Great Lakes Dredge & Dock Q2 2024 Earnings Call Transcript

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Provided by Quartr
August 6, 2024

There are 7 speakers on the call.

Operator

Good day, and thank you for standing by. Welcome to the Q2 2024 Great Lakes Drudge and Dock Earnings Conference Call. At this time, all participants are in 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 to your first speaker today, Tina Buginskas, Director of Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you. Good morning and welcome to our Q2 2024 conference call. Joining me on this 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, Gina. Great Lakes Dredge and Dock delivered solid second quarter results, driven by excellent project performance, well executed drydock program and disciplined cost control. For the Q2, we achieved net income of $7,700,000 and adjusted EBITDA of $25,800,000 This is a very strong result considering we had 3 dredges in drydock in preparation for the new capital LNG projects, which have commenced in full now in the Q3. With a record 2024 U. S.

Speaker 2

Army Corps of Engineers budget of $8,700,000,000 the bid market has been robust for the first half of the year and is expected to remain so for the rest of the year, particularly in our prime markets for capital port deepenings and coastal protection projects. The robust bid market has enabled us to keep our dredging backlog strong, replacing most of the revenue burn off in the first half of the year. At the end of the quarter, our firm dredging backlog stood at $807,900,000 with 85% of that in capital projects. In addition, we had $273,100,000 in low bids and options pending award. Post quarter end, we have continued to be the low bidder on new dredging projects with pending awards for approximately $181,600,000 Additionally, for offshore wind, our backlog was $44,600,000 with an additional $12,700,000 in options pending award.

Speaker 2

On the LNG related projects, the Port Arthur LNG Phase 1 channel improvement project and the Brownsville ship channel project for NextDecade Corporation's Rio Grande LNG project, we are fully mobilized. And the main dredging work will now be in full swing in Q3 and continue into 20252026. The Biden administration's temporary pause on approving new LNG export licenses has not had an impact on our 2 awarded projects. There has also been minimal impact on the large number of projects that the Department of Energy has already approved and on which we continue to tender bids. The continuation of these private sector projects greatly support our dredging business by diversifying and expanding our client base.

Speaker 2

Modernizing our fleet is a key factor in staying a competitive market leader for the long term, and we have made significant progress on our newbuilding program with the Q1 delivery of our newest 6,500 Cubic Yard capacity hopper dredge, the Gabeston Island. The vessel went from shipyard through commissioning and sea trials to being in full operation in record time, and she contributed strongly to the solid project performance in the Q2. Her sister ship, the Amelia Island, is currently under construction and is expected to be delivered in the second half of twenty twenty five. These dredges have been specially designed to operate on projects that redevelop and improve our beaches and shorelines, which are subject to the continual damage due to storms and rising sea levels. The 1st and only U.

Speaker 2

S. Flagged Jones Act compliant inclined 4 pipe subsea rock installation vessel, the Arcadia, is currently under construction at the Philly Shipyard. The Arcadia is contracted to install rock foundations for Equinor's Empire Wind 1, scheduled for a 2025 start and to perform rock placement to protect subsea cables on the Ersted Sunrise wind project scheduled for 2026. In addition to the U. S.

Speaker 2

Offshore wind market, there are several other markets opportunity that the Arcadia is well suited for. She can work in the international offshore wind market, she can work in the oil and gas and carbon capture market, and the telecommunications and power cable markets, installing rock protection over pipelines and cables. We have prequalified and tendered on a number of rock placements projects for the Arcadia, both in the U. S. And internationally, we work plan for 2026 and beyond.

Speaker 2

In the second quarter, we entered into a 150,000,000 dollars 2nd lien credit agreement for an aggregate principal amount of $100,000,000 and a delayed draw term loan facility in the aggregate amount of 50,000,000 dollars to provide additional liquidity to support our newbuild program and provide financial flexibility to pursue other financing alternatives, including Marriott's Title 11. I will now turn the call over to Scott to further discuss the results of the quarter, and then I'll provide further commentary around the market and our business.

