Great Lakes Dredge & Dock Corp (GLDD) 2025 Q3 法說會逐字稿

Good day, and thank you for standing by. Welcome to the Q3 2025 Great Lakes Dredge & Dock Corp's earnings conference call. (Operator Instructions)

I would now like to hand the conference over to your first speaker today, Eric Birge, Vice President of Investor Relations. Please go ahead.

Thank you, Ari. Good day, and thank you, everyone, for joining us. Welcome to Great lakes Dredge & Dock's third quarter 2025 financial results conference call. Before we begin, please note that certain statements made during this call are forward-looking in nature and are subject to various risks, uncertainties and assumptions. These factors may cause actual results to differ materially from those anticipated.

For a detailed discussion of these risks, please refer to our filings with the Securities and Exchange Commission. We will also be discussing certain non-GAAP financial measures, including adjusted EBITDA. A Reconciliations of these measures to the most direct comparable GAAP measure can be found on our earnings release or on our Investor Relations section of our website at investors.gldd.com. Along with other supplemental operating information.

Joining me on today's call are Lasse Petterson, our President and Chief Executive Officer; and Scott Kornblau, our Senior Vice President and Chief Financial Officer. Lasse will begin with a review of our quarterly key developments, followed by Scott, who will provide a detailed overview of our financial performance. Lasse will then conclude with commentary on the business outlook and market trends.

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

Thanks, Eric. Following strong financial results in the first half of the year, the momentum continued into third quarter with high utilization and strong project performance through the execution of complex port deepening and coastal restoration projects, leveraging the capabilities of our team and our fleet.

We ended the quarter with revenues of $195.2 million and adjusted EBITDA of $39.3 million. Our dredging backlog remains strong at $935 million, with 84% in capital and coastal protection projects, plus an additional $194 million in awards and options pending. During the third quarter, we were awarded new projects totaling $136 million.

Our successful bid strategy from last year resulted in a large number of projects wins, which resulted in a high-quality backlog, which will support full utilization and revenues for the remainder of 2025 as well as providing a good base and revenue visibility for 2026.

Our current backlog includes three major port deepening LNG projects, the Port Arthur LNG Phase 1 project, the Braswell ship channel project, part of next decade Corporation Rio Grande LNG initiative; and Woodside Louisiana LNG, which is expected to commence dredging early 2026.

We have seen no interruption to our business during the current government shutdown. Our operations remain unaffected, and we continue to conduct the business as usual, maintaining full schedules, both in bidding, awards and we received payments on time. Our support to the core would proceed without disruption, and our backlog of projects are fully funded.

During the third quarter, our offshore energy team commenced rock placement operations on Equinor's South Brooklyn Marine Terminal. And during the fourth quarter, installation of [Anoro] commenced on Empire in one, utilizing a chartered vessel until delivery of the Acadia in Q1 of next year. At the end of October, we completed the refinancing and upsizing of our revolver credit facility, increasing capacity to $430 million and extending the maturity to 2030.

With the increased capacity, we elected to repay our $100 million second-lien term loan. Scott will provide more details later on. Moving on to our new build program in the third quarter with the delivery of our sixth hopper dredge, the Amelia Island, marking a significant milestone in our dredging newbuild program, which is now complete. Leaving us with the largest and most advanced upper dredge fleets in the United States.

Upon delivery of the shipyard, the Amelia Island was straight to work and is performing extremely well. the Amelia Island and a sister ship to Galveston Island have been specially designed for shallow and narrow waters in the United States Coast lines and our effective tools for us to work on coastal protection projects such as beach restoration, wetlands improvements and Barrier Island construction.

The final vessels in our newbuild program, the Acadia, the first US Flag Jones SEC-compliant subsea rock installation vessel is also currently under construction and hit a key milestone with a launch from the dry dock in July. Delivery is expected in the first quarter of 2026, at which times he will go straight to work on Empire Wind 1.

The target markets for the Acadia include domestic and international offshore work protecting critical subsea infrastructure such as oil and gas pipelines, power and telecommunication cables and offshore wind installations.

