will move to the Senate floor for further deliberations and considerations. This proposed budget is expected to provide a strong 2024 bid market if passed by Congress over the next few months. Currently, the government is operating under a continued resolution until the budget is approved. Offshore wind has been recognized around the world as a reliable source of renewable energy. Globally installed offshore wind power generation is targeted to reach about 2 60 gigawatt by 2,030, up from 40 gigawatts in place in 2020.

Speaker 2

In 2021, the Biden administration announced the ambitious goal of 30 gigawatts in the United States Offshore Wind by 2,030 and provided $3,000,000,000 in federal loan guarantees for offshore wind projects. The administration's support for offshore wind culminated in the Inflation Reduction Act, the largest climate mitigation act ever passed by Congress. As stated previously, Great Lakes was awarded the rock installation contract for Equinor and BP's Empire Wind 1 and 2 projects with estimated installation windows in 20252026. The developer Requested adjustments to the power purchase agreements for these two projects, which New York rejected in October, and we are awaiting updates in the Q4 for potential impacts on the project schedules. New York continues to take steps forward in meeting their renewable energy goals With the announcement in October 24, 2023, of 3 new projects awarded with a capacity of approximately 4 gigawatts Our offshore wind energy and a new accelerated 4th bid round for additional PPAs that was announced in for early 2024.

Speaker 2

Although the market is facing some short term challenges, the long term outlook for offshore wind in the U. S. Is optimistic, based on strong fundamentals and commitments by the U. S. To meet its energy independence and decarbonization targets.

Speaker 2

Great Lakes has established a unique business position in the United States offshore wind market, and we continue to tender bids on multiple offshore wind projects for the Arcadia, our subsea rock installation vessel current being constructed. In conclusion, our main focus for the year has been to keep managing through the various challenges that the 2022 delayed markets presented us with a goal of delivering improved year over year results. As expected, So far this year, we have seen strong overall bid market, including a number of large capital projects that finally got bid, leading us to a record backlog of over $1,000,000,000 This combined with the fleet adjustments And the cost reductions and production initiatives we have in place will continue to provide improved results in the coming years. And with that, I'll turn the call over for questions.

Operator

Thank you. Stand by as we compile the Q and A roster. One moment for our first question. Our first question will come from Joe Gomes of NOBLE Capital Markets. Your line is open.

Speaker 4

Good morning. Thanks for taking my questions.

Speaker 5

Hey, good morning, Joe. Good morning.

Speaker 4

So I wanted to start off on the revenues. I mean, we'll look back at the Q2, your commentary there And you talked about the delayed bid market was coming to an end, that the number of dredges were completely booked and very, very few had Availability for the rest of the year, but then you came in at a revenue number which is the lowest Quarterly revenue number in at least 5 years. And just trying to square that comments and with The number that actually was generated in the quarter, I wonder if you could give us a little more color on that?

Speaker 3

Yes, Joe, what I had said and we said it at the beginning of the year and the commentary did not change throughout Was that even though we were continuing to see an improving bid market and we were winning our fair share of those, we really didn't expect to see that Turn into revenue until the Q4 and then going into next year. We always said the 1st 3 quarters would be somewhat muted. In addition, I'd also talked about last quarter, we had 3 dry docks scheduled for the Q3 As well, and we had talked about all year that the hydraulic market was still somewhat challenged and we're starting to see that recover now with the LNG. So I think I'd laid all the pieces out that we thought revenue would be down in Q3, utilization would be down in Q3. And Yaju, you're right.

Speaker 3

This is the lowest revenue we've had in a very, very long time and still Outperformed prior year quarter with $40,000,000 more revenue. So I think this is proving out The things that we can control on the cost reduction is on production we are. The revenue is about to come forward with Supported by $1,000,000,000 worth of

Speaker 4

backlog. So on that, I understand the backlog and it's Great. You guys have done a great job with the backlog, but we do have that continuing resolution there. How comfortable are you in the revenue actually coming into the 4th Quarter, if that continuing resolution goes on further than I think it's supposed to be next Monday or Tuesday, but anyway, next week.

