Great Lakes Dredge & Dock Corporation Price & Performance (GLDD)

Good morning and welcome to our fourth quarter and full year twenty twenty four conference call. Joining me on the 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 and year. Lasse will conclude with an update on the outlook for the business and market. 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 that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in our filings the Securities and Exchange Commission. 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 Web site along with certain other operating data.

With that, I will turn the call over to Lasse. Thank you, Tina, and good morning. Great Lakes had a strong 2024. With fourth quarter revenues of $202,800,000 and EBITDA of 40,200,000.0 The full year financial results were revenues of $762,700,000 and adjusted EBITDA of $136,000,000 securing the second highest results in Great Lakes Great hundred and thirty five Year history. The strong performance throughout the year was driven by executing complex port deepening and coastal restoration projects, leveraging our capabilities of our extensive fleet. In addition, our products were efficiently executed with strong margin performance and our new hopper dredge, the Galveston Island worked the majority of the year contributing to our 2024 results. The bid markets hit a historic level of $2,900,000,000 which included a significant number of port deepening and coastal protection [indiscernible] Great Lakes won 33% of the overall bid market which resulted in a substantial dredging backlog at year end of 1,200,000,000.0 an additional $282,100,000 in low bids and options pending award. We focused our bidding on large and complex port deepening and coastal protection projects which now accounts for 94% of our backlog. And these projects are where our fleet and experienced people excel.

Creating opportunities to achieve higher project margins. The largest capital projects bid in the year was Sabine Nash's Contract six deepening project, which we won with an awarded base and open options totaling $235,000,000 Our successful bid strategy in 2024 resulted in a large number of project wins and quality backed log at year end. Which will support high altitude utilization and a solid revenue year in 2025. As well as providing a good base and revenue visibility to 2026. As mentioned, we took delivery of our newest hop address Galveston Island, early last year.

She went through commissioning and sea trials in record time and has been contributing strongly to our improved results in 2024. Her sister ship, the Amelia Island, is expected to be delivered in the second half of this year and we go straight to work on projects already in backlog. These two dredges have been specially designed for shallow and narrow waterways in The United States and are efficient tools for us to work on coastal protection projects such as beach restoration, wetlands improvements and barrier island construction. Shortly after his inauguration, President Trump signed an executive order pausing for issuance of new offshore wind leases and permits and ordered a review of The U. S. Wind generation permitting and leasing process. The executive order has not directly impacted fully permitted and ongoing construction projects such as Equinor's Empire Win one and Ersted Sunrise Wind projects for which we have secured contracts for placing rock on the Seabird, To Protect Foundations And Cables With Our Subsea Rock Installation Vessels The Acadia, Which Is Currently Under Construction. The Arcadia Is Also Well Suited For Work Outside Of The U. S. Offshore wind. Where it will be capable of accurately depositing rock for protection of subsea infrastructure from waves and currents damage from fishing activities and sub sabotage from hostile nation In anticipation of a slowdown in The U. S. Market in 2027 and 2028, we have over the last two years been broadening our target market for the Arcadia to include international offshore wind projects as well as protecting critical subsea infrastructure such as oil and gas pipelines and telecommunication and power cables.

We have already tendered bids on several projects in these international markets, starting rock installation in the second half of twenty twenty six and beyond. With the addition of these new target markets for Arcadia, we have decided to rename our offshore wind initiative Offshore Energy. Which better describes the new business. During 2024, we enhanced our financial position by generating a strong operational cash flow and we entered into $150,000,000 second lien credit agreement providing additional liquidity to support our newbuild program. And in the second quarter, S and P Global Rating upgraded Great Lakes Great rating to B minus.

Which demonstrates the improvements that we have made this year to our balance sheet cash flows and overall performance. I'll now turn the call over to Scott to further discuss the results for the quarter and our full year results more than our provide further commentary around the market and business.

Great. Thank you, Lawson. Good morning, everyone.

I'll start by walking through the fourth quarter which resulted in revenues of $202,800,000 net income of $19,700,000 and adjusted EBITDA and adjusted EBITDA margin of $40,200,000 and 20% respectively.

Revenues of $202,800,000 in the fourth quarter of twenty twenty four increased $21,100,000 from the prior year's fourth quarter primarily due to the addition of the Galveston Island and higher capital and coastal protection revenue offset partially by a decrease in maintenance and Rivers and Lates revenue.