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

Thank you, Lasse, and good morning, everyone. I'll start by walking through the third quarter, which resulted in revenues of $195.2 million, net income of $17.7 million and adjusted EBITDA -- and adjusted EBITDA margin of $39.3 million and 20.1%, respectively.

Despite having three dredges at the dock at various times during the quarter, undergoing regulatory dry docking and repairs revenues of $195.2 million increased $4 million from the prior year's third quarter as every active dredge was working for the majority of the quarter in addition to the newly delivered Amelia Island, which commenced work in August.

Current quarter gross profit and gross profit margin increased to $43.8 million and 22.4%, respectively, compared to $36.2 million and 19%, respectively, in the third quarter of 2024. The increase in gross margin is primarily due to improved utilization and project performance and a large number of capital and coastal protection projects, which typically yield higher margins.

These projects accounted for over 85% of our third quarter revenue. Current quarter's operating income of $28.1 million increased $11.4 million compared to the prior year's quarter's operating income of $16.7 million.

The year-over-year increase is driven by higher gross profit and lower general and administrative expenses. Net interest expense of $4.6 million for the third quarter 2025 was down slightly compared to $4.9 million in the third quarter of 2024, and net income tax expense of $6.1 million increased from $3.2 million in the same quarter of 2024 due to the stronger results.

Rounding out the P&L, net income for the third quarter of 2025 was $17.7 million, up from $8.9 million in the prior year quarter. Total capital expenditures, including capitalized interest for the third quarter were $32.8 million made up of $8.3 million for the completion of the Amelia Island, $18.6 million for the construction of the Acadia with the remaining $5.9 million for maintenance and growth CapEx. Full year CapEx guidance of between $140 million and $150 million, including capitalized interest remains relatively unchanged from the prior quarter.

Turning to our balance sheet. We ended the quarter with $12.7 million in cash and nothing drawn on our revolver. And as Lasse mentioned earlier, on October 24, we upsized our revolving credit facility to $430 million and extended the maturity out to October 2030 at lower borrowing rates than the previous facility. With the increased capacity, we elected to immediately repay our $100 million second-lien notes in full reducing interest expense by almost $6 million per year.

Our balance sheet is in great shape with a trailing 12-month net leverage ratio of 2.5 times liquidity of nearly $300 million, no debt maturities until 2029 and a weighted average interest rate on our total debt now under 6%.

For the first nine months of this year, we've had positive free cash flow of $52 million despite the newbuild payments.And as our new build program will be substantially complete at the end of this year, we expect to be significantly free cash flow positive starting in 2026.

Looking forward to the fourth quarter, we expect to end the year on a high note, even with two hopper dredges in the shipyard undergoing the regulatory dry dockings as every other active dredge will be working the majority of the quarter, including a full quarter of utilization for the Amelia Island. With the strong fourth quarter, we're on pace to achieve, our expectation is that 2025 will be the highest EBITDA year in company history by a large margin.

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

Thank you, Scott. Our business operations continue without disruption during the current government shutdown. We remain fully operational, maintaining regular project schedules. We're responding to ongoing bid activities, receiving the contract awards, and we receive timely payments.

All current and upcoming projects in our backlog are fully funded. Our $935 million backlog includes a robust mix of large and complex projects in the beach restorations and portioning markets, enabling us to continue operations on a very busy 2025 and provides clear revenue visibility extending well into 2026.

As we predicted at the beginning of the year, the 2025 dredging bid market has been normalized after coming off a very strong port-deepening bid market in 2023 and 2024. We expect the 2025 bid market to come in about [$1.8 billion] more focused on coastal protection projects, which are funded by the 2023 disaster relief supplemental preparation or tact and dredging maintenance projects funded by the US Army Corps of Engineers.

As we look ahead, we're beginning to see meaningful progress on the next phase of port deepening projects, including New York, New Jersey, Tampa and New Haven and Baltimore, amongst others, with work most likely to commence in 2027. Turning to the US offshore wind markets.

In May, we saw the reversal of the temporary pause from the pure Ocean Management and Empire Wind or Equinox Empire Wind project has resumed in accordance with its original schedule, which is part of our offshore energy backlog.

