Good morning ladies and gentlemen and welcome to the Q1 2020 Great Lakes Dredge & Dock Corp. Earnings Conference Call. As a reminder this conference call is being recorded. I would now like to hand the conference over to our host, Ms. Baginskis. You may begin.

Good morning, and welcome to our quarterly conference call. Joining me on the call this morning is our Chief Executive Officer and President, Lasse Petterson; and our Chief Financial Officer, Mark Marinko. Lasse will provide an update on the events of the quarter. Then Mark will continue with an update on our financial results of the quarter. Lasse will conclude with an update on the outlook for the business and markets for the remainder of 2020. Following their comments, there will be an opportunity for questions. 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 could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in our earnings release and in filings with the SEC, including our 2019 Form 10-K and subsequent filings. During this call, we also refer to certain non-GAAP financial measures, including adjusted EBITDA from continuing operations, which are explained in the net income to adjusted EBITDA from continuing operations reconciliation attached to our earnings release and posted on our Investor Relations website, along with certain other operating data. With that, I will turn the call over to Lasse.

Thank you, Tina. First and foremost, I'd like to recognize that the COVID-19 pandemic has impacted every facet of life in this country. At Great Lakes Dredge & Dock, we've been very fortunate to be able to continue working as a federally designated critical infrastructure company, which means that we were able to keep all of our projects progressing on schedule. We're taking steps during the crisis to ensure the continuing safety of all our employees, especially those dedicated employees that continue to work on our vessels and on our project sites. In our Oakbrook office, we asked staff to work remotely and they have effectively transitioned and have continued to work seamlessly in this situation. Further, as it relates to our job sites and vessel crews, we have reviewed and strengthened our safety procedures and adhered to CDC guidelines. I will expand on this in the latter part of the call. Turning to our financial results, the first quarter of 2020 was an exceptional quarter, driven by strong project performance and the continuous employment of all of the vessels on ongoing projects. As stated in our earnings release, net income from continuing operations year-to-date was 34 million, and year-to-date adjusted EBITDA from continuing operations was 61.4 million, which reflects a 40% increase over the prior year EBITDA from continuing operations. In addition, our net debt decreased by 20.3 million from year end 2019 to 115.6 million, resulting in a healthy net debt-to-adjusted EBITDA from continuing operations ratio of 0.75. During the quarter, the strength and resiliency of our business was evident as we had solid revenues not just from our capital projects, but also from coastal protection and maintenance projects. Our performance resulted in better than expected productivity on the Hunting Island Beach and the Delray & Ocean Ridge beach renourishment projects. We also performed additional work from the Delaware River Reach B deepening projects, completed Phase 1 of the deepening of the Corpus Christi port entrance channel, and performed well on the Jacksonville B port deepening project. While the first quarter of 2020 was operationally very strong, our planned dry dockings for certain vessels were starting to have an impact on results, particularly in the second quarter and continuing into the third quarter. Consequently, we expect the first quarter of 2020 to be the best quarter, similar to what we had in 2019. As expected, during the first quarter of 2020, the domestic bid market was lower than the prior year, with 216 million in total projects bid, of which Great Lakes’ share was 172 million, comprising capital dredging and coastal protection projects. Please remember that variability in contract wins from quarter-to-quarter or from year-to-year is not unusual, and the win rate is not indicative of the win rate the company is likely to achieve this year. With those updates, I'll turn the call over to Mark to discuss the results for the quarter and for an update on backlog development.

