Great Lakes Dredge & Dock Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 7, 2024

There are 7 speakers on the call.

Operator

Good day and thank you for standing by. Welcome to the Q1 2024 Great Lakes Dredge and Dock Corp Earnings Conference Call. At this time, everybody is in listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference call is being recorded. I would now like to hand over the conference to our first speaker today, Tina Beguenkis, Director of Investor Relations.

Operator

Go ahead, Tina.

Speaker 1

Thank you. Good morning, and welcome to our Q1 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 Kormlau. 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 concluded the Q1 with good financial results, marking the best EBITDA quarter since the Q4 of 2021. During the quarter, the majority of our fleets were active on projects and performing well. Additionally, our new hopper dredge, the Galveston Island, was successfully commissioned and started operations contributing to the project performance in the Q1. After suffering the after effects of COVID and delays in bidding of major projects from the Army Corps of Engineers the last 2 years, we are now back to more normal operations.

Speaker 2

In 2023, we secured 5 major project awards, including the Freeport Channel Deepening Project, the Sabine Natchez Waterway Channel Improvement Project, the Port Arthur LNG Phase 1 Channel Improvement Project and the Brownsville Ship Channel Project for next decade's Rio Grande LNG Project. Subcontractor work to build and improve the containment areas has started on both LNG projects with main dredging operations expected to commence mid year of 2024. In 2020 3, we were also awarded a large reservoir dredge project in Puerto Rico. We have mobilized our dredge and pipeline in the reservoir and dredging operations started during the Q2. Our dredging backlog is strong.

Speaker 2

At the end of the quarter, it was 8 $79,000,000 with 77 percent of our backlog in capital projects. With a record 2024 U. S. Army Corps of Engineers budgets of $8,700,000,000 that was approved in the Q1, the bid market is expected to be robust in the 2nd and third quarters, providing us with good opportunity to maintain a solid backlog. Modernizing our fleet with our new build program is a key factor in continuing to be a competitive market leader for the long term.

Speaker 2

We have made significant progress on our new program with the delivery of our newest midsize hopper dredge, the Galveston Island, which now is in operation and performing well. Her sister ship, the Amelia Island, is expected to be delivered in 2025. In 2023, we were honored to have President Biden attend the steel cutting ceremony for Great Lakes Offshore Wind Rock Installation Vessel, the Arcadia. The Arcadia is the 1st and only U. S.

Speaker 2

Flagged Jones Act compliant inclined 4 pipe vessel for subsea rock installation. This month, we achieved another significant milestone with her key laying at the Philly Shipyard, marking the start of the assembly phase of the vessel's construction. The Arcadia's current schedule is to install rock foundations for Equinor's Empire Wind 1 in 2025 and rock protection for the subsea cables on Ersted Sunrise project in 2026. In spite of the negative headlines on offshore wind in late 2023, we have this year seen new tendering rounds for pile purchase agreements and offshore wind leases. Our offshore wind initiative presents Great Lakes with a strong growth opportunity in a rapidly expanding industry, which will diversify our business activities and broaden our client base.

Speaker 2

To support the newbuild program and provide additional liquidity for Great Lakes, in April, we entered into a $150,000,000 second lien credit agreement with Guggenheim Credit Services. This also provides us with additional capacity to issue letter of credits for new tenders and contracts, as letters of credits are the most commonly required in oil and gas and offshore wind industries, unlike the government works where performance bonds are the preferred instruments. I'll now turn the call over to Scott to further discuss the results of the quarter and provide more details on our financing and then I'll provide some commentary around the market and our business.

Speaker 3

Thank you, Lasse, and good morning, everyone. I'll start by walking through the Q1, which resulted in the 2nd consecutive quarter that EBITDA exceeded $40,000,000 In the Q1, revenues were $198,700,000 net income was $21,000,000 and adjusted EBITDA and adjusted EBITDA margin were $42,900,000 22% respectively. Revenues of $198,700,000 in the Q1 of 2024 increased $40,700,000 from the prior year's Q1, primarily due to higher coastal protection revenue and higher capital revenue, which more than doubled from the prior year quarter, aided by the start up of the Galveston Island offset partially by a decrease in maintenance and rivers and lakes revenue. Current quarter gross profit and gross profit margin increased to $45,600,000 22.9 percent respectively compared to $12,100,000 7.7 percent respectively in the Q1 of 2023. The increase in gross margin is primarily due to improved utilization and project performance, a larger number of high margin capital projects and our continued focus on cost management.

