Great Lakes Dredge & Dock Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 5, 2024

There are 8 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Q3 2024 Great Lakes Dredge and Dock Corporation's 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. I would now like to hand the conference over to your first speaker today, Tina Zydinskas, Director of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you. Good morning, and welcome to our Q3 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.

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 factors inherent in our business are set forth in our earnings release and in filings with the SEC, including our 2023 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. Great Lakes had a strong third quarter, demonstrating excellent product performance and significant wins in the bid market. For the Q3, we achieved net income of $8,900,000 and adjusted EBITDA of 27,000,000 dollars During the quarter, Great Lakes secured $543,000,000 in new contracts, including 6 beach renourishment projects that captured 79% of the coastal protection markets and 3 port deepening projects that accounted for 81% of the capital project bid market and a significant win was the large hopper dredge project Sabine Natch's Contract 6 deepening project with a total value of $235,000,000 That included both the base scope and open options. By the end of the Q3, we achieved a record backlog of 1,200,000,000 dollars along with an additional $465,000,000 in pending award low bids and options, providing utilization and revenue visibility well into 2026. After the quarter, closed 2 projects totaling $90,000,000 that were in low bid spending award at the end of the 3rd quarter converted to awarded status.

Speaker 2

In our backlog, our 2 large port deepening 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 Q3, slightly later than previously expected, but now progressing well. The Biden administration's temporary pause on approving new LNG export licenses have not impacted our 2 awarded projects. Our newest hopper dredge, the Galveston Island, was delivered in January this year and she has gotten off to a great start with solid project performance. We held the naming ceremony for her in the Galveston Harbor on October 25th and she is now back at work in Texas.

Speaker 2

Her sister ship, the Amelia Island, is expected to be delivered in the second half of twenty twenty five and will also go straight to work on projects already in backlog as the Galveston Island did. These dredges are specifically designed to be efficient on beach rebuild projects

Speaker 3

like

Speaker 2

the 6 projects we recently have been awarded. We remain steadfast in our long term strategy to enter the U. S. Offshore wind market. The Arcadia, the 1st U.

Speaker 2

S. Flagged JOMSAT compliant vessel designed for subsea rock installation is currently under construction at the Philly Shipyard. As announced by Philly earlier this year, they have reached a deal to sell the yard to a Korean shipyard group, with regulatory approvals expected later this year. We have met with a 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 Arcadia build should the transaction be completed. The Arcadia is contracted to install rock foundations on Equinor's Empire Wind 1 scheduled for 2025 start and to perform rock placement to protect subsea cables on the Erste Sunrise wind project scheduled for 2026.

Speaker 2

At the end of the Q3, our offshore wind backlog was $44,600,000 with an additional $12,700,000 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. Additionally, the Arcadia is well suited for international offshore wind projects as well as rock protection of our pipelines

Speaker 4

in the oil and gas and

Speaker 2

carbon capture market and cable protection in the telecommunication and power cable sectors. We are prequalified 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. The very positive interest from the offshore wind developers for Arcadia is manifested by post quarter end, we signed the 1st vessel reservation agreement and are currently negotiating a second with 2 different offshore wind developers for projects in the United States with planned rock installation through 2029.

Speaker 2

I'll now turn the call over to Scott to further discuss the results for the quarter, and then I'll provide further commentary around the markets and our business.

Speaker 5

Thank you, Lasse, and good morning, everyone. I'll start by walking through the Q3, which resulted in revenues of $191,200,000 net income of $8,900,000 and adjusted EBITDA and adjusted EBITDA margin of $27,000,000 14.1 percent respectively. Revenues of $191,200,000 in the 3rd quarter increased $74,000,000 from the prior year's Q3, 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. For the trailing 12 months, revenues were $741,600,000 net income was $59,100,000 and adjusted EBITDA and adjusted EBITDA margin were $136,500,000 18.4 percent 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. Current quarter gross profit and gross profit margin increased to $36,200,000 19 percent respectively from $9,000,000 7.7 percent respectively in the Q3 of 2023.

