Posted on May 3, 2023
Great Lakes Dredge & Dock Corporation (“Great Lakes” or the “Company”) (Nasdaq: GLDD), the largest provider of dredging services in the United States, today reported financial results for the quarter ended March 31, 2023.
First Quarter 2023 Highlights
- Revenue was $158.0 million for the first quarter
- Total operating loss was $0.9 million for the first quarter
- Net loss was $3.2 million for the first quarter
- Adjusted EBITDA was $10.2 million for the first quarter
Management Commentary
Lasse Petterson, President and Chief Executive Officer commented, “We reported improved results in the first quarter of 2023, showing improvements in gross profit margins and adjusted EBITDA from the prior three quarters. Despite facing continued challenges related to weather delays in the Northeast and a lower-than-normal amount of capital work, we ended the quarter with revenues of $158.0 million and adjusted EBITDA of $10.2 million. The Company’s improved first quarter performance is primarily due to more project work for our vessels and adjustments we have made to the business and operations to improve profitability.
We have taken swift and proactive action on cost reductions and fleet adjustments. Last year we retired the 42-year-old hopper dredge, the Terrapin Island, and we currently have cold stacked two major dredges and support equipment as we continue to watch the bid market. Correspondingly, we are adjusting our general and administrative, overhead cost structures and dredging fleet to reflect the changed market conditions, which have already led to substantially reduced costs in 2023.
In the first quarter of 2023, Great Lakes’ total bid market reached over $300 million, which is approximately $125 million greater than the first quarter of 2022. The port deepening and widening projects that were delayed in 2022 are starting to enter the market. The first quarter saw one capital project bid, and April 2023 included one more capital project.
Great Lakes ended the quarter with $327.1 million of dredging backlog, which does not include approximately $50.0 million dollars of performance obligations related to offshore wind contracts. In addition, we ended the quarter with $516.9 million in low bids and options pending award. The Company’s awarded work during the quarter represents 31.7% of the first quarter bid market. Not included in the first quarter backlog is the Freeport Capital Port Deepening project, on which Great Lakes was low bidder in April for approximately $160 million, which is the third largest domestic capital project Great Lakes has won in its history. We are also optimistic that one or two Liquified Natural Gas (“LNG”) projects on which we are low bidder could achieve final investment decision in 2023 with dredging to potentially start in the second half of the year and continuing into 2024. We expect that the improved market conditions, combined with the fleet adjustment and cost reduction initiatives we have in place, will provide improved results in 2023 and beyond.
Although we have seen overall improvement in results in the first quarter, and bidding has picked up, second quarter utilization is expected to be lower than the first quarter. Our fleet renewal program remains on budget with our mid-size hopper dredge, the Galveston Island, expected to be operational mid-year 2023 and her sistership, the Amelia Island, is expected to be delivered in 2025.
We are executing on our strategy to enter the fast-growing U.S. offshore wind market. Construction of our U.S. flagged Jones Act-compliant inclined fallpipe vessel for subsea rock installation, which will be named the Acadia, is on budget and expected to be delivered and operational in the first half of 2025. In 2022, Great Lakes was awarded rock installation contracts for the Empire Wind I and II projects by Equinor and BP, with installation windows in 2025 and 2026. We are currently bidding several other offshore wind farm projects with rock installations planned for 2025 and beyond.”
Operational Update
- Revenue was $158.0 million, a decrease of $36.3 million from the first quarter of 2022. The lower revenue in the first quarter of 2022 was due primarily to lower domestic capital and coastal protection project revenue, offset partially by an increase in maintenance, and rivers and lakes project revenue.
- Gross profit was $12.1 million, a decrease of $21.0 million compared to the gross profit from the first quarter of 2022. Gross margin percentage declined to 7.7% in the first quarter of 2023 from 17.0% in the first quarter of 2022. As mentioned, although the majority of vessels were working, the total mix of projects included less higher margin capital work in comparison to the prior year first quarter. In addition, significant weather delays impacted several projects in the Northeast.
- Operating loss was $0.9 million, which is a $19.7 million decrease compared with the operating income from the prior year quarter. The decrease is a result of $21.0 million lower gross margin, offset slightly by lower general and administrative expenses compared to the prior year first quarter.
- Net loss for the quarter was $3.2 million, which is a $14.3 million decrease compared to net income of $11.1 million in the prior year first quarter.
- At March 31, 2023, the Company had $32.5 million in cash and cash equivalents and total debt of $371.7 million, and availability under its revolving credit facility of $195.7 million with $50.0 million of draws outstanding at the end of the first quarter of 2023.
- At March 31, 2023, the Company had $327.1 million in dredging backlog as compared to $377.1 million at December 31, 2022. Low bids and options pending award totaled $516.9 million as of March 31, 2023.
- Total capital expenditures for first quarter of 2023 were $28.7 million compared to $25.6 million in 2022. The 2023 capital expenditures included $10.4 million for the Amelia Island, $9.7 million for the Galveston Island, and $4.3 million for the build of the subsea rock installation vessel, the Acadia.