Speaker 3

Q1 2024 G and A of $16,100,000 is $3,100,000 higher than the same quarter last year, primarily due to higher employee benefit and incentive costs. Net interest expense of $3,900,000 for the Q1 2024 was up from $3,400,000 in the Q1 of 2023, primarily due to an increase in revolver borrowings during the current year's quarter. Q1 2024 net income tax expense of $7,000,000 compared to a $800,000 of net income tax benefit in the same quarter of 2023 is driven by the higher current quarter income. Rounding out the P and L, net income for the Q1 2024 was $21,000,000 up from a $3,200,000 net loss in the prior year quarter. Turning to our balance sheet.

Speaker 3

We ended the Q1 with $22,800,000 in cash $60,000,000 drawn on our $300,000,000 revolver, which doesn't mature until the Q3 of 2027. And as Lasse mentioned, in April, we closed on a 5 year $150,000,000 second lien term loan of which $100,000,000 was funded at closing and $50,000,000 is available on a delayed draw basis for a year. With the term loan proceeds, we fully paid off the revolver and are currently sitting with liquidity of over $325,000,000 With this financing, our weighted average interest rate on our total debt is 7% with no maturities until 2029. We are now well positioned to complete our newbuild program with plenty of additional liquidity while maintaining the flexibility of pursuing alternative sources of financing including Title 11. Total capital expenditures for the Q1 of 2024 were $13,500,000 made up of $7,000,000 for the construction of the subsea rock insulation vessel, the Acadia, dollars 3,300,000 for the completion of the Galveston Island, $700,000 for the Amelia Island and the remaining $2,500,000 for maintenance and growth.

Speaker 3

Full year CapEx guidance remains unchanged at between $170,000,000 to $195,000,000 but can change depending on timing of upcoming milestone payments. Looking forward to the 2nd quarter, we expect utilization and revenue to decrease from the Q1 as 2 dredges will be undergoing regulatory dry dockings prior to commencing the LNG projects in the middle of the year. This quarter, we will also begin a regulatory drydock on a previously cold stacked dredge in anticipation of work slated to commence towards the end of this year. And we will have another dredge down for about a month for planned maintenance. The 2nd quarter expected decrease in revenues and increase in costs compared to the Q1 is mostly related to the timing of dry docks and repairs.

Speaker 3

All of this was known and anticipated and doesn't change our view that 2024 will be a strong year and a return to normalcy anchored by a solid second half. With that, I will turn the call back over to Lasse for his remarks on the outlook moving forward.

Speaker 2

Thank you, Scott. We continue to see strong support from the Biden administration and Congress for the dredging industry. In March, President Biden signed the Energy and Water Appropriation Bill into law, which provides a record $8,700,000,000 in total funding for the U. S. Army Corps of Engineers for fiscal year 2024.

Speaker 2

The funding includes $5,600,000,000 for the Corps' operations and maintenance work and $2,800,000,000 for the Harbor Maintenance Trust Fund to maintain and modernize our nation's waterways. In addition, $2,200,000,000 in flood and storm damage reduction were approved. In addition, the Disaster Relief Supplemental Appropriations Act for fiscal year 2023 was approved, which includes $1,480,000,000 for the core to make necessary repairs to infrastructure impacted by hurricanes and other natural disasters and to initiate beach renourishment projects that will increase coastal resiliency. We expect this increased budget and additional funding to support a very strong bid market for 2024. And as said before, we expect bidding to significantly increase in the second and third quarters and include the port deepening projects for Sabine and Mobile and a number of coastal protection and beach projects on the East Coast.

Speaker 2

The U. S. Offshore wind market reached major milestones in the Q1 of 2024, with 2 commercial scale offshore wind farms becoming operational and supplying power to the grid in New York and Massachusetts. In February, the Wynyard Wind project off Martha's Wynyard completed installation of 5 turbines and supplying power to the New England grid, while continuing to install additional turbines. In March, we saw the completion of the landmark South Fork Wind project with all 12 offshore wind turbines constructed and the wind farm successfully delivered power to the Long Island and Rockaways.

Speaker 2

In an accelerated 4th bidding round in February of 2024, an additional 3 gigawatts of power were awarded by New York. Empire Wind 1 and Sunrise Wind were both awarded new power offtake agreements as part of the latest New York solicitation round. Notably, Great Lakes has awarded rock installation have been awarded rock installation contracts for both projects and will be using Arcadia to protect and stabilize foundations and cables for those projects with a combined capacity of 1.7 gigawatts. New Jersey awarded 3.7 gigawatts of PPAs in January of 2024, with a 4th round of solicitation for up to 4 gigawatts on April 30. And the results of the earlier announced tri state solicitation of 6 gigawatts offshore wind is expected to be awarded in Q3 of 2024.