Current quarter gross profit and gross profit margin increased to $48,900,000 and 24.1% respectively compared to $38,700,000 and 21.3% respectively in the fourth quarter of twenty twenty three.

The increase in gross margin is primarily due to improved utilization and project performance and a larger number of capital and coastal protection projects which typically yield higher margins During the fourth quarter of twenty twenty four, over 85% of our revenue came from these types of projects, Fourth quarter twenty twenty four G and A of $18,700,000 is $3,300,000 higher than the same quarter last year primarily due to higher incentive pay from our improved results.

Current quarter's operating income of $30,000,000 remained relatively flat compared to the prior year quarter operating income of $30,500,000 The fourth quarter of twenty twenty three had a one time gain of $7,400,000 from a terminated offshore energy contract which was mostly offset by the improved operational Net interest expense of $4,900,000 for the fourth quarter twenty twenty four was up from $2,800,000 in the fourth quarter of twenty twenty three primarily due to interest on the second lien credit agreement entered into earlier in 2024 partially offset by decreased borrowings on our revolver during the current year's quarter. Fourth quarter twenty twenty four net income tax of $5,100,000 was down slightly compared to income tax expense of $6,200,000 in the same quarter of 2023 and net income for the fourth quarter twenty twenty four was $19,700,000 compared to $21,600,000 from the prior year's quarter.

Turning now to our full year 2024 results.

Revenues increased $173,100,000 to $762,700,000 driven mostly by significant increases in cap We saw gross profits more than double from the prior year to $160,600,000 and net income increased over four times to $57,300,000 Finally, adjusted EBITDA increased $63,000,000 year over year to $136,000,000 By all metrics, 2024 was a very successful year.

We ended the year with $10,200,000 in cash and $35,000,000 drawn on our $300,000,000 revolver, which doesn't mature until the third quarter of twenty twenty seven.

After year end, we fully paid off the revolver and it is currently undrawn. And as Lasse mentioned, in the second quarter, we closed on a five year $150,000,000 second lien term loan that has very favorable call provisions.

With liquidity currently over $300,000,000 a weighted average interest rate on our total debt under 7%, and no maturities until 2029, are well positioned to complete our newbuild program with plenty of additional liquidity.

Total capital expenditures for 2024 were $135,700,000 made up of $72,700,000 for the construction of the Subsea Rock Insulation Vessel, the Acadia, dollars 41,000,000 for the Amelia Island, dollars 5,400,000.0 for the completion of the Galveston Island, with the remaining $16,600,000 coming from maintenance Looking forward to 2025, we expect approximately 60% of our $1,200,000,000 backlog to be converted into revenue during the year with most of it coming from capital and coastal protection projects. We currently have seven regulatory drydocking planned during 2025, including four hopper dredges. The majority of the drydockings are planned for the second and third quarters but as always, the number and timing of drydockings is subject to change. We expect full year 2025 capital expenditures to be between $140,000,000 and $160,000,000 in the Amelia Island Acadia and maintenance and growth CapEx, also currently evaluating moderate upgrades to certain dredges and support equipment over the next three years and will update current CapEx guidance accordingly as these decisions are made. Looking towards the first quarter of twenty twenty five, we expect utilization to remain strong as the majority of our dredges are working. We will start and complete one of the scheduled regulatory dry dockings during the quarter and are scheduled to begin two others towards the end of the first quarter.

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

As stated previously, the year ended with a record bid market of 2,900,000,000.0 which included a robust market for large and complex projects in the beach renourishment and port deepening markets. The bid market was supported by a record $8,700,000,000 in budgeted appropriations in 2024 for the U. S. Army Corps of Engineers. Additionally, the 2023 disaster relief Supplemental Appropriations Act allocated $1,500,000,000 for infrastructure repairs and beach renourishment projects. The Army Corps budget for 2025 is expected to be yet another record appropriation nearing $10,000,000,000 The bill includes for $5,700,000,000 for operations and maintenance projects, dollars 3,100,000,000.0 is from the Harbour Maintenance Trust Fund. Currently, the federal government is operating under a continued continuing resolution throughout March 14. Of this year, after which Congress and the administration can pass the funding of the bill. We expect the 2025 dredging bid market to be similar in volume to 2023. With a strong activity in the Coastal Protection segment and less activity in the Port deepening segment after a very strong 2024 bit market.