Speaker 3

Thank you, Lasse, and good morning, everyone. I'll start by walking through the 2nd quarter, which resulted in revenues of $170,100,000 net income of $7,700,000 and adjusted EBITDA and adjusted EBITDA margin of $25,800,000 15.2 percent respectively. Revenues of $170,100,000 in the Q2 of 2024 increased $37,400,000 from the prior year's Q2, primarily due to higher capital and coastal protection project revenues, which together made up over 80% of our total revenues and the addition of the Galveston Island, which worked the entire Q2 of 2024, offset partially by a decrease in maintenance project revenue. Current quarter gross profit and gross profit margin increased to $29,800,000 17.5 percent respectively compared to $17,900,000 13.5 percent respectively in the Q2 of 2023. 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 3

2nd quarter 2024 G and A of $16,200,000 is $1,700,000 higher than the same quarter last year, primarily due to higher employee benefit and incentive costs and consistent with G and A expense in the Q1 of 2024. Net interest expense of $4,200,000 for the Q2 2024 was up from $3,200,000 in the Q2 2023, primarily due to interest related to the term loan, which closed earlier in the Q2. 2nd quarter 2024 net income tax expense of $2,800,000 increased $2,000,000 compared to the same quarter of 2023 driven by the higher current quarter income. Rounding out the P and L, net income for the Q2 2024 was $7,700,000 up from $1,700,000 in the prior year quarter and adjusted EBITDA increased $9,200,000 to $25,800,000 Turning to our balance sheet. We ended the Q2 with $23,100,000 in cash and nothing drawn on our $300,000,000 revolver, which doesn't mature until the Q3 of 2027.

Speaker 3

Total liquidity at the end of the quarter was just over $325,000,000 and we have no debt maturities until 2029, putting us in a great position to complete our newbuild program with ample liquidity. Total capital expenditures for the Q2 2024 were $51,300,000 made up of $29,700,000 for the construction of the subsea rock installation vessel the Acadia, 14.8 $1,000,000 for the Hopper Dredge Amelia Island, dollars 700,000 for the final payment of the Galveston Island and $6,100,000 for maintenance CapEx. We are lowering our full year CapEx guidance from between $170,000,000 to $195,000,000 to between $130,000,000 $150,000,000 due to the projected timing of certain milestone payments pushing from late 2024 to early 2025. Looking forward to the Q3, we expect utilization and revenue to increase from the Q2 as both LNG projects commence. While we have no regulatory dry dockings planned for the rest of the year, we will have a few vessels down for a short period of time during the Q3 for planned maintenance, including one that was originally planned for the Q2, but will now occur in the 3rd.

Speaker 3

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

Speaker 2

Thanks, Coen. The dredging industry continues to see strong support from both the White House and Congress. On March 9, President Biden signed the Energy and Water Appropriation Bill into law, which allocates $8,700,000,000 in total funding for the U. S. Army Corps of Engineers for fiscal year 2024.

Speaker 2

This includes $5,600,000,000 for the Corps' operations and maintenance, of which $2,800,000,000 came from the Harbor Maintenance Trust Fund to enhance our nation's waterways. Dollars 2,200,000,000 for flood and storm damage reduction and $18,000,000 for beneficial use of dredged material. Furthermore, the Disaster Relief Supplemental Appropriations Act for fiscal year 2023, which has been approved, includes $1,500,000,000 for the Corps to make necessary infrastructure repair post hurricanes and other natural disasters, as well as beach renourishment initiatives to bolster coastal resilience. This increased budget and additional funding have supported a very strong bid market for 2024. Looking forward to what is expected for 2025, the course budget is expected to be another record appropriation.

Speaker 2

On June 28, the House of Representatives Energy and Water Appropriations Subcommittee passed their 2025 appropriations bill, providing the Corps with 9.96 $1,000,000,000 The bill includes $5,700,000,000 for operations and maintenance projects, of which $3,100,000,000 is from the Harbor Maintenance Trust Fund. On August 1, the Senate Appropriations Committee approved its draft of the 2025 Energy and Water Spending Bill, which included $10,300,000,000 in total funding for the core. The passing of these appropriations set up 2025 to be another strong bid market for the dredge industry. Looking further ahead, the Water Resource Development Act, or VERDA, is a 2 year renewal cycle and includes legislation that authorizes the financing of the core's projects in the next 2 to 5 years. VERDA 2024 has seen strong bipartisan support and has already been approved by the Senate Environment and Public Works Committee and the House Transportation and Infrastructure Committee.

Speaker 2

And on the 22nd July, the U. S. House of Representatives approved the early 24, moving the bill one step closer to full congressional approval. The U. S.

Speaker 2

Offshore wind market reached historic milestones in the first half of twenty twenty four, with 2 commercial scale offshore wind farms becoming operational and supplying power to the grid in New York and Massachusetts. We also saw New Jersey awarding 3.7 gigawatts of power purchase agreements and the Tri State Massachusetts, Rhode Island and Connecticut solicitation for 6 gigawatts of offshore wind are expected in Q3. The latest Bloomberg Offshore Wind market outlook show global offshore wind expected to grow 10 fold by 2,040, with a forecasted installed capacity of approximately 7 42 gigawatts, with the United Kingdom and the United States to be 2 of the top 3 offshore wind energy producers, which provides us with a very strong long term market outlook supporting our revenue growth opportunity. In my view, it is my view that Great Lakes is now well positioned in a very exciting time. We have a strong dredging backlog consisting of large flexible capital port deepening and LNG projects.