Speaker 5

The quarter over quarter increase in gross margin is primarily due to improved project performance and higher capital and coastal protection revenue, which typically yield higher margins, partially offset by an expedited dry docking of a dredge in preparation for several jobs she has recently won set to begin in the Q4. 3rd quarter 2024 G and A of $19,800,000

Speaker 4

is

Speaker 5

$5,600,000 higher than the same quarter last year, primarily driven by higher incentive pay as a result of this year's strong financial results. Net interest expense of $4,900,000 for the Q3 2024 was up from $2,800,000 in the Q3 of 2023, primarily due to interest related to the term loan, which closed earlier in the Q2 of this year. Q3 2024 net income tax expense of $3,200,000 increased $5,000,000 compared to the same quarter of 2023, driven by the higher current quarter income. Rounding out the P and L, net income for the Q3 was $8,900,000 compared to a $6,200,000 net loss in the prior year quarter and adjusted EBITDA increased from $5,300,000 to $27,000,000 Turning to our balance sheet. We ended the 3rd quarter with $12,000,000 in cash and nothing drawn on our $300,000,000 revolver, which doesn't mature until the Q3 of 2027.

Speaker 5

Total liquidity at the end of the quarter was just over $318,000,000 and we have no debt maturities until 2029, putting us in a great position to complete our new build program with ample liquidity. During the quarter, S and P upgraded our corporate credit rating to B- from CCC plus which further demonstrates the improvements we have made this year to our balance sheet, cash flows and overall performance. Total capital expenditures of $38,400,000 in the Q3 of 2024 consisted of $19,400,000 for the construction of the subsea rock installation vessel, the Acadia, dollars 13,600,000 for the Amelia Island and $5,400,000 for maintenance and growth. Our full year CapEx guidance remains between $130,000,000 $150,000,000 that will likely come in towards the lower end of the range. Looking forward to the 4th quarter, we expect utilization and revenue to increase from the 3rd quarter as we have no regulatory dry dockings planned and every active dredge is working most, if not all of the quarter.

Speaker 5

We also expect to see margins increase in the 4th quarter, which has historically been the case due to certain environmental windows opening up. Finally, as has been the pattern this year, the majority of the work performed in the Q4 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.

Speaker 2

Thank you, Scott. The dredging industry continues to see strong support from both the White House and Congress. And the 2024 Energy and Water Appropriation Bill provided a record $8,700,000,000 to the U. S. Army Corps of Engineers.

Speaker 2

Additionally, the 2023 Disaster Relief Supplemental Appropriations Act allocated $1,500,000,000 for infrastructure repairs and beach renourishment projects. The increased budgets and additional funding have supported a very strong bid market in 2024, with a robust beach renourishment market and several port deepening capital projects. The 2025 core budget is set to be another record appropriation. On June 28, 2024, the House Energy and Water Appropriations Subcommittee passed a bill providing $9,960,000,000 for the Corps, dollars 2,700,000,000 above the President's request. This includes $5,700,000,000 for operations and maintenance with $3,100,000,000 from the Harbor Maintenance Trust Fund.

Speaker 2

On August 1, the Senate's appropriation committee approved a draft that allocates $10,300,000,000 in total funding for the court. On September 25, President Biden signed a continuing resolution for the court's fiscal 2025 budget, with lawmakers having until December 20 to finalize the full year spending. 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.

Speaker 2

S. Dredging industry in 2025. Looking further ahead, the Water Resource Development Act or VERDA is on a 2 year renewal cycle and includes legislation that authorizes the financing of the course projects in the next 2 to 5 year period. Florida 2024 has seen strong bipartisan support, having been approved by key Senate and House committees. Currently, the 2 chambers are working to reconcile the differences in their respective versions of the bill.