Speaker 2

Yes. I think you are asking how that will impact our revenues going forward. The good news is that it will not impact the revenue from the LNG projects. That starts up in Q2 with the dredging. And also the capital project that has already been awarded that is in our backlog that will continue to Perform.

Speaker 2

So, the short term impact of continued resolution that lasts for a long time as it did in 2022 is not really there. It will impact the ability for the core to issue new contracts on new projects, And that will have an impact towards the end of 2024 and not the first half. We will just have to monitor what goes on in Congress and be optimistic about getting the continued resolution Being short, as it normally is, it lasts 2, 3, 4 months, and that's normal. But in 2022, we had 8 months of continued resolution that created a problem.

Speaker 4

Thank you for that, Lonza. And on the wind segment, it's unfortunate that there seems

Speaker 6

to be these

Speaker 4

delays going on. What would be the plan for the Acadia if Empire 1 and 2 We're not to go move forward anymore. I mean, do you have some comfort level in some of the bids with Some of the other projects out there that you'd be able to move the Acadia over to those projects?

Speaker 2

Yes. The short answer is yes. We have seen some uncertainty in the market, particularly with who canceled their Ocean Wind 12 for New Jersey. The article was citing cost inflation and also shortage of installation vessel capacity for the project, which Tells me that once Arcadia is out there, there will be a good demand for it. And also the new Rounds for the PPA bidding that happened in October sets up the installation windows in 2028 and onwards.

Speaker 2

And some of the projects that was slated for 2024, 2025 installation is slipping into 2025, 2026. It's a bit of a fluid situation at this point in time, but I'm optimistic that we have A backlog to execute on when Arcadia comes out of construction. There is also an international market that we can address. And as you have seen, the European market is very strong for offshore wind installations going towards 2030. And it far outpaces what we do here in the U.

Speaker 2

S.

Speaker 4

Okay. Thank you for that. One more, if I may. In other words, Scott, you get this question every quarter. Last year we had the site conditions, you had talked about you were thought you one of the issues would be resolved in the 3rd quarter, 1 in 4th quarter, just maybe give us an update on where those stand today?

Speaker 3

Yes. So I actually get to give you a different answer than I have for the last Four quarters, we have settled 2 of those during the quarter. And it was if you remember, we had kind of Small, medium and large, and it was the medium and large that got settled. The smaller of the 2 that we settled Did get fully booked in the quarter and it is now resolved. The larger one now fully resolved and settled.

Speaker 3

Just the way the accounting work, about half of that has been booked and the other half will Mostly be Q4 and maybe a little stub piece into Q1. So for this quarter, We were able to book about mid single digit millions of revenue and the total settlement came in as we've kind of previously guided

Operator

Thank you. And one moment please for our next question. Our next question will come from Adam Thalhimer of Thompson Davis. Your line is open.

Speaker 7

Hey, good morning guys. Congrats on the record backlog.

Speaker 2

Thank you.

Speaker 7

Scott, can you comment on kind of how we should be thinking about Q4 sales, I'm just curious if you see the potential for growth year over year?

Speaker 3

Yes. Q4 is now we are going to start seeing the fruits of some of the backlog that we had won earlier This year, I mentioned in my prepared remarks that most of the non cold stacked vessels are fully utilized for the quarter And expect the hydraulics, which I mentioned were definitely stretched in the Q3. Those are not completely booked, but A lot more full than they were in the Q3 and the rest of the fleet should be pretty busy during the quarter. And we will now start, I think seeing the shift of having more capital projects in revenue than we had for the 1st 9 months of the year. So yes, I am expecting very similar to how we laid out at the beginning of the year, We'll start seeing the fruits of this fantastic bid market starting to come to bear.

Speaker 7

Okay, great. And then last, I'm trying to Let's see. You talked about some of the larger projects that are currently in backlog, significant dredging begins in Q2 of 2024, was that just for Rio Grande or is that really a comment on the capital backlog in general?

Speaker 2

No, it was really a comment on the 2 LNG projects. As Scott has been saying, the cutter market or the hydraulic market has been challenged All of 2023. And we are with the Port Arthur and with the Brownsville project, we are putting those assets back in full operation, which It's really generating some good revenues once they are active.