Market Update
We continue to see strong support from the Biden Administration and Congress for the dredging industry. On December 29, 2022, the Omnibus Appropriations Bill for fiscal year 2023 was signed into law which included another record budget of $8.66 billion for the U.S. Army Corps of Engineers (the “Corps”) civil works program of which $2.32 billion is provided for the Harbor Maintenance Trust Fund to maintain and modernize our nation’s waterways. In addition, the Disaster Relief Supplemental Appropriations Act for fiscal year 2023 was approved which included $1.48 billion for the Corps to make necessary repairs to infrastructure impacted by hurricanes and other natural disasters and to initiate beach renourishment projects that will increase coastal resiliency. This increased budget and additional funding support our expectation for a stronger bid market in 2023.
We expect these budgeted appropriations to support the funding of several delayed capital port improvement projects including Sabine, Houston, Corpus Christi, San Juan and additional phases of Norfolk. Although the Corps was delayed in bidding capital port deepening projects in 2022, the first four months of 2023 have already seen bids for the port improvement projects for Norfolk and Freeport.
In March 2023, President Biden released the President’s Fiscal Year 2024 executive budget. This is the starting point for negotiations in Congress over what will eventually become the actual Federal spending figures. The proposed amount for the Corps targets $7.4 billion, which is a record amount for a President’s budget, and we are hopeful that based on recent history, Congress will further increase the Corps’ budget for fiscal year 2024 when it is passed.
At the end of 2022, the Water Resources Development Act of 2022, or WRDA 2022, was approved by Congress and signed into law by the President. WRDA 2022 is on a two-year renewal cycle and includes legislation that authorizes the financing of Corps’ projects for flood and hurricane protection, dredging, ecosystem restoration and other construction projects. WRDA 2022 featured among many other things authorization for New York and New Jersey shipping channels to be deepened to 55 feet, estimated at $6 billion, as well as the Coastal Texas Protection and Restoration Program, estimated at $34.4 billion which includes dune and marsh restoration to safeguard the Texas Gulf Coast from hurricane surges. In addition, this legislation includes policy changes that will allow future port, waterways, and coastal projects to be more readily approved and funded.
Included in our low bids pending are two LNG projects that have been awaiting Notice to Proceed from our clients. Several North American LNG export projects have been delayed in the past few years during the pandemic but with the increase in LNG prices, some of these LNG projects are currently gaining momentum and are targeting final investment decisions in 2023.
In 2021, the Biden Administration announced the ambitious goal of 30 GW of offshore wind by 2030 and provided $3.0 billion in federal loan guarantees for offshore wind projects. Equinor and BP have already awarded Great Lakes the rock installation contracts for the Empire Wind I and II projects, with installation windows in 2025 and 2026, which is expected to power more than 1 million homes in the State of New York. Great Lakes continues to tender bids on multiple offshore wind projects for our subsea rock installation vessel and additional contract awards are anticipated in 2023.
The Company will be holding a conference call at 9:00 a.m. C.D.T. today, May 2, 2023, 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 Tuesday, May 2, 2023, at 9:00 a.m. C.D.T (10:00 a.m. E.D.T.). Investors and analysts are encouraged to pre-register for the conference call by using the link below. Participants who pre-register will be given a unique PIN to gain immediate access to the call. Pre-registration may be completed at any time up to the call start time.
To pre-register, go to https://register.vevent.com/register/BI99134295d0664915b483bdaa546e6f12.
The live call and replay can also be heard at https://edge.media-server.com/mmc/p/rse8awvj and on the Company’s website, www.gldd.com, under Events on the Investor Relations page. A copy of this press release will be available on the Company’s website.
Use of Non-GAAP measures
Adjusted EBITDA, as provided herein, represents net income (loss) from continued operations, 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 is not a measure derived in accordance with GAAP. The Company presents Adjusted EBITDA as an additional measure by which to evaluate the Company’s operating trends. The Company believes that Adjusted EBITDA 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 to evaluate the Company’s period to period performance. Additionally, management believes that Adjusted EBITDA provides a transparent measure of the Company’s recurring operating performance and allows management and investors 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 to assess performance for purposes of determining compensation under the Company’s incentive plan. Adjusted EBITDA 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, 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 (loss) to measure the Company’s operating performance and uses Adjusted EBITDA only as a supplement. Adjusted EBITDA 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.
The Company
Great Lakes Dredge & Dock Corporation is the largest provider of dredging services in the United States, which is complemented with a long history of performing significant international projects. In addition, Great Lakes is fully engaged in expanding its core business into the rapidly developing offshore wind energy industry. The Company employs experienced civil, ocean and mechanical engineering staff in its estimating, production and project management functions. In its over 133-year history, the Company has never failed to complete a marine project. Great Lakes owns and operates the largest and most diverse fleet in the U.S. dredging industry, comprised of approximately 200 specialized vessels. Great Lakes has a disciplined training program for engineers that ensures experienced-based performance as they advance through Company operations. The Company’s Incident-and Injury-Free® (IIF®) safety management program is integrated into all aspects of the Company’s culture. The Company’s commitment to the IIF® culture promotes a work environment where employee safety is paramount.
