Great Lakes Reports First Quarter Results

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Posted May 3, 2018

Great Lakes Dredge & Dock Corporation (GLDD), the largest provider of dredging services in the United States and a major provider of environmental and infrastructure services, today reported financial results for the quarter ended March 31, 2018.

For the three months ended March 31, 2018, Great Lakes reported revenue of $146.6 million, net loss from continuing operations of $9.3 million and Adjusted EBITDA from continuing operations of $11.7 million. Excluding the charges relating to our previously announced restructuring, for the three months ended March 31, 2018, Great Lakes reported net loss from continuing operations of $4.6 million and Adjusted EBITDA from continuing operations of $15.1 million. These results compare to revenue of $170.6 million, net loss from continuing operations of $4.6 million and Adjusted EBITDA from continuing operations of $11.7 million for the same quarter in 2017.

Chief Executive Officer Lasse Petterson commented, “We are now seeing that our restructuring plan is starting to yield significant results with first quarter 2018 Adjusted EBITDA excluding restructuring increasing to $15.1 million from the prior year quarter of $11.7 million even though revenues were down quarter over quarter. During the first quarter, we completed the run in period for the Ellis Island hopper dredge and she is now performing at her full designed capacity. She has contributed $14 million of revenue on the Mississippi Coastal Improvement Program (MSCIP) project during the first quarter and is on track to deliver her expected annualized EBITDA results. With the addition of the Ellis Island to the Great Lakes’ fleet, we are solidifying our position as the leading U.S. dredging company. Awards during the quarter included $65 million of options on the Charleston II project which at $278 million is now fully awarded. We have mobilized on the project and rock dredging work is underway. The first quarter bid market was active and we currently have $151 million in pending awards that we expect to add to backlog during the second quarter. We continue to be optimistic about the domestic bid market for 2018 and expect bids to be issued for the first phase of the Corpus Christi deepening, the Tampa Big Bend Channel deepening and the MSCIP II coastal protection project in the next few months. Further phases of the Jacksonville, Savannah, Charleston and Corpus Christi port deepenings are expected to tender later this year.

"During the first quarter we did experience one major unplanned mechanical delay in our domestic fleet which negatively impacted our results for the quarter, decreasing revenue and gross profit by approximately $12.3 million and $4.3 million, respectively. The dredge is back to work and we expect this revenue timing delay to be recovered throughout the remainder of 2018.

"In the environmental & infrastructure (“E&I”) segment, based on the seasonality of the business, the first quarter is consistently the slowest of the year and the segment finished as planned.

"In the third quarter of 2017, we announced a company-wide restructuring plan to rationalize under-performing assets and reduce our overhead costs. During the first quarter of 2018, we recognized a restructuring charge of $6.4 million and are on track to realize the announced savings related to these initiatives.”

Chief Financial Officer Mark Marinko commented, “As Lasse noted, financial results during the first quarter were in line with our expectations with the exception of the impact of one major mechanical delay. We are pleased with the growth in operating income and EBITDA excluding restructuring over the prior year quarter and the positive changes on our balance sheet since year end 2017. We have reduced our revolver balance by $4 million and our overall net debt by $14 million since December 31, 2017. We expect to continue aggressively paying down debt over the next 12 – 18 months while continuing to maintain our fleet with prudent capital investments.”

Consistent with our 2017 year-end earnings release, the Company has chosen to exclude restructuring charges in certain comparisons to the prior year. This exclusion allows the user to better evaluate the Company’s financial results from operations and drivers of variances from the prior year without the impact of this special item. Restructuring items can include costs of contract revenues (depreciation and other), general and administrative expenses and loss on sale of assets. Reconciliations to results prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) are provided throughout the earnings release and within the schedules attached. These non-GAAP measures are limited and should be considered in conjunction with GAAP measures herein provided.

Beginning in 2018, the Company has chosen to account for plant and overhead in the same period in which costs were spent as opposed to the accrual / deferral method previously used. As required by guidance, the Company has recast the prior year as if this accounting standard had always been in place for all periods presented.

Great Lakes Dredge & Dock Corporation and Subsidiaries
Select Income Statement Results Excluding Restructuring
(Unaudited and in thousands)
Three Months Ended
March 31,
Total Reported
Consolidated
Restructuring
Exclusions
Consolidated
Excluding
Restructuring
Revenue $ 146,593 $ - $ 146,593
Gross profit 14,705 4,259 18,964
Gross profit margin 10.0 % 12.9 %
General and administrative expenses 15,944 (176 ) 15,768
(Gain) / loss on sale of assets—net $ (199 ) 7 (192 )
Operating income (loss) (1,040 ) 4,428 3,388
Operating margin -0.7 % 2.3 %
Other income (expense) (2,916 ) 2,015 (901 )
Loss from continuing operations before income taxes (12,616 ) 6,443 (6,173 )
Income tax benefit 3,295 (1,686 ) 1,609
Income (loss) from continuing operations $ (9,321 ) $ 4,757 $ (4,564 )