Speaker 7

Okay. And then Scott, do you have any sense for like dry docking schedule in 2024?

Speaker 3

Yes, it's a little early. I'll give more color on the next call. But I'll tell you, it's probably going to be relatively flat to this year. Excuse me, I think it's going to be in that 3% to 4% range. I will say though, Adam, that the way we have it Scheduled out now, and again, I'll give more color on the year end call.

Speaker 3

It is much more weighted to the beginning of the year than the end, Especially on some of the hydraulics as we get ready to execute this LNG, we'll go ahead and pull those dry docks to the left, so we can get those done and out So once we get on payroll, we don't have to stop.

Speaker 7

Got it. And then high level, For next year, we still have some vessels in dry dock. And then I'm curious what the revenue What is your annual revenue potential at this point given all the moving pieces with the boats? Now that we have a full backlog, I'm just curious.

Speaker 3

Yes. I mean, I'm not going to give the full potential because as you know, a lot of it depends on mix and when the jobs are starting. I will say though, of our roughly $1,000,000,000 of backlog with some of these large capital projects, they're going well into 2025 One of the LNG projects is going into 2026. So we will earn rough numbers of the backlog, probably about half of it next year in 2024. So there is still some white space for us to fill Next year, but we also have a lot more backlog already into 2025 and to 26 than we typically have a couple of years out.

Speaker 7

Great. Okay. Thanks guys.

Operator

Thank you. One moment please for our next question. Our next question will come from Jon Tanwanteng of CJS Securities, your line is open.

Speaker 6

Hi, good morning. Thank you for taking my question. My first one, Just on the wind, I guess, end market is do you expect the Equinor project to be pushed out or canceled or somehow renegotiated on your end? And if so, what are your options for the Acadia and the timing of delivery or the financing construction if that happens?

Speaker 2

Yes. The only thing that we know is that we have been informed by Equinor that they are re Evaluating the new situation as New York were reluctant to or did not renegotiate renegotiate those PPAs. So we are expecting information from them in the Q4. There are a number of other projects that are going forward, and We have bid ins in most of these projects that have installation windows from 2026 and onwards. It's a bit of a fluid situation as you can see in the press with the headlines, but the outlook for offshore wind towards the end of This decade is very good.

Speaker 6

Okay. Are those projects that are still you're still in bidding on, Are they under better contract agreements with the states that they're supplying power to? Or have they not been updated to reflect The cost and the interest rates that have been coming up?

Speaker 2

Yes. Most of the projects So that has now been canceled or delayed was then had their power purchase agreements from 2018 2019 Before COVID and before the inflationary pressures that we've seen has kicked in since then, that includes Empire, that includes Ocean wind that includes the revolution wind for Ersted. So Now that we see the new PPAs coming through, there are projects that has been awarded since then, which That has adjustments for inflation going forward, and those projects are continuing. And the new PPAs that has just been bid for New York had inflation adjustments included. RWE, CIP, Total LNGs were Successfully in winning those projects, and we are currently in discussion to tender those projects for them.

Speaker 6

Okay. So it's fair to say that the projects that are scheduled for 20 26 and on pretty much have the risk priced in and don't have as much Potential for cancellation of push out as we've seen in the ones that have made the news recently.

Speaker 2

I think we have seen the bad headlines both from Erstad, from BP, from Equinor and the others are Proceeding forward, so particular for the PPAs that had the inflation adjustments in them, they are continuing as planned.

Speaker 6

Got it. Okay. Scott, a question for you just on the utilization. You mentioned the hydraulics wouldn't be utilized till Q2, I think. So what's your expected utilization for Q4 and Q1 just on the number of vessels you expect to have out there?

Speaker 3

Yes. And we mentioned Q2 because that's when the LNG works and that's going to keep a number of the hydraulics busy for a period of time. We still have utilization and work for those in Q4 and the first half of Q1 right now and continue to bid more. So Q4 utilization just on the hydraulics will be more than double what we saw in Q3. So again, they are starting to get busy.

