Good day, and thank you for standing by. Welcome to the Fourth Quarter 2022 Great Lakes Dredge & Dock Corporation Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I will now like to hand the conference over to your speaker today, Tina Baginskis, Director, Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to our fourth quarter 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 and the year. Then Scott will continue with an update on our financial results for the quarter and the year. Lasse will conclude with an update on the outlook for the business and market. 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 2021 Form 10-K and subsequent filings. 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 website, along with certain other operating data. With that, I will turn the call over to Lasse.

Thanks, Tina. As seen in our financial results, 2022 turned out to be challenging. We entered the year with a good backlog, solid cash position, and a record U.S. Army Corps of Engineers budget of $8.3 billion. We had high expectations to return to normal operations after overcoming the challenges from COVID-19 in 2020 and 2021. Unfortunately, as the year progressed, we saw significant delays in the overall dredging bid market, and specifically, large capital and 40 bidding projects were delayed, with bid days now moved into 2023. According to audit records, the overall dredging bid markets in the first 4.5 months of 2022 was less than 50% of previous years’ averages, which severely impacted our fleet utilization in the second half of 2022. As a portion of our annual revenues rely on projects bid and executed within the year, which we call booking burn. Typically, the majority of these projects are beach re-nourishment projects or coastal restoration projects, which carry higher margins. Overall, for 2022, the bid market for beach re-nourishment projects was only about 73% of the 2021 levels, and coastal restoration projects were at 57% of 2021 levels. To some extent, the lack of capital work was replaced by an increase in maintenance work. However, maintenance projects typically earn lower margins due to the nature of the work and the competitive landscape. As being picked up in the second half of the year, we won 47% of the bid volumes and ended the year with $375.5 million of dredging backlog and $594.7 million in open auctions and projects pending award. The U.S. Army Corps of Engineers is our largest client, and during the year we held numerous constructive discussions with the core leadership on what was impacting the bid market and how to resolve the issues. We have started to see positive developments for 2023. Other external issues also significantly impacted operations. High inflation impacted projects and dried up in cost, and supply chain issues delayed incompletions. We experienced unseasonal and extreme weather conditions on some of our projects on the East Coast. We encountered more than normal challenging soils and site conditions on projects. Claims related to these projects are still pending resolution, and revenue and profit recognitions are impacted until these discussions are completed. The fourth quarter was impacted by the same issues we have experienced this year, specifically we have significant further impacts from some storms in the Northeast. An earlier than planned offer dredge requirements for the Terrapin Island dredge, and both the Ellis Island and Padre Island had lengthy stays in dry dock, which increased costs and delayed revenues into 2023. We have been taking action throughout the year to adjust to the current difficult market conditions as well as preparing for future years. We have temporarily cold stacked dredges and unrelated support equipment, which will reduce operating costs. Sector dredges can easily be reactivated when we see the bid market improve. In our fleet renewal and improvement program, the 42-year-old hopper dredge and Terrapin Island was scheduled for retirement following the delivery of the new hopper dredge, Galveston Island, mid-2023. However, a major mechanical issue combined with a delay in market led to our decision to retire her now in the fourth quarter of 2022. Correspondingly, we have been reducing our general and administrative and overhead cost structure to reflect the current market conditions. Earlier this month, we had an additional 10% reduction in G&A and overhead staff, and we are targeting a further 5% reduction in 2023 through natural attrition. As we adjust to the current market situation, we remain optimistic about the long-term outlook for both dredging and offshore wind markets. Our ambition is to continue to be the U.S. industry leader in our selected market segments. An important part of our strategy is to keep our fleet renewal program moving forward as planned. After decommissioning several of our oldest dredges in 2020 and 2017, we have invested in productivity upgrades to our best performing vessels. Our new hopper dredge, the Galveston Island, is on budget and is expected to be operational in the middle of 2023. Her sister ship, the Amelia Island, is expected to be delivered in 2025. Our U.S.-flagged Jones Act-compliant claim for both vessels for subsea sea rock installation is on budget and expected to be ready for operations in the first half of 2025 to start working on the Empire Wind I and II projects for Equinor and BP. I will now turn the call over to Scott to further discuss the results of the quarter and the year, and then I will provide further commentary around the market and our business.