With our record backlog, we are well positioned for 2025 and 2026 even if the bid market is somewhat delayed due to the extended continuing resolution. Continue to be confident in our growth and diversification plan via subsea rock installation initiative. As stated previously, we are broadening our targeted SRI market to include oil and gas pipelines and telecommunication cable protection and international offshore wind. The latest Bloomberg offshore wind market outlook showed global offshore wind expected to grow substantially towards 02/1940. With our forecast exceeding 700 gigawatts of While due to the global political uncertainty, this may be a high case. However, it does point to a strong growth opportunity in offshore wind later this decade and beyond. In addition, market expectations for telecommunication and oil and gas scour protection projects globally are estimated to require the capacity of approximately 10 rock placements vessels of Arcadia Class. The Arcadia was built to operate in U. S. Waters for the majority over time But she is also equally well suited for work outside of The U. S, including The UK, EU, Middle East and Asia, where the growth in rock placement services is expected to grow strongly over the next [indiscernible] In conclusion, 2024 was a very successful year for Great Lakes.

With strong revenue and product performance resulting in the second highest EBITDA in the company's history. We entered 2025 with a $1,200,000,000 of backlog providing us with a deep projects pipeline for 2025 and revenue visibility well into 2026. Positioning us well for the future. And with that, we turn the call over for questions.

Thank you. At this time, we'll conduct a question and answer session. And our first question comes from the line of Joe Gomez of Noble Capital Your line is now open.

Good morning and congrats on the quarter. Thank you, Joe. So I wanted to start off, Obviously, '24 was a really strong year, bid market year.

I know you guys just mentioned you expect '25 to be more like '23 as opposed to '24, but there's all these Doge efforts And I'm wondering, how it might possibly impact the core and work awards. One of the things in the recent past that had been a challenge was so many other people still working from home And just if you guys I know it's early days, but kind of what your thought process is on how that might impact the market, if you think it's going to impact the market at all? [indiscernible] The situation with Dolce, I don't know who knows where that goes. But as we understand, they are starting to look at the defense spending this week. We have this strong backlog which is awarded project. It is funded projects So the dredging backlog will be executed during 2025. That is we're very certain on that.

And also into 2026. So if there is some efforts to to delay the bid market for that is now coming out, typically in Q2 and Q3 of twenty twenty five. The impact on us will be minimal. If any, for 2025. It may impact backlog generation for 2026, but it remains to be seen. With the backlog we have, we are very confident in our outlook for the next two years.

Okay. And Lasse, if I can just sorry, Joe, if I can just add, Lasse mentioned, we do think that the bid market for '25 will be much more heavily weighted on the coastal protection projects. When we saw a slowdown in the market because of the work from home it was the inability to get the large capital projects out. We think that these coastal protection projects will move forward. I mean, this is important work that that needs to get done to rebuild these beaches. So we don't have a ton of white space to fill for this year. But those projects that come out will really start filling in the second half of 'twenty six for us.

Okay. And then saw recently here there was adverse court ruling on non Jones Act vessels being able to do rock installation in The U. S. And I was wondering if you might be able to talk a little bit about that how that may or may not impact, Katie, I know you are already mentioned you're looking at other markets for that vessel, but I just wanted to give us a little color on that that court ruling Yes. Can you take Tiger's and Scott?

Yes, sure. So the punch line Joe is we are in no different position today than we were two weeks ago when the ruling came out. This was a lawsuit that we put out there challenging the interpretation of a certain asset Jones Act So some wind farms have two layers of rock that's around the monopiles. A first layer is laid down then the monopile is driven in and then the second layer is of rock is laid down. The current interpretation of the Jones Act is that first layer only is not Jones Act protected. We were challenging that interpretation saying that both of them should be. It was rejected on a technicality. It does not change position that second layer, which is typically the larger scope of work, that is at [indiscernible] there's also a large number of wind farms that don't even do a first layer of rock. A monopile is laid Once the monopile is put in, that does set a U. S. Seaport point and then all the rock that gets laid is Jones Act protected. So we were trying to enhance our already strong position Again, a technicality, we are still evaluating what our next legal sec may be.