Speaker 3

As I mentioned, Q1 is starting to shape up, then Q2 and beyond, we have a number of those that will be tied up on the 2 LNG projects.

Speaker 6

Understood. Thank you. And then just quickly, is there an update on the competitive environment and how people are bidding now that there's more projects and work out there?

Speaker 2

Well, the competitive environment, the dredging industry in the United States is And there is a number of new vessels that have been added to the fleet over the last couple of years, both in the hopper segment and in the cutter segment. So we have seen some aggressive bidding on projects, and you can see that From the U. S. Army Corps of Engineers records, that there is quite some competitive bidding on some of the projects has been awarded recently. But the market is also very good, strong Capital projects announcements from the core.

Speaker 2

So, I'm optimistic about the market, but just with our current backlog And also with the number of projects that are now coming to bid as we estimate over the next 6 months.

Speaker 6

Okay, great. Thank you.

Operator

Thank you. Our next question will come from William Hung of Reorg Research. Your line is open.

Speaker 4

Hi, good morning.

Speaker 8

Thanks for taking my question. Perhaps Scott, you can tackle this one. When do you guys expect to receive notice of approval for your Title XI application? Is the company currently seeking any additional sources of financing to fund your CapEx initiatives?

Speaker 3

Yes. So As I mentioned in the prepared remarks, we did hit a key milestone a few weeks ago, which was the next step we've been waiting on. Now that Murad has done their due diligence, they are statutorily required to get a 3rd party review. That is what's ongoing right now. And that process is still ongoing.

Speaker 3

My guess, and again, each one of these projects are different and not have a specific Timeline, if I had to guess, I think this is kind of a late Q1, early Q2, just kind of based on The cadence and the pace that this is going. And then the second part of your question, yes, I'm not going to get into all the nitty gritty of what we're looking at. But yes, we're having conversations in parallel with Murad, with many others to get through this new build program. We still we'll take delivery of the Galveston later this year, but we still have not only the Acadia, but another hopper, The Amelia Island. So we still have a lot of CapEx to go.

Speaker 3

So we're going to continue to look at initiatives. I mentioned that we did bring in about $30,000,000 In the last week or so on sale leaseback and I'll continue a lot of the conversations that I'm having in parallel with Mirad.

Speaker 8

Got it. Thanks for the color. Very helpful.

Speaker 3

Yes. Thanks for the call.

Operator

Thank you. One moment please for our next question. Our next question will come from Jacob Kristiansen of Ex Brook Capital. Your line is open.

Speaker 9

Hey guys, thank you very much. Could we talk about the CapEx investment cycle and sort of how much CapEx you expect for rest of the year and give us a way to think about what to expect for 2024?

Speaker 3

Yes. So as I mentioned, we'll have full year CapEx of about $145,000,000 for this year And we've spent another $40,000,000 already in the Q4. So there's very little left to spend for this year. We'll be at the 1.40 And right now, we're in the 135 ish range or so. We just have the final payment to make on the Galveston Island and just Some maintenance CapEx.

Speaker 3

As I look forward to next year, and I'll give more specific guidance on the next call, But right now, it's laying out to probably be in the upper 100s, so call it 175 to 195, But I'll dial that in a little more on the year end call.

Speaker 9

Got it. Thank you very much. And could you maybe try to parse that 2024 ballpark into maintenance projects?

Speaker 3

Yes. So our maintenance CapEx has decreased over the last couple of years as you bring on new vessels as expectation is that your maintenance CapEx comes down. So we run about $25,000,000 a year in maintenance CapEx And then the rest will be for the wind vessel, the Acadia and the new hopper dredge, the Amelia Island.

Speaker 9

Excellent. Thank you very much.

Speaker 5

You're welcome.

Operator

Thank you. And one moment please for our next question. Our next question will come from Gregory Bennett of Zelle. Your line is open.

Speaker 5

Hey, good morning. Thanks for the information. How much of your current backlog I think you said half of it you expect to monetize over the next 12 months. Half of that is fixed at costs that are going up in this inflationary environment. Do you expect do you have adjustments in these contracts for fuel or personnel?

Speaker 5

Or Could we be stuck with low margin contracts that were delayed over the last several months? Thank you.