Thank you, Lasse. And good morning, everyone. Let me start by walking through our fourth quarter results, which include a non-cash $8.1 million write-off for the retirement of the Terrapin Island. For the fourth quarter of 2022, revenues were $146.7 million, net loss was $31.2 million, and adjusted EBITDA was negative $24.2 million. Revenue of $146.7 million in the fourth quarter decreased $63.3 million from the prior year fourth quarter, mostly as a result of lower capital revenue, which was driven by a substantial decrease in the Army Corps capital projects bid in 2022 and lower coastal protection dredging revenue, partially offset by higher maintenance project revenue. Fourth quarter 2022 revenue came in lower than expected primarily due to longer than expected dry docking of the Ellis Island and Padre Island, the unexpected early retirement of the Terrapin Island, production issues on a few jobs, and significant downtime due to weather. Current quarter gross profit and gross profit margin were negative $16.2 million and negative 11% respectively, compared to $53 million and 25.2% respectively in the fourth quarter of 2021. Similar to revenue, gross margin was impacted by the unexpected dry-docking scope increases that resulted in additional costs and delays for the dredges, the Ellis Island and the Padre Island. The earlier-than-expected retirement of the Terrapin Island and production issues on a few projects also contributed to this decline. The mix of projects negatively impacted gross margin, as we had less than half the capital revenue in the fourth quarter 2022 compared to the same quarter of 2021, driven by the slow and unusual 2022 bid market. Weather along the northeast coast continued to severely impact those jobs. During the quarter, we were working on three major northeast projects. Collectively, these jobs had over 40% downtime in the quarter due to inclement weather. We also worked several other smaller jobs along the east coast that were similarly impacted. The operating loss for the current quarter was $36.7 million, a decrease from the prior year quarter's operating income of $36.5 million. The decrease is a result of the lower gross margin and the one-time non-cash $8 million charge due to the retirement of the Terrapin, partially offset by lower General Administration expenses compared to the prior year fourth quarter. Fourth quarter 2022 G&A of $12.4 million is $4 million lower than the same quarter last year, due to our continued efforts on cost reduction. Net interest expense of $3.2 million for the fourth quarter of 2022 came in as expected and was down from $4.2 million in the fourth quarter of 2021, primarily due to additional capitalized interest on the new builds. The fourth quarter 2022 income tax benefit of $8.4 million compared to an income tax expense of $8 million from the same quarter of 2021 was driven by the lower current quarter income. Rounding out the P&L, net loss for the fourth quarter of 2022 was $31.2 million, down from $24.7 million of net income in the prior quarter. Turning now to our full year results. Revenue for 2022 was $648.8 million. Net loss was $34.1 million, and adjusted EBITDA was $17 million. These results represent a $77.4 million decrease in year-over-year revenue, a decrease in net income of $83.5 million, and a decrease of $110.5 million in adjusted EBITDA. The 2022 results were greatly hindered by rampant inflation, supply chain delays, fewer high-margin capital projects, significant weather delays, production issues, unplanned maintenance, and a high number of differing site conditions on projects. In addition to the slow bid market, we were left with more than expected idle time during the year. During 2022, we also had regulatory drydocking on five dredges, including the Liberty Island and the Ellis Island, two of our largest and most productive dredges. In addition, we performed emission upgrades on the Carolina dredge. Turning to our balance sheet. We ended 2022 with $6.5 million in cash and nothing drawn on our $300 million revolver. The capital expenditures for 2022 were $144.7 million, which included $42.9 million for the Galveston Island, $42.4 million for maintenance CapEx and emission upgrades, $27.2 million for the construction of new scouts and multicast, $16.8 million for the design and build of the subsea rock installation vessel, and $15.4 million for the build of our second new hopper dredge, the Amelia Island. I'll conclude with some commentary on the upcoming year and quarter. We are entering the year with $377 million of backlog. However, because of the unusual 2022 bid market, only $148 million of the backlog is made up of high-margin capital work. This is 39% of the prior four-year average of $379 million of capital work in backlog entering the year. Because of this, margins will be lower than historical levels during the first two to three quarters of the year. The path to normal margins returning in the fourth quarter of 2023 is contingent on the large port deepening and widening project bidding in the first half of the year. Moving to the fleet, as Lasse mentioned earlier, we currently have two vessels cold stacked with no crews and minimal costs. If follow-on work does not materialize for a couple of other currently working older dredges, we will take similar cold stacking actions on them to take out costs. When the bid market picks up, we can quickly and efficiently reactivate these vessels. Other cost-cutting initiatives are ongoing, including the recent headcount reductions, further rationalization of support equipment, and a greatly reduced operating expense budget. 2023 will be a lighter dry-docking year than 2022. Currently, the Ohio is in the shipyard for her regulatory dry dock. The two other dredges are scheduled to go into dry dock this year, one in the second quarter and one in the third quarter. Timing of dry docks are estimates and can move to the left or right depending on scheduling. Turning to capital expenditures, we expect CapEx to be around $175 million, comprised of approximately $85 million for the SRI wind vessel, $35 million and $20 million, respectively, for the Amelia Island and Galveston Island new builds, $10 million to finish construction of the multicast, and $25 million for maintenance CapEx. So far this year, we have drawn $65 million on our revolver to help fund the progress payments that were due. We continue to utilize the revolver and operating cash flow to support the new build program. However, in January of this year, we applied with the Maritime Administration, or MARAD, which is a unit of the Department of Transportation for Title 11 financing, which typically comes with very attractive terms. MARAD announced in 2022 that they want to facilitate more offshore wind construction and have designated vessels like our subsea rock installation ship as vessels of national interest, which will prioritize our application for review and funding through Title 11. While we work with MARAD on the process, which can take up to nine months, we will continue to explore other sources of capital. Moving to the first quarter of 2023, utilization looks solid, as most of the available vessels have worked for the majority of the quarter. Both the Ellis Island and Padre Island are currently working following their dry dock. The Ohio will complete her regulatory dry docking towards the end of the first quarter and will go straight from the yard to a job. Utilization is strong, but the first quarter will be negatively impacted by some remaining drag from prior year projects that are still ongoing. Additionally, weather continues to be a problem on multiple projects in the Northeast. Finally, the projects we are working on in Q1 consist of a high volume of lower-margin maintenance work. With that, I will turn the call back over to Lasse for his remarks on the outlook moving forward.