Speaker 2

And once completed, the final version will be sent to the President to be signed into law. 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. On September 6, Massachusetts awarded 2.7 gigawatts in total PPAs, which included 1.1 gigawatt for the South Coast Wind project, 0.8 gigawatts on New England Wind 1 and up to 0.8 gigawatts on the Windyard Wind 2 project, with Rhode Island awarding the remaining 0.2 gigawatts on the South Coast Wind project.

Speaker 2

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. To conclude my remarks, the company has achieved strong operational improvements and results in 2024, driven by strong project performance and higher vessel utilization. Our record backlog gives us good visibility of fleet utilization through 2025 and well into 2026. 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'll turn the call over for questions.

Operator

Thank you. At this time, we will conduct the question and answer session. Our first line question comes from the line of Joe Gomez from NOBLE Capital. Your line is now open.

Speaker 6

Good morning. Thanks for taking my questions.

Speaker 5

Hey, good morning, Joe.

Speaker 6

Very nice quarter, gentlemen. I wanted to start off for the quarter that we're currently in. Obviously, you've got a significant amount of low bids and options pending at the end of the Q3. But I just wanted to get your viewpoint of what you were seeing as kind of the award environment for the Q4?

Speaker 5

Yes. So as Lasse mentioned, dollars 90,000,000 of the amount we had in low bid pending at the end of the quarter was already awarded. We are expecting a couple of more to happen for sure this quarter. Within that, Joe, there are also about $140,000,000 of options and that we're just waiting. There's time that they have in order to exercise those options.

Speaker 5

Some could happen in the Q4. Some of those deadlines are not until the Q1 of next year. So we'll just have to wait and see. But again, 90 in the bank and probably a couple of other projects we feel pretty good should get awarded rather quickly.

Speaker 2

Yes. And I just want to add there, Joe, that normally when we see our bidding cycle, the Q4 and Q1 of the year is normally the build over part of our bidding markets and the Q2 and Q3 years really the strong bid market. So that's kind of the cycle we go through.

Speaker 5

And I guess, Joe, if I could just add one more thing. And I know we've been talking about this project for a number of years right now, but in our low bid pending is an LNG project. And I'm sure you've seen the recent headlines 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 6

Thank you for that. And just the Philly Shipyard potential sale, 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 2

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. The regulatory approvals has not been coming through yet.

Speaker 2

The new owner and expected to happen here in this quarter. And then the transfer will happen. It's a share purchase agreement between the 2. And so the responsibility for the project is then becoming the new owner's responsibility similar to what it has been for Aker.

Speaker 6

Okay. And then one more, if I may. 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? Any insight there as to whether the market has gotten more competitive or kind of stayed the same as appreciated?

Speaker 2

No, 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 dredges last year and also in the beginning of 2024. But now our fleet is fully occupied. One of our competitors have announced the retirement of 2 older dredges, and I think that has already been exercised. So that reduces some capacity.

Speaker 2

We have added the Galveston Island and we took out 1 vessel last year. So the capacity in the market has not really increased substantially. 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. And the competitive environment today is there's not a major change in that, really supported by the strong bid market. And that you can see in our really strong backlog.

Speaker 6

Okay, great. I'll get back in queue. Thank you. And again, congrats on the quarter.

Speaker 2

Thank you.

Operator

Thank you. Our next question comes from the line of Julio Romero from Sidoti and Company. Your line is now open.

Speaker 7

Thank you. Hey, good morning, Lawson and Scott. Can you guys talk about dredging gross margins in the quarter? 19% came in very solid. Scott, you mentioned that you had an expedited drydocking in the Q3.

Speaker 7

Any way to kind of quantify the impact to the Q3 margin? And then secondly, can you kind of talk about the several jobs recently, one that are expected to begin in the Q4 for that drydock vessel?

Speaker 5

Yes. 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 Q3, we all of a sudden added 3 jobs for her, all beach jobs, so beach renterms and jobs. So we went ahead and pulled that into the Q3. It was about a $2,000,000 to $2,500,000 cost, Julio. So I'm not quick enough to do the math on the margin impact, but that's what it was.