Speaker 2

And then finally, New York State recently announced further plans for our 5th solicitation round for offshore wind after scrapping the 4th round after disputes related to the turbine supply. Great Lakes has established a unique business position in the U. S. Offshore wind market and we continue to pursue and bid a number of other offshore wind farm projects both domestically and internationally with rock installations planned for 2026 and onwards. So in conclusion, we enter the New Year with a record backlog providing us with a strong project pipeline.

Speaker 2

The outlook for the bid market remains promising and we have streamlined our cost structure, Our newbuild program is progressing and supported by solid liquidity. The 1st quarter results were very strong, So we are well positioned to deliver improved year over year results. 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 question comes from Joe Gomes with NOBLE Capital. Go ahead, Joe.

Speaker 4

Good morning. Thanks for taking the questions. Really nice quarter.

Speaker 3

Good morning, Joe.

Speaker 4

So first question I wanted to ask on the Galveston Island. How much utilization did you get out of that in the Q1?

Speaker 2

Yes. She started operations in January. We were working her at the same time as we were doing commissioning. And then she progressed to do a beach project on the East Coast. The exact utilization number I do not have.

Speaker 2

So she was partially operational during the Q1 and her utilization is solid for the rest of the year.

Speaker 4

Great. And then you talked about the LNG project subcontractor work is ongoing. Did you see any revenue in the first quarter from the LNGs? Or do you is all that really kind of mid year and on?

Speaker 3

Yes, Joe. We do book revenue when the subcontractor work starts, but the progression of subcontractor work is on the lower side of when we actually start dredging. So our expectation when those projects start in the middle of the year that we'll see a tick up in revenue related to those projects.

Speaker 4

Okay. And then you talked about the drydocking. Originally, you were talking about 2 of the vessels to be in drydocking beginning in Q1. Now it sounds like they're been pushed out to Q2. So just was there anything behind that or just is that your typical just timing of when they could get in for dry docking?

Speaker 3

Yes, that's exactly it. One of them did start in the Q1 and continued into the Q2, just completed that one in the last week or so. The other one that we had anticipated to start in the Q1 had some additional work we were able to do in the quarter. So that got delayed to start in the Q2 and will run its duration for most of this second quarter and then we'll be able to get ready for the LNG work, which should shortly start after that.

Speaker 4

Okay, great. And one more for me, if I may. I'll get back in queue. You're talking a lot about the core budget and you think there should be some solid bidding going on and awarding in the second and third quarter. Do you see those contracts tending towards the bid in the book and burn type?

Speaker 4

Or do you still see some key capital project awards coming this year?

Speaker 2

Yes. The bid market is improving and the deepening projects that are going on in the Gulf is now continuing well. There is several phases of Mobile, one that has been awarded. We see a second phase of Mobile also happening here in the Q2. On the East Coast, there's a lot of coastal protection work.

Speaker 2

I think if you go back a couple of our earnings calls, we were talking about that beach market being delayed and those contracts are now coming out. So there's good bid opportunities on the East Coast and in the Gulf here in the next two quarters. We should be able to maintain a book and burn type of bidding, but that is difficult to say in with exact numbers. But in general, the bid market looks strong for the next two quarters.

Speaker 4

Great. Again, congrats on the quarter. Thanks for taking my questions.

Operator

Thank you. Please standby one moment for our next question. And our next question comes from John with CJS Securities. Please go ahead, John.

Speaker 5

Hi, good morning. Nice quarter and thank you for taking my questions. My first one is, could we possibly expect Q3 or Q4 to have performance similar to the one you just had? Or is there more white space to fill in the schedule or maybe more dry docking as you go through the year? Just any thoughts on how the second half might evolve?

Speaker 3

Yes. So we will be executing a lot of the backlog that we have right now for the rest of this year, again, with the caveat on the Q2, dry docks and repairs that I mentioned. We still have some white space to fill in we still work to win, but those two quarters are setting up to be a return to normalcy, what we've been preaching for the last year.

Speaker 5

Got it. And could you talk a little bit more about the domestic and international opportunities for the Acadia in 20 26 specifically and if you're making progress towards filling the schedule for that year?

