Posted on November 7, 2016
Great Lakes Dredge & Dock Corporation (NASDAQ: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 September 30, 2016.
For the three months ended September 30, 2016, Great Lakes reported revenue of $198.9 million, net income of $4.6 million and Adjusted EBITDA of $29.1 million. The Company recorded the following one-time items during the quarter, positively impacting EBITDA: an $8.6 million reversal of an earn-out and restricted stock units associated with the GLEI acquisition due to failing to meet performance expectations and a $2.0 million reversal of variable employee compensation.
Chief Executive Officer Jonathan Berger stated, “During the third quarter, the Dredging segment executed well on several domestic capital, coastal protection and maintenance projects. The domestic performance was offset by weak international project performance as a project in Saudi Arabia went into a loss position, and the segment did not benefit from having a large, profitable project such as the Suez Canal deepening in this year.
“Within the E&I segment, we continued to make progress, with the GLEI reporting unit executing well. In our second quarter of 2016 earnings release dated August 4, 2016, we announced the sale of assets associated with the service lines of the Terra Contracting Services, LLC business to be completed during the third quarter. The transaction did not occur. As a result, the segment was negatively impacted by underutilized equipment and additional fixed costs that did not generate revenue. The terms of the transaction have been modified to exclude certain assets and extend the closing date. The Company completed the sale of the portion of the excluded assets to a separate party subsequent to the end of the third quarter of 2016. The segment’s results were also negatively impacted by a $1.1 million project loss at Terra.”
Mark Marinko, Chief Financial Officer, added, “Through the first nine months of the year, we invested $38.7 million to finance the construction cost of our ATB. As stated previously, we expect to continue to be deploying our free cash flow until construction of this vessel is complete.”
Dredging
– Revenue in the third quarter of 2016 decreased over the prior year period primarily due to lower foreign capital and domestic maintenance revenue, partially offset by higher domestic capital and somewhat higher coastal protection and rivers & lakes revenues.
– Gross profit margin decreased in the third quarter of 2016 compared to the third quarter of 2015, driven by lower foreign margin, partially offset by strong performance on several domestic projects.
– Operating income decreased in the third quarter of 2016 compared to the prior year quarter primarily due to lower gross profit on lower revenue and higher legal and benefit costs. The reversal of variable employee compensation is included in the quarter.
– Dredging backlog was $570.2 million at the end of the third quarter, a decrease of $107.5 million compared to backlog at December 31, 2015.
Environmental & Infrastructure
– Revenue decreased in the third quarter of 2016 compared to the third quarter of 2015 primarily as a result of lower revenue generated in the Terra reporting unit. The prior year quarter also included a large levee repair project that was not replaced in the third quarter of 2016.
– Gross profit margin improved in the third quarter of 2016 primarily as a result of significantly improved margin at the GLEI reporting unit (formerly Magnus), driven by strong project execution. GLEI had negative gross profit in the prior year quarter versus positive gross profit margin in the third quarter of 2016. The improvement was partially offset by a project at Terra with a loss of $1.1 million, as well as underutilized equipment and overhead expense given the level of revenue generated.
– Operating income increased in the third quarter of 2016 from an operating loss in the prior year quarter due to improved gross profit margin and lower G&A expense as a result of an $8.6 million benefit related to a reversal of the potential earn-out and restricted stock units. The prior year period included $2.1 million in amortization of intangibles versus $0.2 million in the current year period.
– Backlog was $32.5 million at the end of the third quarter, which is a decrease of $40.8 million compared to backlog at December 31, 2015.
Total Company
– Net income was $4.6 million compared to net income of $0.3 million in the third quarter of 2015. Net income in the current period includes income tax expense of $2.9 million and interest expense of $4.8 million. Net income in the third quarter of 2015 included income tax expense of $0.7 million, interest expense of $7.3 million and $2.1 million of equity in loss of joint ventures related to two joint ventures that are being dissolved.
– Adjusted EBITDA was $29.1 million, a $6.0 million increase from $23.1 million in the third quarter of 2015. Included within EBITDA are the one-time add-backs previously mentioned.
– Cash at September 30, 2016 was $13.6 million, with total debt of $389.5 million ($71.7 million short-term debt and $317.8 million long-term debt).
– Total Company backlog at September 30, 2016 was $602.8 million.
Dredging
– Revenue decreased in the nine months ended September 30, 2016 compared to the same period in the prior year, primarily driven by lower foreign capital and domestic maintenance, partially offset by higher coastal protection, rivers & lakes and capital dredging revenue.
– Gross profit margin decreased slightly during the first nine months of 2016 compared to the first nine months in 2015, primarily due to lower foreign margin, partially offset by higher domestic margin.
– Operating income decreased in the first nine months of 2016 compared to the prior year period, driven by lower gross profit on lower revenues and higher G&A due to legal expense. The previously mentioned one-time benefit is included.
Environmental & Infrastructure
– Revenue decreased in the nine months ended September 30, 2016 over the same period of the prior year, primarily as a result of lower remediation and Terra services revenue in the Midwest. The first nine months of 2015 included revenue from several large jobs that were completed and not replaced in 2016.
– Gross profit improved by $11.4 million for the first nine months of 2016 over the same period of the prior year primarily as a result of improved project execution.
– Operating loss improved in the first nine months of 2016 compared to the prior year period due to the improvement in gross profit margin and a reduction of $4.9 million in amortization of intangibles. Further, 2015 included a $2.8 million impairment of goodwill.
Total Company
– Net loss was $1.2 million for the first nine months of 2016 compared to net loss of $5.4 million in the same period 2015. The loss in the prior year period included $5.8 million of equity in the loss of joint ventures related to the two joint ventures currently being dissolved versus $0.02 million in the current year period.
– Adjusted EBITDA for the first nine months of 2016 was $60.4 million, flat compared to the first nine months of 2015. Included in the current year period are the $10.6 million in one-time items benefiting EBITDA.
– Total capital expenditures for the first nine months 2016 were $66.0 million, of which $38.7 million was spent for the new ATB vessel. In the first nine months of the prior year, total capital expenditures were $65.8 million, including $24.3 million for the ATB, $15.6 million to purchase a vessel that was formerly leased and the remainder for improvements to the fleet and the addition of land equipment.
Mr. Berger concluded, “The domestic dredging bid market through the first nine months of the year totaled $668 million, compared to $1 billion through the first nine months of 2015. Our dredging segment won 34% of our addressable bid market, which is below the average combined dredging bid market share over the prior three years. Our awards consisted of several coastal protection and maintenance projects, with the $30 million Fire Island coastal protection project being one of the larger awards. For the remainder of the year, we expect several large jobs to be tendered, particularly opportunities in the coastal protection and Gulf Coast restoration markets.
“Despite the softness of the international market, we have secured work for our entire international fleet through the rest of the year. While this work is not at the margin of recent international projects, we are pleased to have our internationally-based vessels utilized. Additionally, we are pursuing several opportunities, primarily in the Middle East, and also assessing sales or retirements of several older vessels in our fleet based outside of the United States.
“Within our E&I segment, we expect the divestiture of the non-core services businesses to be completed by the end of the year. In addition, the Terra job in a material loss position is expected to be completed by the end of the year. Going forward, as we continue to execute well and our reputation improves, we believe that we have the team in place to capture projects with attractive margins that fit within our core competencies and are within our risk appetite.”
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.
Source: Great Lakes