Consolidated Company

  • Consolidated company general and administrative expenses excluding restructuring decreased by $1.0 million from the prior year quarter on the reductions related to our restructuring plan announced last year. The decrease was partially offset by a one-time expense related to a legal settlement which is now closed. The impact of this was a variance of $0.6 million in legal costs compared to the prior year and we expect minimal impact from this during the second quarter.
  • Other expense excluding restructuring was $0.9 million in the first quarter of 2018, a $1.1 million increase over the prior year. A majority of this expense is related to legal costs in the historical demolition business. During the quarter, we received a favorable jury verdict of approximately $3.4 million plus attorney’s fees and costs plus post judgment interest following a multi-week trial. The favorable verdict amount is not included in our quarterly results and we do not expect expenses on this claim at this level going forward.
  • Net loss excluding restructuring was $4.6 million for the first quarter of 2018 as compared to a net loss of $4.6 million for the same period in 2017. The current period includes net interest expense of $8.7 million and an income tax benefit excluding restructuring of $1.6 million. Net loss for the first quarter of 2017 included $5.6 million in net interest expense and a $2.8 million income tax benefit. The prior year interest expense was based on $275 million of debt at 7.375% whereas the current year interest is on $325 million of debt at 8%. Additionally, during the prior year quarter, the Company capitalized $2.0 million of interest related to the construction of the Ellis Island.
  • Adjusted EBITDA excluding the impact of restructuring was $15.1 million for the first quarter of 2018, a $3.4 million increase over the prior year quarter.
  • Cash at March 31, 2018 was $12.7 million, with total debt of $413.7 million ($1.4 million short-term debt and $412.3 million long-term debt).
  • Total Company backlog at March 31, 2018 was $513.0 million.
  • Total capital expenditures during the quarter were $6.9 million. In the prior year quarter, total capital expenditures were $19.6 million, including $13.4 million for the Ellis Island.

Segment Update

For the three months ended March 31, 2018, the dredging segment reported revenue of $133.6 million, gross profit of $14.1 million and operating income of $2.2 million. Excluding the charges relating to our previously announced restructuring, for the three months ended March 31, 2018, the dredging segment reported gross profit of $18.4 million and operating income of $ 6.4 million. These results compare to revenue of $153.1 million, gross profit of $13.1 million and operating income of $0.7 million for the same quarter in 2017.

Dredging Segment
Select Income Statement Results Excluding Restructuring
(Unaudited and in thousands)
Three Months Ended
March 31,
2018 2017 Variance
Revenue $ 133,623 $ 153,054 $ (19,431 )
Gross profit 14,130 13,100 1,030
Restructuring exclusions 4,259 - 4,259
Gross profit excluding restructuring 18,389 13,100 5,290
Gross profit margin 10.6 % 8.6 %
Gross profit margin excluding restructuring 13.8 % 8.6 %
Operating income (loss) 2,178 736 1,442
Restructuring exclusions 4,260 - 4,260
Operating income (loss) excluding restructuring 6,438 736 5,702
Operating margin 1.6 % 0.5 %
Operating margin excluding restructuring 4.8 % 0.5 %

Dredging Segment

  • Revenue in the first quarter of 2018 decreased over the prior year quarter primarily due to lower foreign capital, maintenance and rivers & lakes revenues. These decreases were slightly offset by increases in capital and coastal protection revenues. As expected there was a small decrease in revenue related to two vessels that contributed revenue in the prior year quarter, but were not profitable and therefore rationalized during the fourth quarter of 2017.
  • Gross profit excluding restructuring increased by $5.3 million in the first quarter of 2018 as compared to the same period in 2017 on higher contract margin and lower plant costs associated with the rationalized assets. This was offset slightly by the one major mechanical delay previously noted. Gross profit margin excluding restructuring increased to 13.8% from 8.6% in the prior year quarter.
  • Operating income excluding restructuring increased by $5.7 million in the first quarter of 2018 compared to the prior year quarter on higher gross profit as well as lower general and administrative expenses during the quarter.
  • Dredging backlog was $474.9 million at the end of the first quarter, a decrease of $36.4 million compared to backlog at December 31, 2017. As noted, we expect $151 million in pending awards to be added to backlog in the second quarter.

For the three months ended March 31, 2018, the E&I segment reported revenue of $13.0 million, gross profit of $0.6 million and operating loss of $3.2 million. Excluding the charges relating to our previously announced restructuring, for the three months ended March 31, 2018, the E&I segment reported gross profit of $0.6 million and operating loss of $3.1 million. These results compare to revenue of $19.2 million, gross profit of $1.7 million and operating loss of $2.7 million for the same quarter in 2017.