But again, just want to make it clear, we are in no different position than we were prior to this ruling.

Okay. Thank you for that. Then one more for me and I'll get back in queue. Any update on Title XI funding? [indiscernible] post the change administration, I mean all government loan programs were put on pause and that includes Title XI So we're just going to have to see how it shakes out. And then even once the pause is lifted, I'm not sure if vessels like the Acadia will get the same sort of priority that they were getting under the prior administration. But as you know, last year, we planned for this We did see other financing Obviously, we've seen a much different cash flow profile from operations. So now, Muirad, I'd like it, but it really becomes a nice to have at this point and definitely not a need to have.

Great. Thank you very much.

Thank you. One moment for our next question. Our next question comes from the line of John Tanwanteng of CJS Securities. Your line is now open.

Hi, good morning, guys. Thank you for taking my question.

My first one is, could you give an update just on the Ikeda construction and when you expect to take delivery of that vessel? Yes, I can take that, Scott. Yes, we are it's progressing well at the Philly Shipyard. As you know, there has been an ownership change at the shipyard. So now the Korean Hanwha company is the owner of the shipyard. And in this period, there has been some delays at the vessel. Or at the yard for the vessel. So we are looking at delivery towards the end of this year, maybe early in Q1.

And then just in terms of the projects that you already have in backlog near contract signed for, I know you said that those permits are still existing, but there has been chatter that existing permits might be reviewed What are the options for the Acadia if those contracts do get canceled and permits do get pulled?

Do you have protections built in the contracts number one and two? Is there any way to or utilize the vessel.

If those things won't Yes, there are protections in the contracts. Projects are being canceled, which I we haven't seen any indications of yet. Then the alternative is to take the Arcadia and work international And the market international for rock placement activities is strong.

Okay. And there's enough lead time as for the next I guess, period that you're able to to utilize that after you take delivery of those conscious, they can Yes, clearly, it takes time for these contracts So depending on when these potential negative news should come out, there could be lead time to do that. If it comes out very close to the execution time for the projects, then it's more difficult this is just pure speculations at this point in time. Okay. Got it. A quick one for you. Just what is your liquidation of backlog in Q1 just given the dry docking schedule. I think you mentioned you had maybe starting two others, but I don't know if those are the big dredges what projects you're working on Should we think of Q1 as probably maybe the biggest one of the for you just given your schedule Yes, I think that's fair. Think we will see the highest revenue quarter in the first quarter. I mentioned we do have four hopper dredges scheduled for this year. One of those the one that goes in and out in Q1 is a hopper, but it's one of the smaller ones The larger hoppers are more in the middle and towards the end of the year.

So yes, utilization and revenue for Q1 is is going to be extremely strong.

Thank you. One moment for our next question. Our next question comes from the line of Adam Thalhimer of Thompson Davis. Your line is now open.

Hey, good morning guys. Nice quarter. Not sure why the stock is down, but nice Thanks, Zach. Do you Scott, when you say 60% backlog conversion into revenue this year is should we read that as guidance on revenue or is there additional book and burn that comes in?

There's additional book and burn. That's That's when I would call the floor. We have a little white space still to fill, and that will top out what the revenue for for 2025 is.

But you do the math, that's $720,000,000 all already on the books right now with very little left to wind to fill out the year. And then what are your thoughts high level on margins Obviously, the number of dry docks is up but so is your percentage of revenue from capital.

So just curious how that shakes out if you can have revenue growth this year? Even with the seven dry docks, my expectation is we will see revenue higher in 2025 than we did in 2024. If this would be a normal drydock year, that it would all be off charts. But even with it, my expectation is that we see a growth in revenue in '25 over the four revenue number.

Then I was curious how that shakes out to on the margin line, Scott? Yes. I mean, so it's obviously the projects are there and of that amount that we're going to be burning off, it's well over 90% of that is going to be on these higher margin projects. But then of course, I've got seven dredges that will be for a period of time not only having a zero on the top line, there'll be costs incurred on there. So it will bring down from where margins could be because of the cost, but that being said, expectations are makeup of the revenue we would still have very, very strong margins. Again, I bring up again, if this was a normal year, I think we'd be talking about historic levels on a lot of fronts for for 2025. That being said, it's still going to be an Understood. And then last one for me. You talked about Critical subsea protection outside of on the international front, not just in offshore wind, but also pipelines and telecom, Just curious on the pipelines and telecom piece, what you're seeing there and how big that opportunity could be?