Speaker 2

Yes. We have work. The backlog is secured for 2025 when she comes out. 'twenty six, we see additional scopes coming out on the existing contracts. So that is developing for 2026.

Speaker 2

And then 2026 and 7 and 8, there is opportunities internationally, which we are looking at, at this point in time. At the same time, as you have seen, the bidding rounds and the PPA awards is quite fluid in the U. S. And some of the work that has been delayed is now being delayed into 'twenty six and 'twenty seven, and we just need to see how that pans out. Clearly, Acadia is very competitive in the U.

Speaker 2

S. Market, but we are also competitive on the in the international market due to her unique attributes. So we are working on those years. If you go beyond in the U. S.

Speaker 2

'twenty eight and onwards, the market outlook is extremely solid. So good opportunities here. So that's kind of the details we have at this point in time.

Speaker 5

Okay, great. Thank you, guys.

Operator

Thank you. Please stand by for our next question. And our next question comes from Adam with Thompson and Davis. Go ahead, Adam.

Speaker 6

Hey, good morning, guys. Great quarter.

Speaker 3

Hey, Adam. Good morning. Thank you.

Speaker 6

Scott, can you help out a little bit on that sequential? What did you say on the sequential from Q1 to Q2?

Speaker 3

I said that we have 2 vessels in dry dock, one that will be completing a dry dock that started in Q1, one that will be in dry dock for most of the second quarter and then a new dry dock that wasn't contemplated at the end of the year, a previously cold stacked vessel will begin a reactivation for work that's expected to start towards the end of the year. And then we had some planned maintenance on a vessel that we knew about that we will bring in for 4 weeks or so during the Q2 to get that out of the way.

Speaker 6

I guess my question is, is the current consensus around the hoop? Or does that need to come down and then we'll just put some it sounds like the back half is going to be really strong?

Speaker 3

Yes. I mean, this is I mean, none of this is new to This is how we saw it playing out. Again, I don't recall, Adam, where everybody has consensus right now. A portion, a small portion of Q1 is timing from that one dry dock that slipped a month or so into the Q2. So you may make a small adjustment for that.

Speaker 3

And again, we have this additional dry docking, which obviously is accretive at this previous coal stack vessel that will have utilization. But again, when I think about the year, again, nothing has changed. We've been saying for quite some time, this is going to be a solid year return to normalcy and exactly how it's still shaping up.

Speaker 6

How do you expect backlog to trend?

Speaker 3

Yes. I mean, when you have $1,000,000,000 of backlog coming into a year, it means you don't have that much availability as you normally do. So I think we've been pretty consistent to think that we would just maintain $1,000,000,000 in perpetuity is likely not going to happen because we are going to be rolling off a lot. But as Lasse said, this market is extremely strong. There are flexibility on some of the backlog that we plan on executing in 2024 that we can push to the right if we find opportunities.

Speaker 3

So we'll be consistent in bidding jobs at the margins that we need for our vessels, but there are a lot of opportunities getting ready to come up over the next few months.

Speaker 6

Okay. More on the beach nourishment or capital and then you mentioned LNG. There are a lot of opportunities.

Speaker 3

Yes, there are.

Speaker 6

And then any update on Title

Speaker 3

11? Not a lot. We continue to have dialogue with them. But as we mentioned in the last quarter, we're not going to wait anymore. And that's why we went ahead and did this financing.

Speaker 3

But this financing maintains

Speaker 6

a lot of flexibility with

Speaker 3

very favorable call provisions. If we If we're able to do it, we can swap this out fairly reasonably. So dialogue continues, but I'm just done making predictions as to when we think that will finally go forward.

Speaker 6

Okay. That's the last time I'll ask. And then just back half margins, you've done low 20s gross and adjusted EBITDA margins for a couple of quarters in a row now. Sounds like it's not going to be that way in Q2, but you get back to that in the back half.

Speaker 3

Yes. I mean the backlog is still mostly comprised of capital, over 3 fourth of it is, and a lot of that will get executed during the remainder of the year. As I mentioned, we have a little white space to fill. But assuming that gets filled, again, there's no reason to think the second half of the year is not going to look what I would call normal when you have this much capital backlog. And I think the last couple of quarters demonstrates what we can do when we have the proper mix of backlog.

Speaker 6

Great. Thanks, Scott.

Speaker 5

Thank you.

Operator

So thank you. This concludes our question and answer session. I would now like to turn it back to 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. Thank you.

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Great Lakes Dredge & Dock Q1 2024
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