Speaker 5

But now she's ready to go. And as I said, we'll commence these beach projects now. Again, we that will go well into 2025 for her.

Speaker 7

Okay, excellent. And then you expect to you said margins expected to increase in the Q4. Is that a year over year comp or sequential?

Speaker 5

Yes. From the Q3, as I mentioned, we've talked about this before. We historically see the Q4 being a very, very strong margin quarter. There are certain environmental windows that open up. There's jobs we cannot do until beginning in Q4 and we're able to typically get higher margins for that.

Speaker 5

So if you just go back and look historically in normal years, you'll see 4th quarters typically have it and that'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 3rd quarter. If you go back and look at last year's Q4, the 1st three quarters of last year were somewhat marginal and then we saw the explosion in the 4th quarter driven by a lot of the capital project wins and then this environmental work that we were doing in the 4th quarter.

Speaker 7

Got it. Very helpful. Last one for me is just the backlog growth in capital projects you saw in the Q3 was really outstanding there. How do we think about 2025 kind of margin potential and balancing getting excited about the mix of capital projects along with just kind

Speaker 2

of the puts and takes of the business? Yes. 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 that is typically good margin activity for us.

Speaker 2

So that is a positive sign. And again, as I said, the budget for the core, once that gets approved, it's up to the core to convert those funds into projects. And if they are performing similarly in 2025 as they did in 2024, it should be a good bid market. Scott, do you want to add?

Speaker 5

Yes. Hul, I do want to add and I'll give a lot more color on the year end call because as you know, we're still planning 2025. But the way the calendar is falling, 2025 will be a higher dry docking year than 2024. So we will have that, but the backlog is solid. The visibility we have to revenue for next year is extremely high.

Speaker 5

A number of vessels that are fully utilized for next year and well into 2026.

Speaker 7

Great context there. I'll pass it along. Thanks very much.

Operator

Thank you. Our next question comes from the line of Adam Thalhimer from Thompson Davis. Your line is now open.

Speaker 4

Hey, good morning guys. Nice quarter.

Speaker 5

Hey, thanks. Good morning.

Speaker 4

Can you give additional color on the reservations for the Acadia? 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 'twenty nine? Or are you just saying that the reservations are between now and 'twenty nine?

Speaker 2

Yes. The reservations agreements come through as the offshore wind developers, they

Speaker 3

would like to secure the capacity of the vessel for when they are bidding for

Speaker 2

the new PPAs. And backlog for the vessel once those contracts are being or those reservations are being converted into contracts. And the execution of this work that these agreements cover is from 'twenty eight and onwards. And it gives us solid, let's say, utilization of the vessel here in the U. S.

Speaker 2

Market for that period. It's not giving us a full utilization, but it gives us solid foundation for utilization of the vessel.

Speaker 4

Got it. Okay. That's helpful. And then maybe it's just me, but it sounded like you were more bullish on additional LNG awards. I don't is that including like Tellurian flipping from low bid

Speaker 6

into Yes.

Speaker 2

Into Yes. Tellurian so Tellurian has been sold to an Australian developer and the opportunity there is now that it goes from being in our low bid, not awarded category and get into a contract for Prague potentially next year or towards the end of next year. 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 2

So that's good news for that project.

Speaker 5

And

Speaker 4

then Scott, you also you commented on Q4 margins. What are your expectations on Q4 top line?

Speaker 5

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 a 2. 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'll see an increase from the Q3. I will tell you, this is going to come out in our Q in a little bit.

Speaker 5

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 teen percent of the $1,200,000,000 backlog will be earned in the 4th quarter.

Speaker 4

Thanks for that. And then just lastly on I guess I'm not asking for the I'm not asking for U. S. Capital revenue next year, but I'm just trying to think through the seasonality of capital next year because I feel like other than what you just mentioned about the dry docking, I feel like your the revenue burn for capital should be pretty even next year. Is that a fair statement?