Speaker 2

We have a robust bid market in 2024 and expect the same for 2025. And this will support improved year over year revenue growth and greatly improve our position to continue to deliver solid results, which again supports the generation of higher free cash flow to continue to modernize and upgrade our fleet with more productive dredges and support our expansion into the high growth, high margin offshore wind market. And with that, I'll turn the call over for questions.

Operator

Thank you. At this time, we will conduct a question and answer session. Our first question comes from Joe Gomes from NOBLE Capital. Please go ahead.

Speaker 4

Good morning. Very nice quarter and thanks for taking my questions.

Speaker 3

Good morning, Joe.

Speaker 4

Wanted to start out, I don't know if you guys can provide us some of the market statistics for the quarter, kind of like your bid share, your win share of the quarter. Were there any particular projects out there that you won that you weren't expecting to win? And or on the flip side, any particular projects that you thought that you were in the driver's seat and ended up not being in the driver's seat?

Speaker 2

No. As I said, in general, the bid market has been very strong in 2024, and we are very happy to see that now the deepening port de meeting projects in the Gulf are moving forward, in is moving forward. That has been delayed over the last 2 years, and that market has come back strongly. And that is typically a market where we perform well.

Speaker 4

Okay. And then you mentioned Lasse, some of the other potential opportunities for the Acadia. You point out oil and gas, telecom, power cable protection markets. These are things that at least I don't recall you speaking about previously. Is that more of a just kind of looking for what else can be done in the U.

Speaker 4

S. Offshore if the offshore wind market doesn't take off as anticipated in the U. S? Or is this some of the participants in these industries coming to Great Lakes and saying, hey, we could make use of that vessel. I'm just trying to get a little more color on those potential opportunities.

Speaker 2

Yes. The vessel can do all these things which I described. It places rock over in support of offshore wind installations, the monopiles, the substations, and also it places rock over pipelines. There are a number of pipelines being installed that needs that protection now. Cable need that protection.

Speaker 2

And so, we're in a very large market for cable protection worldwide. So when the offshore wind markets kind of hit a bump here last year, We looked at what do we where do we look and where's the opportunities for the vessel in the short term. And it's very clear for us that there's a strong offshore wind market internationally. There's a very large cable protection market internationally. And also the oil and gas sector requires rock over pipelines, which we also can address.

Speaker 2

So it's all these markets are open for the Arcadia. Arcadia was targeted, the offshore wind market in the U. S. As a prime market, but we can compete internationally on all these sectors.

Speaker 4

Okay. And then just one more for me, I'll get back in queue. So you mentioned the Galveston Island up and running full quarter. Is that all up to expectations? Any hiccups on the Galveston Island?

Speaker 4

Or how pleased are you with the performance of the vessel in the quarter?

Speaker 2

We are very pleased with the performance. As you know, we had some delays in getting the vessel delivered. So we put a lot of effort into commission as much as we could when the vessel was being built. And she went through sea trials and commissioning in record

Speaker 4

Great. Thanks again for taking the questions and great quarter.

Operator

Thank you. Thank you. One moment for our next question. Our next question comes from Julio Romero from Sidoti and Company. Please go ahead.

Speaker 5

Thanks. Hey, good morning. Can you talk about maybe demand for coastal protection and give us a sense of how much coastal work is expected to be bid over the back half of twenty twenty four and then when that could be reflected in your backlog?

Speaker 2

Yes. As we've been talking about before, for the last 2 years, the ecosystem protection market, particularly around the East Coast, has been very slow. And that market has now come back. And there is on particularly on the East Coast, there is a number of projects which we are now bidding and addressing. It's in where we are looking, it's in the range of more than $500,000,000 in coastal protection, kind of maybe in the high end of that.

Speaker 2

So that market has come back with a vengeance and that's great to see because a lot of these communities along the East Coast and in Florida are dependent on the tourist industry. And with the lack of funding and also project approvals for these projects over the last 2 years, that has suffered. And now we see a great uptick in that market.

Speaker 3

And Julio, I'll add. We mentioned the second half looks very strong. July was a very busy month. And we've mentioned on the call, we won over $180,000,000 of just the July work. Was about $75,000,000 to $80,000,000 just in that sector just for the month of July with a lot more to come.