Between Empire Wind 1 [hearted] Sunrise Wind and the additional scope for Sunrise Wind we were awarded last week. We have secured full utilization for the Acadia in 2026. In response to early signs of potential delays in the US offshore wind market, we proactively adjusted our strategic outlook for the Acadia.

Over the past couple of years, we have looked at and include for the safeguarding of critical subsea assets, including oil and gas pipelines, power transmission lines, telecommunication cables, and international offshore wind farms, increasing our opportunity into a broader range of services that we now refer to as offshore energy.

The Acadia is engineered to precisely deposit rock for the protection of subsea infrastructure against environmental forces, such as weather and potential acts of sabotage or hostile entities. We are actively pursuing engagement across these sectors and are making good progress in securing full utilization of the Acadia in 2027.

In conclusion, building on strong performance in the first nine months of 2025, the company continues with great momentum and expects to achieve outstanding results for the remainder of 2025 and continuing into 2026. This success is a result of excellent project execution, the strength of our modernized fleet and our competent and excellent teams.

And with that, I turn the call over for questions.

(Operator Instructions) Julio Romero, Sidoti & Company.

I wanted to start on just thinking about bidding trends and the trajectory of orders for dredging expected for the remainder of '25 and '26. And given the end of that capital project cycle, just talk about your expectations about bidding and winning coastal protection orders through '26 to help you bridge you to the next East Coast deepening cycle expected in '27?

Yes. As I said, we are [under SCR] that is now extended to November 21. And see what happens when Congress get together. Probably we get an extension of the [CR] to the end of the year and into -- maybe into 2026.

And under the CR, the core can bid out the same amount as they had for the previous years. The only change is that new stock projects cannot start up, and there hasn't been that many new start projects.

So we expect bidding to continue as normal for maintenance dredging projects and for coastal protection and restoration projects. As I said, we're -- the bid market for 2025 is a reduction from '23 and '24. That was very active with port deepening projects, but it's getting back to more normal mid-market size.

Understood. And congratulations on upsizing and expanding your revolver a few weeks ago. Going forward, does cash interest expense and GAAP interest expense converge? And if so, what's your estimation of a good quarterly run rate to use going forward?

Yes. So as I mentioned, just taking the two out, putting on the revolver, that by itself, say $6 million of cash interest a year. as you know, Julio, and I'll walk through the next few quarters, we're still capitalizing interest, while the Acadia is being finished up.

So when I look forward to fourth quarter, we will have a onetime noncash expense to interest, and that's for the extinguishment of the financing costs on the two. We ended up paying it off 3.5 years early. So you see about a $7.5 million charge.

Again, I reiterate noncash -- in addition to that, we will start seeing interest coming down. We'll probably have, in addition to that $3.5 million of interest expense down from about $4.5 million as we'll still be able to capitalize, but we have the reduced rate.

So looking at probably about $11 million of interest expense in Q4 at about $3 million to $3.5 million being the noncash -- excluding the noncash charge. Looking forward to Q1, we're probably in about the $3 million interest expense then the Acadia gets delivered.

So going forward, that is when cash interest and interest expense will be the same. But as we've talked about on prior calls, our priority next year is to start paying down the revolver. So the $6 million savings that we're seeing, I expect to increase quarter-over-quarter as we pay down and eventually pay off that revolver balance.

Joe Gomes, Noble Capital.

Congrats on the quarter. Maybe you can just walk me through this just because it's different from a number of other companies that I cover that are in the government space, understand the whole continuing resolution stuff.

But with the shutdown, many the other government services companies are saying they aren't getting paid that because so many of those people in those offices have been laid off or not coming to work. So maybe just clarify how you guys are getting paid?

Yes. You have to realize that the core of engineers has about more than 30,000 employees and only 1,000 of those are furloughed. And that is a consequence of that only 3% of the US Army Corps of Engineers workforce is funded through annual appropriations. Most of the core staff is funded through project-based accounts.

And you can see that the -- this works out. We have not had any issues. We're getting paid. We -- ongoing projects are are being executed as normal. And we also see the bidding going on at a reduced rate because of the reduction in the overall bid market.

