Great Lakes Dredge & Dock Corp (GLDD) 2024 Q2 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Q2 2024 Great Lakes Dredge & Dock earnings conference call. (Operator Instructions) Please be advised that today's conference is being recorded. I would now like to hand the conference to your first speaker today, Tina Baginskis, Director of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to our second quarter 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 markets.

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

Thank you, Tina. Great Lakes Dredge & Dock delivered solid second quarter results, driven by excellent product performance, well executed drydock program and disciplined cost control. For the second quarter, we achieved net income of $7.7 million and adjusted EBITDA of $25.8 million.

This is a very strong result considering we had pre-dredges and drydock in preparation for the new capital LNG projects, which have commenced in full now in the third quarter. With a record 2024 US Army Corps of Engineers budget of $8.7 billion, 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, particular 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 $807.9 million with 85% of that in capital projects.

In addition, we had $273.1 million 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 $181.6 million.

Additionally, for offshore wind, our backlog was $44.6 million with an additional $12.7 million in options pending award. On the LNG related projects, the Port Arthur LNG Phase 1 Channel Improvement project and the Brownsville ship channel project for next decade cooperation, so Rio Grande LNG project, we are fully mobilized and the main dredging, the work will now be in full swing in the third quarter and continue into 2025 and 2026.

The Biden Administration's temporary pause on approving new LNG export licenses has not had an impact on our two 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 outline base. 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 for the first quarter delivery of our newest 6,500 cubic yard capacity, hopper dredge, the Galveston 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 second quarter. Her sister ship, the Amelia Island is currently under construction and is expected to be delivered in the second half of 2025.

These dredges have been specially designed to operate on projects that redevelop and improve our beaches and shore lines, which are subject to the continual damage due to storms and rising sea levels. The first and only US flagged Jones Act compliant inclined full pipe subsea rock installation vessel, the Acadia is currently under construction at the Philly Shipyard.

The Acadia 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 Ørsted’s Sunrise Wind projects scheduled for 2026.

In addition to the US offshore wind market, there are several other markets opportunity that the Acadia 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 Acadia, both in the US and internationally, with work plan for 2026 and beyond. In the second quarter, we entered into a $150 million second lien credit agreement for an aggregate principal amount of $100 million and a delayed draw term loan facility in the aggregate amount of $50 million to provide additional liquidity to support our newbuild program and provide financial flexibility to pursue other financing alternatives, including MARAD's Title XI.

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.

Thank you, Lasse, and good morning, everyone. I'll start by walking through the second quarter, which resulted in revenues of $170.1 million, net income of $7.7 million, and adjusted EBITDA and adjusted EBITDA margin of $25.8 million and 15.2%, respectively.

Revenues of $170.1 million in the second quarter of 2024 increased $37.4 million from the prior year second quarter, 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 second quarter of 2024, offset partially by a decrease in maintenance project revenue.

Current quarter gross profit and gross profit margin increased to $29.8 million and 17.5% respectively, compared to $17.9 million and 13.5%, respectively, in the second quarter 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.

Second quarter 2024 G&A of $16.2 million is $1.7 million higher than the same quarter last year, primarily due to higher employee benefit and incentive costs and consistent with G&A expense in the first quarter of 2024. Net interest expense of $4.2 million for the second quarter 2024 was up from $3.2 million in the second quarter 2023 primarily due to interest related to the term loan, which closed earlier in the second quarter.

Second quarter 2024 net income tax expense of $2.8 million increased $2 million compared to the same quarter of 2023, driven by the higher current quarter income.

Rounding out the P&L. Net income for the second quarter 2024 was $7.7 million, up from $1.7 million in the prior year quarter, and adjusted EBITDA increased $9.2 million to $25.8 million.

Turning to our balance sheet. We ended the second quarter was $23.1 million in cash and nothing drawn on our $300 million revolver, which doesn't mature until the third quarter of 2027. Total liquidity at the end of the quarter was just over $325 million, 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 second quarter 2024 were $51.3 million, made up of $29.7 million for the construction of the subsea rock installation vessel, the Acadia, $14.8 million for the hopper dredge Amelia Island, $700,000 for the final payment of the Galveston Island, and $6.1 million for maintenance CapEx.

We are lowering our full year CapEx guidance from between $170 million to $195 million to between $130 million and $150 million due to the projected timing of certain milestone payments pushing from late 2024 to early 2025.