Thank you, Scott. We continue to see strong support from the Biden administration and Congress for the dredging industry. As you saw in December of 2022, the omnibus appropriation bill for fiscal year 2023 was passed, which included another record budget of $8.7 billion for the U.S. Army Corps of Engineers Civil Works program, for which $2.3 billion is provided for the Harbor Maintenance Trust Fund to maintain and modernize our nation's waterways. In addition, disaster relief supplemental appropriations for fiscal year 2023 were approved, which include an additional $1.5 billion for the Corps to make necessary repairs to infrastructure impacted by hurricanes and other natural disasters, and to initiate beach re-nourishment projects that will increase coastal resiliency. We anticipate bids for new phases of larger port deepening projects previously planned to be bid in 2022 to be bid in the first half of 2023. Expected core deepening bids include the ports of Sabine, Freeport, Mobile, and one in Houston Corpus Christi, and additional phases north of it. Included in a low bid spending are our two liquid natural gas projects that have been awaiting notice to proceed from our clients. Several North American LNG export projects have been delayed in the past couple of years during the pandemic, but these LNG projects appear to be gaining momentum and are targeting final investment decisions in 2023. While our expectation is that we will contract at least one of these major dredging projects this year, the increased budget and additional funding combined with expected bids for the delayed port deepening projects and LNG projects support our expectation for a strong 2023 bid market. At the end of the year, the Water Resources Development Act 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 over the next five years. 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 Program, estimated at $30 billion. Finally, a few comments around offshore wind. In 2021, the current 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. As stated previously, Equinor and BP have already awarded Great Lakes the rock installation contracts for the Empire Wind I and II projects. They have tendered and are in discussions with several other offshore wind farm developers for projects commencing rock basing in 2025 and beyond, which supports our plan to have a full work schedule for the SRI vessels as we start operation in 2025. In conclusion, we have been managing through a very unusual and difficult environment in 2022, and we are starting 2023 with a look forward to an improvement in markets and dredging work volumes in the second half of the year and onwards. Combined with the delivery of the Galveston Island, and the cost reduction and operational improvements initiatives we have in place, we are confident in our ability to manage the current difficult market situation and deliver improved results in 2023 and beyond. With that, I'll turn the call for questions.

Our first question comes from Adam Thalhimer from Thompson Davis. Your line is open.

Thanks. Good morning, guys. Can you give us a little bit more details on what you're currently seeing from the Corps in terms of bidding? And then what's your confidence that the bidding will improve as you move through this year?

I can comment on that. The activity in the bid market last year was really the change of mix from capital works to maintenance dredging works. We see that the projects that were delayed from 2022 to 2023 have a defined bid mix. So we are optimistic to see these capital projects being bid and executed through 2023. The LNG projects will take some time before the dredging work picks up in large volumes, but we expect to see that happening towards the end of the year.

Okay, but you're on the larger capital projects, Lasse, your teams are working on those now or you're still waiting for more notifications from the Corps?