Okay. Thank you, Lasse. I will start with the quarterly results and then discuss some specifics related to our dredging business. Please remember that all results from our E&I segment were placed into discontinued operations and therefore are not included in the results that I will discuss. For the first quarter of 2020, revenues were 217.7 million, net income from continuing operations was 34 million, and adjusted EBITDA from continuing operations was 61.4 million. The total company revenues for the first quarter of 2020 represented a $25.1 million or 13% increase compared to the first quarter of 2019. The revenue increase was a result of strong project performance in the fleet, including a contract modification to increase the scope of work on a project in Delaware. Gross profit from continuing operations was 68.5 million compared to 49.9 million in the first quarter of 2019. Gross profit margin was 31.5% compared to 25.9% in the prior year quarter. During the first quarter, the company did have some additional expenses related to the COVID-19 pandemic, including additional equipment and procedural changes to keep our employees safe, but it did not have a material impact on our results. Total company operating income was 53 million, which is an increase of 18.2 million over the prior year quarter. This increase is driven by the additional revenue and strong project performance resulting from enhanced project planning, preparation, and execution. Net income from continuing operations for the first quarter of 2020 was 34 million compared to 20.5 million in the prior year quarter. The current quarter net income includes net interest expense of 6.6 million and an income tax expense of 11.3 million. Net income for the first quarter of 2019 included 7.6 million in net interest expense and 6.8 million income tax expense. The reduction in net interest expense is driven by the complete pay down on our revolver and higher interest income. Adjusted EBITDA from continuing operations for the first quarter of 2020 was 61.4 million compared to adjusted EBITDA from continuing operations of 43.9 million in the first quarter of 2019. Next let's turn to our balance sheet, where at March 31, 2020 we had 207.5 million in cash. During the quarter, we continued to maintain a zero cash balance on our revolver. Our net debt at March 31, 2020 was 115.6 million. Our total capital expenditures for the quarter were 7.1 million, this compares to 7.7 million in capital expenditures during the first quarter of 2019. The company continues to expect total capital expenditures to be 40 million for 2020. Contracted backlog at March 31, 2020 totaled 474.9 million compared to backlog at December 31, 2019 of 589.4 million. The high revenues in project performance of the first quarter combined with the low domestic bid market caused this anticipated drop in backlog. With that, I will turn the call back over to Lasse for his remarks on the outlook moving forward.

Thanks, Mark. During this unprecedented COVID-19 pandemic that now faces our country, the dredging industry has been listed as an essential critical infrastructure service and continues to operate. The U.S. Army Corps of Engineers, where we see the majority of these infrastructure projects, continues to follow their bid schedule with minimal delays and is continuing to advertise new projects. Turning to safety and our COVID-19 response, Great Lakes is committed to maintaining the health and safety of all our team members, with an Incident and Injury Free safety management program. To further expand on our safety measures as it relates to all the vessel crew, the company has implemented a COVID-19 response plan involving temperature and health screening of all crews and staff, personal protective equipment and supplies, extended rotations, and restricted access to project sites and vessels. Now we have modified work practices to adhere to appropriate physical distancing guidelines where possible. We are taking the necessary steps as it relates to improved safety and have kept projects on schedule with no reported COVID-19 cases that we are aware of to date. Experts are predicting a potential new COVID-19 wave in the second half of 2020. Now we continue to be proactive in preparing and addressing contingency planning should this occur. Throughout this crisis, we remain focused on the successful execution and completion of projects that are critical to maintaining and deepening the nation's maritime infrastructure and protecting our coastlines. However, due to the pandemic, we cannot be certain that we'll be able to continue normal operations in the short or long term, whilst to date, the pandemic has not had a material impact on our operations and huge impact from the pandemic to our employees, clients, supply chain, or shipyards which we contract, may lead to delays or cancellations in projects. Well that said, moving to the bid markets, we expect the 2020 bid market to be similar to 2019. This expectation assumes no changes from the current bid environment. To support domestic market demand, we continue to responsibly upgrade our existing U.S. domestic fleet with new equipment and technology to increase productivity. In these days, our most powerful cutter dredge, the Ohio, is on her way back to the U.S. market. She has been upgraded with new engines and new pumps and will go straight to work on beach nourishment projects on the East Coast. As stated in our last earnings call, we are in active discussions with U.S. yards for the construction of our new midsized hopper dredge with planned delivery in 2022. We expect to enter into a building contract in the second quarter. We do expect the remainder of the year's bid activity to be more active than the first quarter. This will include additional phases of Charleston, Jacksonville, and Corpus Christi port deepenings, as well as new deepenings at ports in Mobile, Alabama, and Port Everglades in Florida. In addition, the Corps of Engineers recently signed the Chief's Report, which includes the Houston ship channel widening project. This is a major project that will be included in the WRRDA 2020 legislation which went past and will allow the project to proceed to construction. I stated at the end of last year that several liquefied natural gas, petrochemical, and crude oil export projects are being developed in the Gulf of Mexico, creating the need for port developments and navigation channels deepening and widening to accommodate the larger vessels involved in this trade. In 2019, we submitted several bids to the energy companies for projects that were moving towards notice to proceed. With the current economic environment in the oil and gas markets, some of these privately funded projects have been delayed. We expect others to be impacted to date as well. In conclusion, the Great Lakes Dredge & Dock Company ended their first quarter with a strong net cash position, balance sheet and substantial liquidity, which has positioned the company well for the current economic environment. And with that I'll turn the call over for questions.