But yes, we have not been affected by the shutdown, and we don't expect to be up either going forward.

Great. Much appreciate it. Lasse, what -- early days, but what are you seeing as the bid market. I know you said 25% is coming back to a more normalized rate, but what do you think your '26 outlook is looking for?

That's a good question, and it depends on a lot of things. We have a CR that is ongoing Congress is discussing whether to extend that to the end of the year, someone's extended into 2026, some are predicting extensions all through 2026. Anyway, under a CR, the budgets are remaining the same as it was in 2024, which was at a high level.

So the core is funded and can bid out work. There is more maintenance related. But the only thing we don't -- we cannot see is new starts going forward. So what I expect to happen is that we continue the CR into 2026.

And then towards the end of 2026, these new port deepening projects that have been in -- in study phase up to now, will probably be bid out and then with operations starting in 2027. We will see a lot of coastal protection projects being bid out that is not affected by the CR as along with more maintenance strategy.

Okay. And then one more. We've talked about this in the past certainly Acadia got '26 fully booked, '27, we're working on with some of the other markets that you talked about the cables for power of transmission, telecom, oil and gas pump. Have you had success, I mean, contracts signed with those other non-wind oriented customers for the Acadia or is this still more of a work in progress?

It's still work in progress, but we have, as I said, for the last two years, been very active in Europe because we saw a reduction in activity in the United States. And there is a market for cable protection in Europe, which is expanding as a consequence of the the political uncertainties surrounding us. And then the offshore wind market is continuing in Europe.

We have bid several projects for execution in '27 and '28 and onwards. But in Europe, this market is a more mature market. So contrary to what we saw here in the United States, where the developers wanted to secure capacity very early on and so, our contracts on Empire and on Sunrise. In Europe, it's a more mature market.

So the time between contract award and execution is shorter more like six to nine to eight months to a year. So we have not -- we have did a lot of work, and we are waiting for the outcome of those bids, but none awards as to now.

Adam Thalhimer, Thompson Davis.

Congrats on a good quarter. Scott, I can't help myself. You sounded so good on Q4. I'm just curious, maybe you can compare your expectations for Q4 to the high watermark for the year of Q1?

Yes. I knew if somebody tried that, it would be you, Adam.

I'm glad I didn't disappoint.

You did. Again, as you know, I mean the Q1 we had was one of the best, if not the best in company history. Q4 is going to be extremely strong. Now again, I did say we do have two hopper dredges in dry dock during the quarter. And you know the impact of that, the additional cost and of course, the zero in the revenue line.

We did not have the same cadence of drydockings in the first quarter on those type of vessels. That being said, just as we typically do the book in quarters are really, really strong Q1 and Q4, and we're going to see that again in the fourth quarter.

I'll take that. And then the next one, I'm a little -- so you started booking offshore energy revenue in Q3. And your backlog has grown -- grew in Q2, grew again in Q3. for the offshore. It seems like that work is starting earlier.

You talked about leasing a vessel to get to work. Is it starting early or maybe you can just level set what's going on there?

Well, it's going on as scheduled. We were planning to use the Acadia for executing the work this year, but the delay at the shipyard resulting in -- to perform the scopes that is our scope on Empire Wind 1. We have chartered in a vessel, and that work is ongoing right now. Scott.

Yes. And in addition to the work that's ongoing on Empire 1 that started in the fourth quarter, we did right at the beginning of the third quarter when an additional scope of work for Equinor and it's on the South Brooklyn marine terminal. So that -- we've been executing again with a chartered vessel. That was never contemplated to be the Acadia, but it is to support the Empire Wind project.

So that's the revenue that you're seeing in the third quarter, that project will continue into the fourth quarter, along with the commencement of the armor layer of work on Empire 1. So you will see Q4 revenue on offshore energy increase from the third quarter. So the increase that you saw in backlog is related to that South Brooklyn marine terminal, which was not in Q2 backlog.

Okay. And does it -- so next year, does it stay at that Q4 rate, Scott? Or is there a further step up?

Well, no, next year -- you say on a quarterly basis, yes, I mean it runs around that because we will then take delivery of the vessel. We will go straight on to Empire, do some work there. then we'll go straight on to Sunrise.