No, we are waiting for the port deepening projects; we're waiting for the bids to be issued to the markets. The bids for the ports that I mentioned seem to have firm bid dates. From the time they are issued until dredging begins is typically around six to eight weeks.

Perfect. Okay, very helpful. And then Scott, are you willing to kind of help level set? I think you gave a good way to think about margins for 2023. But just for Q1 specifically, I'm curious if we should expect at least on the gross margin line positive results.

Yes. So, Adam, I'm not going to give that kind of granularity. We'll continue to provide updates on how we see the fleet in terms of which vessels will be working, how utilization is shaping up, dry docking challenges we're facing, like the weather this year. Utilization is strong this quarter. The vessels that are not cold stacked or in dry dock have been working the majority of the quarter. We do have some drag from the macro drivers that influence results quarter to quarter. I'm not shy about giving guidance, but I will give commentary on how we see things shaping up. To answer your question, do I expect to see margins higher than Q4? The obvious answer is yes, but that's not saying anything like we had in Q4. So far, Q1 is shaping up as expected; we have not seen any surprises, except for the weather.

Good. Okay. Last one, then I'll turn it over to you. Are you still in discussions with customers on potential compensation for the differing site conditions?

Yes, we called out the three claims last quarter. Those have not settled; they are in various stages of discussions right now. Two of those have been submitted, and the third one is wrapping up and should be completed this quarter. The reason we pointed these out last year is that it was unusual to have three large claims hit in one period. We wanted visibility on that. The good news is we haven't seen any other major differing site conditions; we have said it was an anomaly, and it's proven to be so. Two of these claims are with clients that we have a long-standing relationship with, and we have good conversations going on and expect those to settle in the next quarter or so. The third one is with a smaller government entity that will take longer to resolve. So nothing has changed on that, but these are progressing as they normally do; they just take some time.

Okay, good color. Thanks, guys. Good luck in Q1.

One moment for our next question. Our next question comes from Jon Tanwanteng from CJS Securities; your line is open.

Hey, good morning. Thank you for taking my questions. Scott, I was wondering if you could break out the headwinds that you faced in Q4 between weather, site issues, unexpected retirements in the dry docks. Could you just tell us the relative size of those in the buckets and how much you budgeted for each of those leaking into Q1, whether it's weather inflation or other stuff?

Yes, I'm not going to quantify but will talk about the severity of what impacted us. The $8 million write-off of the Terrapin Island greatly affected us, and we did lose about half of the quarter's projected tariff and margin; this was quite impactful. The dry-docking scope increases were a double whammy; we had some increased costs associated with that, but more importantly, the delays prevented margin generation. The weather also had its effect, with three major jobs seeing 40% downtime. So, again, these were the big drivers that had a significant impact on our results.

Great. How much of an impact was weather in Q1 so far?

In Q1, particularly January, we saw severe weather. The expectation is that we won't have as much of an impact moving forward because we adjusted our estimates at year-end. January was still quite bad, so we do expect some impact, but less than what we experienced in Q4.

Do you have a scheduled liquidation of backlogs for the quarter, and is that adjusted for weather?

Yes, that is factored. It's all been adjusted based on our best estimates after we saw the December weather issues.

You frequently provided that number to investors. Would you care to do that today?

We don’t have any specific revenue projections beyond what we already have in backlog for Q1. But I will say that we are not expecting any additional revenue beyond that.

Got it. Understood. Second, I was wondering if you could give us a little more color on how you expect your revolver draw to progress through the year based on your expectations for margin, and what’s in backlog and their release schedule. Can we expect to see a drawdown at the worst as you start funding these shifts? Is there a schedule for CapEx that makes any quarter worse than any other?

I’m not going to give an expected draw amount. However, I will say that Q1 is generally the heaviest CapEx quarter. Our full-year 2022 CapEx was lower than anticipated because some Q4 payments were pushed into Q1. For the full year, I guided to around $175 million, with $70 million to $75 million in Q1. These numbers can change, but you will see the largest amount in Q1. Q2 will be fairly light, and the remaining balance will be split equally between Q3 and Q4.

Great, thank you. Lasse, do you have an expected bid market for this year? Last year was obviously a lot lower than expected. What’s your confidence level for that?

The overall bid market for last year came out less than what we had in 2021. The significant impact on us was the delay in bidding. There were very few bids issued for the first 4.5 months and most were maintenance work, which carries lower margins. The Corps now has a good budget for the year, and we have the additional appropriation, which will fund beach restoration in the southeast. I have high confidence for the 2023 bid market based on these factors. While nothing is certain, it certainly looks like we will have a good bid market for capital projects.