Your first question comes from the line of Jon Tanwanteng of CJS Securities.

Good morning, guys. Can you hear me?

Yes, we are hearing.

Yes. How are you, Jon?

Great. How are you doing? Congratulations on a fantastic quarter. Can you talk about the expected utilization for the rest of the year relative to what's already in your backlog and your dry docking schedule? It looks like the Ellis has been scheduled for dry docking in Q2 and I know that's a pretty big profit center for you.

Yes. So we do expect to increase dry docking, particularly in quarter two and in quarter three. I'll let Mark expand on that.

Yes, sure. Jon. Yes. You're right. We have, as we go forward into Q2, Q3 and Q4, Q2 will be the most impacted. For the year, we have four vessels in dry dock and the Ellis is one of them. They are also in for regulatory dry dock as well as some while she's out at the shipyard to do some repairs as well; she's been working a lot for a long time. So, we'll see the most impact in Q2. We expect Q2 actually to be our lowest quarter of the year. And then we have two additional vessels that will go in Q3, and then those same two will finish in Q4 a little bit. So yes, Q2 will be the largest dry dock by far and then Q3, and then a little bit less in Q4 as we finish up those final two.

Okay. Got it, thank you. And then Lasse, you mentioned a couple of LNG projects being delayed. Can you talk about the overall impact to your expectations in the bid market for the year? And kind of how that has been impacted by what you're seeing delayed and maybe your comments on a couple of specific ones? I know that funding for the large Brownsville project some of it had moved forward, although maybe there were some delays from other parties in there. Any specific color will be helpful.

Yes. The oil and gas market has been hit by pricing challenges and at the same time we had COVID, so the uncertainty is definitely there. The impact on our year will not be that large, and I will let Mark expand on that. It's also very difficult for me to have an opinion on which of the LNG projects that will go forward this year or be delayed until next year. We do know there was a very aggressive development ongoing for several of these LNG projects that has received approvals and we just have to monitor that market for this year. Mark, can you give some specifics there on the impact on our results?

Yes, Jon, we had, as we mentioned on the call at the end of Q4 last year, we had two projects for private clients that were in our low-bid pending award, not in our backlog. If those projects were delayed out of 2020, they would have about a $20 million impact on our EBITDA this year. So, yes, it's just too early to tell whether these projects will move forward or get delayed at this point in time.

Okay. Understood. And then the larger projects going forward?

Yes, so as Lasse was saying, you still have the – you mentioned Brownsville, and these conversations are still happening on all these projects, but at this point in time, we just can't – it's too hard to speculate when they're going to move forward or be bid at this point.

Okay, fair enough. You mentioned in the press release that there is a cap lift in the CARES Act that would be beneficial to you. I was wondering how that directly impacts you, funding out of the HMT and more speculative, how might it impact the infrastructure bill benefits you? Do you have any info as to what's being discussed on the bill?

Well, on the Harbor Maintenance Trust Fund, it was taken off budget and that means that 100% of the revenues that come into that trust fund will be spent on maintenance dredging, which is the majority of activity under the fund. There is a $9 billion balance on the fund that is being discussed, how that is being spent, but the good news is that the revenues that are coming in every year will be spent on maintenance dredging. Mark, would you want to comment on the CARES Act further?