Looking forward to the third quarter, we expect utilization and revenue to increase from the second quarter as both LNG projects commence. While we have no regulatory drydockings planned for the rest of the year, we will have a few vessels down for a short period of time during the third quarter for planned maintenance, including one that was originally planned for the second quarter, but will now occur in the third.

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

Thanks, Scott. The dredging industry continues to see strong support from both the White House and Congress. On March, the 9, President Biden signed the energy and water appropriation bill into law, which allocates $8.7 billion in total funding for the US Army Corps of Engineers for fiscal year 2024.

This includes $5.6 billion for the course of operations and maintenance, of which $2.8 billion came from the Harbor Maintenance Trust Fund to enhance our nation's waterways, $2.2 billion for flood and storm damage reduction and $18 million for beneficial use of dredged materials.

Furthermore, the Disaster Relief Supplemental Appropriations Act for Fiscal Year 2023, which has been approved, includes $1.5 billion for the Corps to make necessary infrastructure, repair, post-hurricanes, and other natural disasters as well as beach nourishment 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 cost budget is expected to be another record appropriations. On June 28, the House of Representatives, Energy & Water Appropriations Subcommittee passed their 2025 appropriations bill providing the Corps with $9.96 billion.

The bill includes$5.7 billion for operations and maintenance projects, of which $3.1 billion is from the Harbor Maintenance Trust Fund. On August the 1, the Senate Appropriation Committee approved its draft of the 2025 energy and water spending bill, which included $10.3 billion in total funding for the Corps.

Passing all these appropriations set up 2025 to be another strong bid market for the dredge industry. Looking forward further ahead, the Water Resource Development Act or the WRDA is a two year renewal cycle and includes legislation that authorizes the financing of the Corps' projects in the next two to five years.

WRDA 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. And on the July 22, the US House of Representatives approved the WRDA 2024, moving the bill one step closer to full congressional approval.

The US offshore wind market reached historic milestones in the first half of 2024 with two 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 thrid quarter.

The latest Bloomberg offshore wind market outlook show global offshore wind expected to grow tenfold by 2040, with a forecasted installed capacity of approximately 742 gigawatts. With the United Kingdom and the United States to be two of the top three offshore wind energy producers, which provides us with a very strong long-term market outlook supporting our revenue growth opportunity.

It is my view that Great Lakes is now well-positioned in a very exciting time. We have a strong dredging backlog, consisting of a large, flexible capital port deepening and LNG projects. 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 turn the call over for questions.

(Operator Instructions) Joe Gomes, Noble Capital.

Good morning. Very nice quarter and thanks for taking my question. 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 you are in the driver's seat and ended up not being in the driver's seat?

So as I said, in general, the bid market has been very strong in 2024, and we are very happy to see that now the port deepening projects in the Gulf are moving forward in particular, and also the beach restoration market on the East Coast is moving forward. That has been delayed over the last two years and that market has come back strongly, and that is typically a market where we perform well.

And then you mentioned also some of the other potential opportunities for the Acadia, you pointed out oil and gas on 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 US offshore if the offshore wind market doesn't take off as anticipated in the US or is this, you know, some of the participants in these industries are 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.

Yeah, the vessel can do all these things, which I described. It places a 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 protection now, cable need that protection and 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 do -- where we look and where's the opportunities for the vessel in the short term? And it's very clear for us that has a strong offshore wind market internationally.

That's a very large cable protection market internationally and also the oil and gas sector requires rock over pipeline, two of which we also can address. So it's all these markets open for the Acadia. Acadia was targeted the offshore wind market in the US as a prime market, but we can compete internationally on all these sectors.

Okay. And then just one more from me, I'll get back in queue. So you mentioned the Galveston Island, often running full quarter yields at all up to expectations, any hiccups on the Galveston Island or how pleased are you with the performance of the vessel in the quarter?

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 time for us, and has performed very well since she was delivered.

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

Julio Romero, Sidoti & Company.

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 '24 and then when that could be reflected in and your backlog?

Yeah, as we've been talking about before, for the last two years, the coastal protection market particularly on the East Coast has been very slow and that market as now come back and there is particularly on the East Coast, there is a number of projects which we are now bidding and addressing where we are looking, it's in the range of more than $500 million in coastal protection, maybe in the high end of that.