Speaker 5

Yes. I mean, we'll yes, the projects that we're going to be executing especially on the capital side and as you know these capital projects are typically longer term in nature. They will be ongoing the same projects for a good part of next year. So yes, when I kind of look at the big projects that we have won Freeport, we just mentioned Sabine, we won Mobile earlier. Those are all relatively long projects that should be executing for a good part of next year.

Speaker 4

Good update. Thanks guys.

Speaker 5

Yes. Thanks.

Speaker 1

Not sure what's happening with the moderator, but if able, I think, Chanten Rotang is next in line from CJS.

Operator

Yes. Go ahead, John. Your line is now open.

Speaker 3

Hi. Thank you for taking my questions and really congrats on the nice backlog and the wins in the quarter.

Speaker 4

My first

Speaker 3

question is, could you comment on the next decade project and if that will continue into 2025? And if it doesn't, will you still be effectively fully utilized?

Speaker 2

Yes. We have no other information on that project other than what the what NextEcan have said and that is that they are continuing on the project until they hear otherwise. So we're in full blast on the project. We have a solid backlog. So should there be a delay, we can move the dredges over to other projects.

Speaker 2

So at this point in time, I don't have any other information.

Speaker 5

Yes. And a couple of months ago, FERC came out and they said that they were going to do a supplemental statement on the project. 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 project is doing very, very well.

Speaker 3

Okay, great. Thank you. And then, if you could, what is your expectation for a comp in the G and A 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 5

Yes. Well, I mean, if you obviously, most of the incentive is done here at a time. So I'll talk about the 4th quarter. My expectation is G and A for the Q4 comes in between $18,000,000 $19,000,000 and then everything gets reset, and we'll do a refresh for next year. So I'll give some more commentary on 2025 G and A on the next call.

Speaker 5

But I would imagine it's to more normalized, plus a little bit more for wind as we get much closer to getting on revenue with the Acadia.

Speaker 3

Okay, great. And then, it's great to see you getting the reservation agreements for 2018 and beyond, but I was just wondering what the prospects were for utilization of Acadia in late 'twenty six and into 'twenty seven at this point. Are you seeing any progress there?

Speaker 2

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. So we have partial utilization in 'twenty six and 2027 will be from top of the meter.

Speaker 3

Okay, great. Thank you again.

Speaker 4

Thanks, John.

Operator

Thank you. This concludes the question and answer session. I would now like to turn it back for Tina for closing remarks.

Speaker 1

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.

Operator

Thank you for your participation today in today's conference call. This concludes the program. You may now disconnect.

Powered by Quartr

Key Takeaways

  • Great Lakes delivered a Q3 net income of $8.9 million and adjusted EBITDA of $27 million, driving gross margins up to 19% and marking a significant improvement from Q3 2023.
  • The company secured $543 million in new contracts—including six beach renourishment projects (79% market share) and three port deepening jobs (81% market share)—and ended the quarter with a record backlog of $1.2 billion plus $465 million in pending awards.
  • Fleet expansion continued with the January delivery of the new hopper dredge Galveston Island (now operational) and construction of sister ship Amelia Island on track for H2 2025; meanwhile, the subsea rock‐installation vessel Arcadia advances Great Lakes’ entry into the U.S. offshore wind market.
  • Financial flexibility remains strong with $12 million in cash, no revolver draw, $318 million in total liquidity, no debt maturities until 2029, and an S&P credit upgrade to B- from CCC+, supporting ongoing fleet modernization.
  • Robust federal funding underpins 2024–25 bid markets, highlighted by record USACE appropriations (up to near $10.3 billion) and disaster relief allocations, positioning Great Lakes for continued utilization and revenue growth into 2026.
AI Generated. May Contain Errors.
Earnings Conference Call
Great Lakes Dredge & Dock Q3 2024
00:00 / 00:00