Yes. So on that specific piece, Jon, we've been working, not just Great Lakes, but the industry on getting that approved and it did get approved now in the CARES Act; we are working on that for a number of years, so that's definitely a positive development for us and for the industry. The overall CARES Act, I just want to talk about for a second because we are an essential industry and continuing to work. We couldn't take advantage of many of those items, but we did take advantage of the deferral of the social security employer tax, and from a cash perspective that allows us to defer those payments into 2021 and 2022, so we've done that. But we're pretty limited on the opportunities there because we are in an essential business and continue to work.

Okay, great. Thank you. And then just a final quick one from me, have you seen competition increasing at all in this environment, whether it's in pricing, bidding, or number of bids that are – number of people who are bidding on projects?

Well, what we have seen is that there are new equipment coming to the markets and we have new competitors that are coming into the coastal dredging markets. As you probably have seen, the Corpus Christi II was awarded to a new competitor that is coming into the coastal dredging market. They bid very aggressively, ready to be deployed, and they are new to the market and decided to bid aggressively for this large project. So we see that happening. We are responding to the challenge of this new competition as well. It's not unusual when new equipment is being introduced to the market that the owner is anxious to get that equipment employed immediately. But as you know, we are bringing back the Ohio to the U.S. market, and that is from a strong belief in a very solid dredging market going forward. And we are in the closing phases of making decisions on building a new hopper dredge. So we believe the market is strong and others are also seeing the same thing.

Okay. Maybe one follow-up to that, do you need the LNG projects to come back in to justify the build for new capacity?

No, the new hopper dredge is targeting a different market. It is targeting the coastal protection and beach renourishment market in particular.

Okay, great. Thanks a lot and it's a great quarter again.

Thanks, Jon.

Your next question comes from the line of Poe Fratt of Noble Capital Markets.

Good morning, Lasse. Good morning, Mark. Mark, if you could expand on your comment about leveling off, I think, I'm not sure whether you're referring to gross margin or revenue, but – and you also mentioned that the second quarter would be your low point of the quarter. And I guess when just looking for a little additional color on sort of how the rest of the year progresses and maybe even if you compare it to how last year progressed?

Yes. So similar to 2019, as Lasse stated, last year Q1 was our strongest quarter; it's the same thing here. It's just even a better first quarter this year. Yes, so Q2 will be, as I said, we think the lowest of the quarter driven by the number of dry dock vessels and project mix. But as you look forward out through the whole year, as I mentioned, kind of last year, we expect 2020 revenues to be higher than last year. For the full year, we expect gross margin to be similar to last year, and I'm saying that – and that assumption includes that we do not have these private client jobs. If we had the private client job, that would be better. And G&A as we look forward is pretty even throughout the year in the 60 million range, so a little bit higher this quarter due to incentive pays. We have to book that as you achieve the milestone during the year; you book that percentage, and this is the highest percentage of the year. So hopefully that helps you kind of lay out what's going through for the rest of the year our expectations at this point.

It helps a little bit, were you speaking about gross margin on an absolute basis, a dollar number or percentage?

Percentage, yes.

Percentage, okay. Great. And Lasse, maybe if you could expand on the new build program, I know that you're still haven't signed a contract yet, but could you help frame the potential capital spending for this year and next? I think you mentioned delivery in early 2022. Anything that you can help us understand how your CapEx is going to look if you move forward with that project? And then on top of that, would you structure the deal with a potential to build a second one along with the initial one?

Yes, I'm hopeful that we can enter into a build contract here in the second quarter. This is for a midsized hopper. I think on previous earnings calls when we have mentioned the size of the investment, we said that it would be more like half of the Ellis, but I don't comment more on that as we are in negotiations with the yards at this point in time. This hopper will take a little less than three years to build. We are looking at a second hopper as a copy. We have seen smaller hoppers, the Dodge and the Padre, they work very well together as a pair. It will be nice to have two identical vessels out in the market in let's say three to four years' time. We have upgraded our cutter fleet, which now includes the Ohio that is coming back to the U.S. market. She is the most powerful cutter dredge in the U.S. market when she arrives and she has new engines, new pumps, and new technology onboard. So she will be very competitive in that market. Other than that, we will invest in technology to improve our productivity. But the main part of our capital spend will be on the first hopper and potentially the second hopper for the next couple of years.