Speaker 3

Yes. So, for the majority of our government contracts, those are fixed price contracts. However, Based on what happened last year, we have changed the way that we bid costs and future inflation into those. So we and we're not going to get burned again like we did last year. So we've taken some very aggressive assumptions on what inflation will be.

Speaker 3

That was built into our bid when we priced it out. Now that we're also starting to win a lot of non government jobs, those contracts Our RFPs and you can negotiate those and I can't get into specifics of all of those contracts, but They are a lot more favorable than the off the shelf government contracts.

Speaker 5

You're expecting when we hear your next well, your 4th quarter earnings announcement that The expectation is you should be profitable and have significant cash flow. Is that what you're telling us?

Speaker 3

Telling you that we're expecting a much higher revenue and much higher margin in the 4th quarter than we have seen in the 1st 3 quarters of this year. One other comment too On the cost and the inflation, 2 of the larger costs that we have, 1 is labor. We do have a lot of union labor. Those agreements are

Speaker 6

fixed and we just recently signed a 3

Speaker 3

year labor are fixed and we just recently signed a 3 year labor agreement, so we know what that is. Another large component is fuel And we hedge our fuel, as we win a contract. So we mitigate the impact of that as well.

Speaker 5

On the new vessel that you're building for offshore wind. My take is a lot of these contracts aren't going to happen. Why not wait until you have your financing in place, stop construction, wait until you have your contract, your Financing, your favorable financing in place and wait until you have contracts, definitive contracts, take or pay contracts for that vessel and not put us at risk?

Speaker 2

Well, the contract for the vessel In the United States, it takes 3 to 3.5 years to build a vessel. So we entered into this contract, what is it now, 1.5 years ago. And we have a delivery in 2025 to go to work on the Equinor's Empire 1 contract, that is a firm contract, a firm backlog, which fills up most of our 2025. And then we have Empire II, which comes in 2026, where we also have a performance obligation. As you heard earlier on the call, Equinor will come back to us in the 2nd quarter in 4th quarter with their firm plans for those two projects, and that will be a time to reconsider Whatever we have planned, but currently the construction program is going as scheduled, and we are bidding a number of Projects for 'twenty six and onwards that will require the vessels to be ready and operational.

Speaker 5

What happens if they don't happen?

Speaker 2

Well, then we have to reconsider and we will come back to that in the Q4. Otherwise, it's just speculations.

Speaker 5

Okay. Thank you.

Operator

Thank you. And I'm seeing no further questions in the queue. I would now like to turn the conference back to Tina Paginskas for closing remarks.

Speaker 1

Thank you. We appreciate the support of our shareholders, employees and business partners, and we thank you

Operator

This concludes today's conference call. Thank you all for participating. You may now disconnect and have a pleasant day.

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Key Takeaways

  • Record dredging backlog: ended Q3 at $1.03 billion (71% capital projects), plus ~$50 million in offshore wind obligations and $225 million in low bids/options.
  • Two LNG dredging contracts: added $519 million of capital projects, including Rio Grande Brownsville and Port Arthur Phase 1— the former the largest in company history, starting Q2 2024 for ~2.5 years.
  • Cost and fleet optimization: reduced G&A and overhead headcount by over 50% YTD, cold-stacked vessels to cut costs, and adding new hoppers (Cabotson Island in Q4, Amelia Island in 2025) plus two multicats delivered.
  • Entering the U.S. offshore wind market: cut steel on the Arcadia rock installation vessel (delivery 2025), secured U.S. rock procurement and rock installation contracts for Empire Wind 1&2 (2025–26 installations), and bidding on 2026+ projects.
  • Q3 financial results: revenues of $117.2 million (down Y/Y), net loss of $6.2 million, adjusted EBITDA of $5.3 million, gross margin up to 7.7%, $14.1 million cash, $55 million revolver draw, and Q3 CapEx of $46.6 million with full‐year CapEx guidance cut to ~$145 million.
AI Generated. May Contain Errors.
Earnings Conference Call
Great Lakes Dredge & Dock Q3 2023
00:00 / 00:00