Environmental & Infrastructure Segment
Select Income Statement Results Excluding Restructuring
(Unaudited and in thousands)
Three Months Ended
March 31,
2018 2017 Variance
Revenue $ 12,970 $ 19,224 $ (6,254 )
Gross profit 574 1,711 (1,137 )
Restructuring exclusions - - -
Gross profit excluding restructuring 574 1,711 (1,137 )
Gross profit margin 4.4 % 8.9 %
Gross profit margin excluding restructuring 4.4 % 8.9 %
Operating income (loss) (3,218 ) (2,730 ) (488 )
Restructuring exclusions 168 - 168
Operating income (loss) excluding restructuring (3,050 ) (2,730 ) (320 )
Operating margin -24.8 % -14.2 %
Operating margin excluding restructuring -23.5 % -14.2 %

Environmental & Infrastructure Segment

  • Revenue decreased in the first quarter of 2018 compared to the same quarter of 2017. The prior year quarter included two emergency projects that as expected did not recur in the first quarter of 2018.
  • Gross profit excluding restructuring in the first quarter of 2018 decreased in comparison to the same quarter in 2017 driven by the lower volume of work.
  • Operating loss excluding restructuring decreased by $0.3 million in the first quarter of 2018 as compared to the prior year quarter due to the lower gross profit, offset by a decrease in general and administrative expenses quarter over quarter.
  • Backlog was $38.1 million at the end of the first quarter, which is an increase of $2.8 million compared to backlog at December 31, 2017.

Mr. Petterson concluded, “We expect the domestic dredging bid market to remain strong in 2018 with multiple port deepenings coming to bid in the next few months. During the first quarter of 2018, we were awarded 24% of the addressable market, including $65 million of options on the Charleston II project. In addition to the $79 million of domestic dredging awards in the first quarter, we also currently have pending awards of $151 million that we expect to add to backlog in the second quarter. We are pleased with our win rate year to date through April 2018 and expect as of second quarter for it to be consistent with our three year average of 46%.

The market in the E&I segment remains robust, but delays in work related to levy construction have posed challenges in timing. We plan to bid on approximately $150 million of new work in the next 90 days, with levy work out to bid late in the second and third quarters. We expect the E&I segment to be a slightly positive EBITDA contributor in 2018. With a backlog of $38 million and with continued focus on projects where we have strong and deep expertise and where we have had positive outcomes with the client in the past, we look forward to continued improvement in this segment.

Overall, we continue to be optimistic about our ability to perform well in the remainder of 2018 and in the coming years. With a strong backlog, the Ellis Island performing at design capacity, encouraging domestic market conditions and a keen focus on delivering on our restructuring plan, we have a good foundation for continued improved performance and strengthened results.

The Company will be holding a conference call at 9:00 a.m. C.D.T. today where we will further discuss these results. Information on this conference call can be found below.

Conference Call Information

The Company will conduct a quarterly conference call, which will be held on Wednesday, May 2, 2018 at 9:00 a.m. C.D.T (10:00 a.m. E.D.T.). The call in number is (877) 377-7553 and Conference ID is 6686458. The conference call will be available by replay until Friday, May 4, 2018 by calling (855) 859-2056 and providing Conference ID 6686458. The live call and replay can also be heard on the Company’s website, www.gldd.com, under Events & Presentations on the investor relations page. Information related to the conference call will also be available on the investor relations page of the Company’s website.

Adjusted EBITDA from continuing operations, as provided herein, represents net income attributable to common stockholders of Great Lakes Dredge & Dock Corporation, adjusted for net interest expense, income taxes, depreciation and amortization expense, debt extinguishment, accelerated maintenance expense for new international deployments, goodwill or asset impairments and gains on bargain purchase acquisitions. Adjusted EBITDA from continuing operations is not a measure derived in accordance with accounting principles generally accepted in the United States of America ("GAAP"). The Company presents Adjusted EBITDA from continuing operations as an additional measure by which to evaluate the Company's operating trends. The Company believes that Adjusted EBITDA from continuing operations is a measure frequently used to evaluate performance of companies with substantial leverage and that the Company's primary stakeholders (i.e., its stockholders, bondholders and banks) use Adjusted EBITDA from continuing operations to evaluate the Company's period to period performance. Additionally, management believes that Adjusted EBITDA from continuing operations provides a transparent measure of the Company's recurring operating performance and allows management to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. For this reason, the Company uses a measure based upon Adjusted EBITDA from continuing operations to assess performance for purposes of determining compensation under the Company's incentive plan. Adjusted EBITDA from continuing operations should not be considered an alternative to, or more meaningful than, amounts determined in accordance with GAAP including: (a) operating income as an indicator of operating performance; or (b) cash flows from operations as a measure of liquidity. As such, the Company's use of Adjusted EBITDA from continuing operations, instead of a GAAP measure, has limitations as an analytical tool, including the inability to determine profitability or liquidity due to the exclusion of accelerated maintenance expense for new international deployments, goodwill or asset impairments, gains on bargain purchase acquisitions, interest and income tax expense and the associated significant cash requirements and the exclusion of depreciation and amortization, which represent significant and unavoidable operating costs given the level of indebtedness and capital expenditures needed to maintain the Company's business. For these reasons, the Company uses operating income to measure the Company's operating performance and uses Adjusted EBITDA from continuing operations only as a supplement. Adjusted EBITDA from continuing operations is reconciled to net income (loss) attributable to common stockholders of Great Lakes Dredge & Dock Corporation in the table of financial results. For further explanation, please refer to the Company's SEC filings.

Source: Seeking Alpha