Yes. What we have seen in Europe has been sabotage or you call accidents to this critical input [indiscernible] the cables connecting Europe, both with power and for communication and also going over to The U. S. And one way is to protect it with rock placement. So that they are then insulated for for that damage. And in Asia, we see large pipeline product pipeline projects, gas pipelines where it's being considered to cover the pipelines completely with the rock. So that market is is already a large market, but it is growing. And growing on the back of the general geopolitical situation. And as I said in my script, when we investigate that market and get a full overview, it looks like volume that is equal to 10 vessels of Acadia size to cover that market. So that is a substantial growth that we see there.

Fantastic. Thank you. Our next question comes from the line of Julio Romero of Sidoti and Company. Your line is now open. Thanks. Hey, good morning, Lawson and Scott.

Good morning. Hey, good morning. Wanted to stay on Adam's kind of question there a little bit. These addressable markets for the targeted rock insulation broadening can we maybe rank order these opportunities for Great Lakes? Terms of rock installation through let's say, 2028, I know you talked about Europe, both power and communication rock protection and then also Asia kind of The power protection, just kind of give us a better sense of how you see the rank order of those opportunities over the next four years? Yes. I just want to For you guys specifically.

Yes. The markets as I see it for like Arcadia, is clearly the rock volumes are large in offshore wind, and offshore wind is continuing to be strong in Europe. In particular, and also in Asia. So we will we have been tendering for these offshore wind projects for a while. And we see that starting in 2026 and onwards. Then we have cable protection with rock. And it's interesting to see because when you do these cable installation projects, it's difficult to estimate how much of the cable you are able to trench [indiscernible] Or where you hit hard rock. And where you hit hard rock, underneath, you need to protect the cable in that area. And that market is large. But difficult to estimate when you start out the project. For us, cable protection for power cables will be second largest market and then also telecommunication thereafter. And our priorities will be Europe first and then look at Asia As well.

Great. Would South America be an opportunity for you guys? I've heard a lot of chatter about you know Offshore energy opportunities, particularly around Brazil.

Yes. We haven't looked at that in detail. I think the realistic scenario is that we take Q3 first take Arcadia to Europe. And address that market. That's where the we see the growth That's where it's a mature market. And we have good opportunities to perform there.

Got you. Very helpful there. And then I know we a lot about the impact of the new administration on kind of your your legacy business and the the offshore energy segment, but can we also talk about kind of the impact on the outlook for LNG projects? I know there's a recent executive order to lift the freeze on export permitting applications just talk about the outlook for LNG for you guys.

Yes. I think that market will be strong going forward. The lift of lifting of the permitting, I think that will happen fairly soon. And that opens up for the opportunity to invest, continue to invest in LNG in The United States for exports. I think a factor that needs to be taken into consideration is what's happening in Europe around Ukraine and whether Europe will start buying Russian gas again. And impact the demand for imported LNG into Europe. But that is for other people to decide on. But I think it's a positive outlook for LNG projects in The U. S. In the short term.

Great. And then last one for me would just be, and I'm sorry if you said this in the prepared, but how much is left on the newbuild program?

Does it all end in 2025? And then just speak to your cash flow expectations 2025. Thank you.

Yes. So we have roughly about $110,000,000 to $120,000,000 left, that's between the Acadia and the Amelia Island. Lhasa mentioned that delivery of the Acadia If it's not the end of this year, it may creep into the first quarter or next year. So that will just kind of depend on when that last payment is made.

There is some delay after delivery when we actually make the last payment. So my expectation is that payment the final payment is probably made sometime in the first quarter of next year, but we'll be substantially done paying for it This year, for the entire newbuild program, And then again, cash flow, we still, as I mentioned, with the CapEx guidance, in that $140,000,000 to $160,000,000 I didn't mention that includes capitalized interest, that's about $20,000,000 So you can really kind of back that off when you're looking at cash outlay related to the new build program and then pencil in what you think our cash flow from op is going to be but we should be I would say, fairly give or take cash flow neutral for the year even with the big CapEx ticket remaining to spend this year.

Very helpful.

Thanks very much.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Tina Buginskas 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. [indiscernible]