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 approval support for these projects over the last two years that has suffered. And now we see a great uptick in that market.

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 went over $180 million of just the July work, there was about $75 million to $80 million just in that sector just for the month of July with a lot more to come.

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

Yeah, so we're working all the capital projects now, including the commencement of both LNG. 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, and I mentioned a very strong July.

We did win two capital projects in July, so we'll see that get added into our backlog next quarter. That was to the tune of about [$90 million, $95 million]. The larger segment of the market and second half of the year is likely the coastal protection. There's just so much coming out with the supplemental bill, $1.5 billion, we're starting to see that spent right now. I think that will be the strongest piece, but there's still a number of capital projects that we're eyeing.

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?

Yeah, so we have roughly [65 to 85] less than the second half of this year, call that roughly $10 million of maintenance CapEx of [55 to 75]. And then we have roughly an additional $80 million for the newbuild program in 2025. So all said and done about $150 million, give or take left on the newbuild program, and we should take delivery of both the Amelia Island and the Acadia in the third quarter.

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

Jon Tanwanteng, CJS Securities.

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?

Yeah, 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 the cutter side of our fleet, but with a strong beach market that we see coming up. There are good opportunities here towards, let's say, fourth quarter and into next year.

And I will add, Jon, one of the reasons we really like these large beach projects and capital projects as 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 '24 into 2025 if we find other opportunities.

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.

Yeah, so it was -- we had a few vessels that we had planned to do in Q2, one of them had full backlog and there was a delay in getting some of the parts we needed to the yard. So we just kept working and we'll take it down, will be a couple of weeks that we had planned in Q2 that that will now happen in Q3.

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

Got it. Between the utilization and kind of the lighter or maybe no dry-docking through the end of the year, is it reasonable to assume that you could approach the Q1 earnings performance in the third and fourth quarters, if not hit it?

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 have the backlog and the mix of backlog to have a very solid second half of the year.

Got it. Thank you. And then finally, just any movement in the opportunities for Acadia that move into that open window in '26? 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 them may go into that window. Could you give us a little bit more update on the opportunity set to full utilization as you approach that, the end of the Ørsted project?

Yeah, we have options that could fill out to 2026. And then we need some new awards coming to the end of '26 and into '27. 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.

It's a fluid situation, as you can well imagine with all the things going on in the market, both in the US and also internationally, but we are confident to have the vessel well-utilized back out in 2026 and '27 and onwards. In particular, '28 and onwards is extremely strong both in the US and in Europe. So we just need to fill in that. But that's a short-term utilization that we are looking for there and '26.

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

No, that's not. As you know, the Acadia is the only Jones Act compliant vessel. So for the US projects, we are in a very strong position. 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 US.

Great. Thank you.

[Adam Thalhimer, Thompson Davis].

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

Yeah, Adam, we saw some, let's say, interesting behaviors last year with the new entrants into the market and also our biggest competitor weeks of 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's quite a big spread on the pricing and that comes from the competition and we being quite busy at this time.

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

And actually, so $180 million, that's five awards and they're all awardable. We actually had a sixth one of over $100 million. We were low bidder, but just slightly over the government estimates. So we're working with them to find a path to get that one awarded, so that July number can potentially grow even higher than that.

The third quarter is shaping up to be extremely strong, stronger than the second quarter. Again, July was a good indication over $400 million, 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, there is a lot of work coming out in the second half of the year, but in particularly in the third quarter.

I'm trying to think how to ask this, my framework question is like how much is still in cold stack like as we think about '25 versus '24, what's the growth potential for '25 versus '24?

Yeah, 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 the decision that we need to make, that's the 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-stacked vessel that we have right now is a mechanical that may or may not be well suited for that kind of work. So I wouldn't expect even in this very robust market that it gives us an opportunity to take that cold-stacked vessel out. Now I did mention on the last call, we did have a cold stacked vessels that we are reactivating now because we did win a job. I think it's unlikely we see the other ones follow the same path.

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

Yeah, Acadia will come out, but remember, Adam, we've always said it 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.

Great. Thanks, guys.

Thank you. I am showing no further questions at this time. I will now turn it back over to Tina Baginskis for closing remarks.

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 for your participation in today's conference. This does conclude the program. You may now disconnect.