Speaker 5

Got it. That's helpful. And it was good to see the mix of backlog continue to hold up well with capital projects and being a big part of that mix. Can you talk about how the mix of the backlog should trend for the next two quarters?

Speaker 3

Yes. So we're working all the capital projects now, including the commencement of both LNGs. So we'll start burning off quite a bit of capital over the second half of the year. There are some jobs coming up though in the second half. I mentioned very strong July.

Speaker 3

We did win 2 capital projects in July. So we'll see that get added into our backlog next quarter. That was to about $90,000,000 $95,000,000 The larger segment of the market in second half of the year is likely the coastal protection. There's just so much coming out with the supplemental bill $1,500,000,000 We're starting to see that spent right now. So I think that will be the strongest piece, but there's still a number of capital projects that we're eyeing.

Speaker 5

Okay, understood. And then last one for me is just on the I appreciate the updated CapEx guidance you gave. Can you just quickly remind us how much is left on the newbuild program and when that's expected to complete?

Speaker 3

Yes. So with I think we have roughly $65,000,000 to $85,000,000 left in the second half of this year, call that roughly $10,000,000 of maintenance CapEx, so $55,000,000 to $75,000,000 And then we have roughly an additional $80,000,000 for the newbuild program in 2025. So all said and done about $150,000,000 give or take left on the newbuild program and we should take delivery of both the Amelia Island and the Acadia in the Q3.

Speaker 5

Very helpful. I'll pass it on. Thanks very much.

Operator

Thank you. One moment for our next question. Our next question comes from Jon Tanwanteng from CJS Securities. Please go ahead.

Speaker 6

Hi, good morning. Very nice quarter and thank you for taking my questions. I was wondering if you could talk about how much white space you have left in the schedule for the remainder of the year just given all the activity in July?

Speaker 2

Yes. We don't have much white space left in our program. We have a good utilization of the dredges. There are some opportunity for revenue generation on our cutter side of our fleet. But with the strong beach market that we see coming up, there are good opportunities here towards, let's say, Q4 and into next year.

Speaker 3

And I will add, John, one of the reasons we really like these large beach projects to capital projects is they provide us a ton of flexibility. So even though we may have penciled in full utilization on a number of vessels this year, we can still bid work as we have opportunities to push some of the planned work from 2024 into 2025 if we find other opportunities.

Speaker 6

Got it. Thank you. And then how much of how much was the impact of maintenance in Q2 being pushed out to Q3? And do you have any other planned maintenance heading into Q4?

Speaker 3

Yes. So it was we had a few vessels that we had planned to do in Q2. And there was a delay in getting some of the parts we needed to the art. So we just kept working and we'll take her down. It'll be a couple of weeks that we had planned in Q2 that will now happen in Q3.

Speaker 3

We always have planned maintenance on these vessels, but nothing really of note that we have planned between now and the end of the year. We just have normal handful of vessels that will be taken out for a week or so just to do what needs

Speaker 6

to be done and get them back on payroll. Got it. Between the utilization and kind of the lighter or maybe no dry docking for the end of through the end of the year. Is it reasonable to assume that you could approach the Q1 earnings performance in the 3rd and 4th quarters, if not hit it?

Speaker 3

Q4, in particular, is shaping up to be extremely high utilization. Q1, we had extremely high margins. A lot of the projects that we were working on were grand slams. We typically do very, very well on capital projects. So we have the backlog and the mix of backlog to have a very solid second half of the year.

Speaker 6

Got it. Thank you. And then finally, just any movement in opportunities for Acadia that could move into that open window in 2026? I think I recall last time you spoke about projects that were being delayed that actually might go into that window or maybe projects pulling in that might go into that window. Could you give us a little bit more update on the opportunity set to fill the utilization as you approach that the end of the

Speaker 2

project? Yes. We have options that could fill out 2026, And then we need some new awards coming to the end of 'twenty six and into 'twenty seven. But there are a number of projects that we have bid and where the clients are looking for reservation agreements. And we are negotiating these at this point in time.

Speaker 2

It's a fluid situation as you could well imagine with all the things going on in the market, both in the U. S. And also internationally, but we are confident to have the best of well utilized back out in 2026 and 'twenty seven and onwards. Particular, 'twenty eight and onwards is extremely strong, both in the U. S.

Speaker 2

And in Europe. So we just need to fill in that short term utilization that we are looking for there in the 'ninety six.

Speaker 6

Got it. If I could sneak one more in there. Is there a lot of competition for that window of time?