Great, that's helpful. Thank you, Lasse. And you mentioned several projects coming down the pike, whether it's the non-LNG or the non-private ones, you look at Charleston, Jacksonville, Corpus, Everglades, and Mobile. Could you frame the potential of those projects? Maybe in an aggregate dollar amount or maybe you can just give us a little bit of color on each one if possible.

Well, there's a list of the projects that are being announced by the Corps of Engineers and they give a range on these projects and that is available to the public. The range that is being indicated on these projects that we have mentioned is anywhere from 25 million to 400 million, so it's a wide range depending on which project we are looking at. The Houston widening project, for instance, would probably be more than 500 million, while some of the next phases on Charleston is probably more in the 25 million to 50 million range.

Great, that's helpful. And Mark, can you just clarify your comment? I was a little surprised that you mentioned a $20 million EBITDA impact on the private client L&T related work. If you could just give us a little context on that, that'd be helpful.

Yes, so we had – again two projects that were private client projects that we mentioned at year-end that were low-bid pending award not in backlog. If those were delayed, that would be the impact. $20 million of EBITDA would be the impact to the 2020 numbers. The number I quoted to you on that gross profit margin assumes those projects are not happening in 2020.

Yes, to not go forward. That's great, thanks. And when you look at potentially your balance sheet strengthening net debt, your cash is up, net debt continues to fall, can you talk about your refinancing plans and whether anything has changed over the last couple of months on refinancing the $325 million bonds that are due in two years?

Yes, from – in February, the market was very attractive. We were looking closely at whether to refinance them early, even at the 104 premium, because you could call them, there were no calls until May 15, so in a couple of weeks May 15, of this month. The market in March has just stopped for these high yield notes; many places, the only things that were happening were people that really needed it in critical situations. Over the last few weeks, the market is beginning to open up. The rates are still not attractive enough, but we are monitoring it every day and we are getting ready in case that opportunity is there for us to do this. The good news is, they're not due for another two years, so we still have this flexibility. As I've mentioned before, next year in May we can refinance those notes at par. So we're monitoring it closely, but over the last 30 days, 60 days the market has not been attractive.

Great. And then I think post the Corpus Christi news that Callan has been awarded that, you mentioned a couple of projects that might help replace that backlog or that potential loss. Can you just expand on sort of the status on Cameron Meadows or Spanish Ridge that you'd mentioned?

Yes. So Cameron Meadows, we are waiting to hear about that. That project we bidded, waiting for final decision on that. And you know as I mentioned, that's I haven't mentioned the number yet, but that's in the range of $50 million. There's another project, Spanish Ridge that hasn't bid yet. That's a larger one, closer to maybe $100 million type of project. So those projects are still moving along, but I don't have an update yet on a final status.

Okay, great. And do you have a low bid pending award number that you're willing to offer out?

At 331, if you hold on one second, sorry.

Thank you. And then maybe Lasse if you would, any update on the long-term potential in the wind market? I know that's still on the horizon, but if you could just mention if anything's changed on your previous comments with the wind market development?

The offshore wind market? Yes. As I said on previous calls, I think this is a very exciting opportunity for Great Lakes to get involved in the development of the offshore wind energy markets. As we have seen, COVID has impacted not just our industry, but also that industry. We are bidding actively on projects that are scheduled to go ahead for dredging services and related services. We are hopeful that market is continuing on schedule. However, if you look at the publicly available information around these projects, there have been some delays, but we are actively pursuing that market. I'm very optimistic about being involved in that as it goes ahead.

Do you think you could see first revenue in 2021 from the offshore wind market or is it more like a 2022 event?

It would probably be more in the 2022 and onwards.

And Poe, to follow-up on the low bid pending awards and auctions at the end of March, it’s about $160 million. The majority of that is the private client work that we were talking about earlier.

Great. Thank you so much.

Sure.

Your next question comes from the line of Greg Bennett of Morgan Stanley.