To add to that, the slowness we experienced last year was due to the mix of capital bids. The Corps' capital budget in 2022 was only 38% of the levels in 2021. The good news is that these jobs didn't go anywhere; they are merely delayed into the first half of this year.

Thank you.

Our next question comes from Joe Gomez from Noble Capital; your line is open.

Thank you. Good morning, and thanks for taking my questions. One thing we discussed previously is Hurricane Ian and its impacts. How are you seeing opportunities to help restore the beaches that were affected by the hurricane?

I think we commented last call that by mid-2023, we will see a flurry of projects for the Southeast due to the funding Congress provided. I expect beach renourishment and coastal protection projects to come to the bid market by mid-year and be executed during Q3 and Q4.

I've read articles regarding offshore wind that mention some poor economics and technology needing more government action to continue projects. What is your view on the status of offshore wind?

I'm unable to comment on clients' plans for their projects. However, the activity we see in the market is robust. We already have a firm contract with Equinor for rock installation. We have not seen diminished activity in requests for estimates and bidding for our vessel. There are challenges in the turbine manufacturers and supply chain, but our projects seem to be moving forward.

Given the expected drawdown on the credit line, can you provide any indication of where you see interest expense playing out for this year?

The first half of the year will experience higher draws, particularly in Q1 because of the way CapEx is weighted. So there will be a heavy draw in Q1, and that will decrease. As you know, we upsized the revolver last year, so there's ample availability at favorable terms.

Can you provide an update on our lenders regarding the covenants we are dealing with and what support we might need to bridge through lower profitability levels in 2023?

On the notes due in 2029, there are no covenants. We do have a springing covenant that activates when availability on the revolver falls below 12.5%. If that happens, it caps the availability at 87.5%. That's the only covenant we have.

Can you provide more color on the DOT financing?

The DOT financing is a different program than earlier discussed. It’s through the Maritime Administration; our application was submitted a few weeks ago. They prioritize vessels of national interest for lower rates. Their quoted rates are the 10-year Treasury plus 37.5 basis points, with terms up to 25 years, and they have low to no amortization. This will take time, and we’ll be in dialogue with them as we proceed.

Can previously spent money be included under that financing?

Yes, the financing can cover up to 87.5% of the full value of this vessel, which we’ve applied for.

What gives you confidence this year will not repeat the issues faced last year regarding the Army Corps and bids?

In the past year, we were definitely impacted by the absence of bids in the first half of the year. The Corps provided reasons regarding the continued resolution which limited new project funding. This year, we're not under a continuing resolution and the Corps has the necessary funding, which gives me confidence in a good bid market.

Is there any opportunity for international dredging given recent contracts in the Middle East?

Currently, there are not opportunities in the international dredging market; our focus remains on domestic work. To bid internationally, we’d need competitive and modern equipment. For now, our investments focus on the U.S. offshore wind market, which presents the best opportunities.

How do you define cold stack? How long does it take to get a dredge out of cold stack?

It's difficult to provide exact estimates, but when you have a cold stacked vessel, the crew needs to be recruited, and it typically takes a couple of months to mobilize and prepare the dredge for operation.

Next, we have a follow-up from the line of Jon Tanwanteng from CJS Securities; your line is open.

Thanks for taking my follow-up. Just a question on the bidding environment. I would have to assume that your competitors are hurting as well, given the amount of bids and work that's out there. How's competition affecting your bidding process? Are you seeing pressure on pricing, or is there more rationality in the market?

There is indeed pressure on pricing as the market shifts, but our target market comprises larger capital projects where we are a leading contractor. We've seen some capacity added by competitors, but we have upgraded our fleet to ensure we are well-positioned and modernized for these larger projects. We are confident in our competitive advantage moving forward.

Is the Galveston capacity filled with work for the rest of the year, or do you still have additional needs to fulfill?

Yes, we have backlog lined up for the Galveston Island when she comes out.

Yes, the Ellis came out and is working right now. We have backlog on her already for the majority of the year.

Do you have expected timing for when you will be able to announce the next couple of major wind project awards?

I'm hopeful we can make those announcements during the year, likely around mid-year to third quarter.

When bids have come out, we have submitted them. So the timing for awards relates to when they will issue based on those bids.

Thank you, guys.

Thank you. I am not showing any further questions in the queue. I will turn the call back over to Tina for any closing remarks.

Thank you. We appreciate the support of our shareholders, employees, and business partners. 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.

This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone has a great day.