And then you may have heard Lassa mention post quarter end, so it's not in the backlog. We did win a little additional scope on Sunrise. So that is what fills out 2026.

Okay. Last one for me, just high level. What are you seeing in the coastal protection market and potentially upcoming bidding opportunities?

Yes. We see a number of beach restoration and coastal protection projects coming out to bid as we go into Q4 and into Q1 next year. It's different funding streams, as I mentioned in my brief remarks. So it's a funding stream that is different from the normal appropriations to the Army Corps of Engineers and that's why it continues during the CR.

As you know, we like to do these complex and difficult projects because we perform well under those circumstances. And then we see the maintenance dredging being bid up from the US Army Corps of Engineers.

I just want to say that also part of what we've been able to do is to diversify our client portfolio. So we are now 50% private and 50% federal government funded the work we do, and that gives us a good balance in our backlog.

Alex Rigel, Texas Capital Securities.

Yes. Sorry about that. Very nice quarter. Can you talk a bit about your very strong cash flow as we look into 2026 and beyond? And maybe what some of the uses of the cash flow is going to be?

Yes. I mean, so as I mentioned, even this year despite writing some really big checks to finish the new build program, we are cash flow positive and that will grow even more so next year as the new build program is over.

Priority one right now look at it, is to delever that we just did one of the maneuvers, which was to take out the second lien and greatly reduced interest expense by putting it on the revolver, we have the flexibility to pay that off when we want as cash flow from operations come in.

So priority next year, finish the Acadia, used the excess cash to start paying that down and then would just be left with the $325 million notes. Those will mature until '29 and they've got a fixed interest rate at $5.25.

Jon Tanwanteng, CJS.

I was wondering if you could talk a little bit more about Q4. I think you guys mentioned ending the year on a high note. Maybe give us a little bit more color on what is currently scheduled to revenue from a backlog perspective and given the dry docking schedule and how margins are likely to compare to Q3?

Yes. Again, I'm not going to give specific guidance, but I'll reiterate every vessel is working the majority of the quarter with the exception of the two hopper dredges that we'll spend part of the quarter within dry dock, but they work up until the dry dock and then when they come out, typically, and I don't see the fourth quarter being really any different.

We are starting to work on some environmental window work, and those usually do come with higher margins. So revenue will be extremely strong despite having the two vessels in dry dock and margins will be extremely strong based on the work that we plan to be executing during the quarter.

Okay. Great. That was helpful. And then just in Q3, can you help break out the offshore margin contribution so that maybe we can back into the dredging margins?

Yes. And again, we're not going to give or ever give project by project, and there was only one project being executed, $6 million of revenue. Again, we just commenced the project. And I'll just tell you, it's the expectations we had going into this market, which were really healthy margins that this project did not disappoint.

Got it. So we shouldn't expect a change in the margin profile as you bring the Acadia online, if that's the case, is that fair to say?

That's correct.

Okay. Great. And then last one for me, just given the outperformance this year at an EBITDA level and maybe the changes in mix as you head into next year, is it possible to meet or beat the EBITDA that you're generating this year in '27 with two new ships coming online? Or is that going to be hard to do with the mix coming off and the hard comp from Q1?

Yes. I mean -- so yes, we're -- we definitely have entered this year with well over $1 billion of backlog. We're still going to enter next year with healthy backlog. And the mix of projects are still going to be strong.

What we have in backlog now, the $934 million post quarter end, we've had some additional awards. There's also about $190 million in low bids and options pending.

One of those options two of the options are on the LNG projects, which have very high margin. Our expectations are those do get exercised, sometimes next year, and we'll execute those. So I do think when we look at 2026, we will have a similar mix of revenue like we saw this year.

So again, I'm not going to give guidance as to how next year compared to this year, but we see no reason why next year won't be an extremely strong year as well.

I'm showing no further questions at this time. I would now like to turn it back to Eric Birge for closing remarks.

We appreciate the support of all our shareholders, employees and business partners. I want to thank everybody for joining the discussion today about the developments and initiatives of our business. We look forward to speaking to everybody next quarter. Thank you.

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