The question has been asked and answered. Thank you.

And next question comes from Richard Glass. Please state your company name please.

The Glass Capital. Fantastic quarter guys, glad to see it.

Great.

I guess Poe is going to ask more than one question to follow up. So I'll ask you a couple, but can you help clarify for those of us who maybe have less understanding than Jon and Poe in terms of the Harbor Trust Fund in terms of what's been spent there? And now you're saying it's going to a 100% of the funds, what is that delta, what are those numbers? What have they been or been on average and what should that become?

Yes, over time, the spending from the Harbor Maintenance Trust Fund has been increasing from around 50% of the revenues, annual revenues. We haven't been able to increase that up to, I think this year is 95%. Going forward we are certain that it's going to be 100% that's being spent. The revenue that is being collected every year is then going back into maintaining the ports and shipping channels. The majority of the funds are going to maintenance dredging. The revenues every year are in the range of $1.7 billion.

Is that number, the revenue number been going up or is it like – just like the gas tax, which goes down because people get more fuel efficient kind of thing?

Well, it's a function of the trade that is coming into U.S. ports and between U.S. ports. So it's collected on the trade. If the trade is up, which it has been year-over-year for a number of years now, then the income goes up. If there's an impact from COVID on trade, then there will be an impact on the revenues.

Got it. Okay. But it's been a growing pie, which is good anyway.

That’s correct. And there is a balance on the fund for the funds that have been collected and that is in the range of $9 billion. There are discussions ongoing if that balance can also be used for maintenance dredging going forward, but that is still to be decided.

As long as the discussion is to keep it there and not to raid the trust fund for pay for other stuff, it would be the concern I would think. The way our government works. The other question in terms of the new build, can you just give us some insight as to how you guys are thinking about this from an IRR perspective? Kind of what's your hurdle rate? I mean, I think there's some concern in terms of the Ohio coming back and other new equipment that you discussed, but obviously it's been a growing market is what you just were explaining. So, how do you think about that in terms of deciding to spend the money and maybe spending on a second one? And just consequently, does any equipment come out that's older and less efficient on the back end of that over that time frame as well?

Yes, I'll start out and then Mark maybe can continue on that. Three years ago we did a rationalization of some of our fleet. We took out a number of dredges that were older – you’re looking at 60-year-old equipment that weren't actually contributing to our bottom line. We invested into the most productive part of our fleet. We took delivery of the Ellis Island hopper dredge that came into production in 2018. Now we're continuing with a new hopper dredge. We have some dredges that are getting a little long in the tooth and expensive to maintain. So we're building this hopper dredge or the two hopper dredges potentially for both additional capacity in the market, but it could also be a replacement investment for the Dodge and the Padre as an example in years to come. But Mark, maybe you want to expand a little bit on that?

Yes, sure. So the way we looked at this opportunity was to look at it in two ways. We look at it first as a standalone and it's incremental to the company in terms of it doesn't cannibalize anything, meaning the market's still strong and the rest of our equipment really hasn’t impacted. When you run the numbers there, you get IRRs in the low 20%. The other way we look at it is, okay, the market won't be as strong in the future. We look at it as a champion-challenger and say, okay, here's this new dredge, here's its expected cash flows over a period of time and we look at what dredges it would replace. In this example, there are several submarkets within all these different pieces of dredging. This is a midsized hopper with shallow drafts, so it's a different type of hopper dredge compared to the larger Ellis Island, and what it's closer to is the Dodge and the Padre, which are over 40 years old. So when we do that second analysis, we look at it as the Dodge and the Padre keep working for about five years and then they go away. We look at the cash flow related to Dodge and Padre, and we take the difference. When you do that, you're kind of looking at the cannibalization of fleet; we look at that IRR and that's in the low-double digits or mid-teens, let's call it. That's the way we look at it from an IRR perspective and that's the way we look at those types of opportunities from to make an investment decision.

Okay, sounds good. Thanks a lot, guys. Keep it up.

Sure. Thanks.

And at this time there are no further questions in queue. I'll now turn the call over to our speakers for final 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.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day. You may all disconnect.