Speaker 2

No, there's not. As you know, the Arcadia is the only Jones Act compliant vessel. So for the U. S. Projects, we are in a very strong position.

Speaker 2

And then internationally, the activity levels are still high. And as I said, we are also looking at opportunities internationally in the oil and gas and cable protection market. So good outlooks for the Acadia, but a bit of a fluid situation due to the political situation here in the U. S.

Speaker 6

Great. Thank you.

Operator

Thank you. One moment for our next question. Our next question comes from Adam Thalhimer from Thomas Davis. Please go ahead.

Speaker 6

Hey, good morning, guys. Congrats on the Q2 beat. Thanks, Adam. The market looks pretty strong here. I'm just curious, what are you seeing in terms of competitive behavior?

Speaker 2

Yes. We saw some, let's say, interesting behaviors last year with new entrants into the market and also our biggest competitor weeks changing ownership. But as I said, the bid market is very strong and everybody sees that. So there's no, let's say, extraordinary activity as we see it or behaviors in the market. The bid market is strong and you can also see on the bids announcements when they come out, there is quite a big spread on the pricing and that comes from the competition and we being quite busy at this time.

Speaker 6

That is good to hear. And then, I'm kind of blown away by the July low bids of 182 $1,000,000,000 What's your sense for how you guys are going to finish out the quarter?

Speaker 3

Yes. And Yes. And actually, so $180,000,000 that's 5 awards and they're all awardable. We actually had a 6th one of over $100,000,000 We were low bidder, but just slightly over the government estimate. So we're working with them to find a path to get that one awarded.

Speaker 3

So that July number can potentially grow even higher than that. The 3rd quarter is shaping up to be extremely strong, stronger than the Q2. Again, July was a good indication over $400,000,000 We think August will be a higher number than July. We have 17 projects that we have eyed for July that we are working on potentially putting bids out. How many we put out will be dependent on availability and how many of those earlier ones that we win.

Speaker 3

There is a lot of work coming out in the second half of the year, but in particularly in the Q3.

Speaker 6

I'm trying to think how to ask this, but my framework question is like how much is still in cold stack? Like as we think about 25 versus 2024, what's the growth potential for 2025 versus 2024?

Speaker 3

Yes. I mean, we've said the vessels that we have had in long term cold stack, they may even in this market not come out again. That's a decision that we need to make. There's a reason they haven't worked for a couple of years and it would take quite a bit of money to come back. Where we're seeing the flux of work is in the beach work and in the capital work, the cold stack vessel that we have right now is a mechanical that may or may not be well suited for that kind of work.

Speaker 3

So I wouldn't expect even in this very robust market that it gives us an opportunity to take that cold stack vessel out. Now I did mention on the last call, we did have a cold stack vessel that we are reactivating now because we did win a job. I think it's unlikely we see the other one follow

Speaker 6

the same path. Okay. But I guess as we think towards next year, I mean, you do have the earnings from Acadia, so that helps.

Speaker 3

Yes. Acadia will come on. But remember, Adam, we've always said it's possible that, that will be replacement capacity instead of additional, not a decision we need to make now. We can make it in the second half of the year as the Amelia Island comes on.

Speaker 6

Great. Thanks guys. Thank you.

Operator

Thank you. I am showing no further questions at this time. I will now turn it back over to Tina Beginskas 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 in today's conference. This does conclude the program. You may now disconnect.

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Key Takeaways

  • Great Lakes delivered a Q2 2024 net income of $7.7 million and adjusted EBITDA of $25.8 million on $170.1 million in revenue, despite having three dredges in drydock.
  • The dredging market remains robust with an $8.7 billion U.S. Army Corps of Engineers budget, supporting a firm dredging backlog of $807.9 million (85% capital projects) plus $273.1 million in low bids and options pending award.
  • Major LNG projects at Port Arthur and Brownsville are now fully mobilized, with main dredging work in full swing in Q3 and continuing into 2025 and 2026, unaffected by the administration’s pause on new export licenses.
  • The newbuild program advanced with the Q1 delivery of the 6,500 CY hopper dredge Galveston Island (record commissioning time), the Amelia Island due in H2 2025, and the Arcadia rock installation vessel under construction to serve offshore wind, subsea cable, oil & gas, and carbon capture markets.
  • End-Q2 liquidity stood at over $325 million (including $23.1 million cash and an undrawn $300 million revolver), while FY2024 CapEx guidance was lowered to $130-150 million as milestone payments shift into 2025.
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Earnings Conference Call
Great Lakes Dredge & Dock Q2 2024
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