Good day, and thank you for standing by. Welcome to the Q1 2023 Great Lakes Dredge & Dock Corporation Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tina Baginskis, Director of Investor Relations. Please go ahead.

Thank you. Good morning, and welcome to our first quarter 2023 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. 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 2022 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.

Thank you, Tina. As stated in our press release, we reported improved results in the first quarter of 2023. The company showed improvements in gross profit margins and adjusted EBITDA compared to each of the prior three quarters. In this winter quarter, we continued to face weather challenges on projects in the Northeast. And as in the previous quarter, we had a lower-than-normal amount of capital work due to the delay in the bid market for large port deepenings and coastal protection projects in 2022. We ended the quarter with revenues of $158 million and EBITDA of $10.2 million. Our fleet utilization in the first quarter was strong, but project revenues came primarily from maintenance projects, which typically provide lower margin work. Fortunately, we have started to see positive developments in 2023 with both a larger number of projects coming out to bid and a better mix of projects coming to the market. In the first quarter of 2023, we had a total bid market that reached over $300 million, which is approximately $125 million greater than the first quarter of 2022, and we were low bidder on 41% of this market. We ended the quarter with $327.1 million of dredging backlog, which does not include approximately $50 million of performance obligation related to offshore wind contracts. And in addition, we ended the quarter with $516.9 million in low bids and options pending award. Not included in the first quarter backlog numbers, our two major projects on which we were the low bidder in early April, namely the Freeport Deepening projects at around $160 million and a coastal protection project in the Northeast at approximately $90 million. Assuming these two projects move forward to award in the second quarter, we could see work commence in the second half of the year. It is positive that we have seen overall improvements in results in the first quarter and that bidding for large projects has started to pick up in the first and second quarters. And with expected additional large projects to come to bid for the remainder of the year. However, as new projects typically take six to eight weeks from bidding to contract award and an additional minimum of four weeks to mobilize to site, we do expect to see some continuous slowness in project revenues in the short term due to having some dredges in dry dock and some lower fleet utilization in Q2 and Q3 and in Q1. That's due to this low bid market that we saw in 2022. In the last six months, we took swift and proactive action on cost reductions and fleet utilization adjustments. Last year, we retired the 42-year-old hopper dredge, the Terrapin Island, and we currently have cold stacked two major dredges and various support equipment in anticipation of an improved dredging market in the second part of 2023 and onwards. Correspondingly, we have adjusted our G&A and administrative cost structure to reflect the changed market conditions. Earlier this year, we had a 10% reduction in SG&A and overhead staff, and we target an additional 5% reduction in 2023 through natural attrition. As we adjust to the current market condition, we remain optimistic about the long-term outlook for the dredging market and our ongoing fleet renewal program is part of our strategy to continue to be the U.S. industry leader in our selected market segments. After decommissioning several of our oldest dredges in 2017, we have invested in productivity upgrades on our best performing vessels and our new hopper dredge, the Galveston Island, is on budget and is expected to be operational in the third quarter. Her sister ship, the Amelia Island, is expected to be delivered in 2025. We are also executing on our strategy to enter the fast-growing U.S. offshore wind market. Construction of our U.S. flagged Jones Act-compliant inclined fall pipe vessel for subsea rock installation, which will be named Acadia, is on budget and expected to be delivered and operational in the first half of 2025. Last year, Great Lakes was awarded its first rock installation contracts for the Empire Wind I and II by Equinor and BP, with installation windows in 2025 and 2026. We are currently bidding on rock installation for several other offshore wind farm projects with work planned for 2025 and beyond. I will now turn the call over to Scott to further discuss the results for the quarter and provide further commentary around the market and our business.

Thanks, Lasse, and good morning, everyone. For the first quarter of 2023, revenues were $158 million, net loss was $3.2 million, and adjusted EBITDA was $10.2 million. Revenue of $158 million in the first quarter of 2023 decreased by $36.3 million from the prior year first quarter. The lower revenue was primarily due to lower capital and coastal protection revenue offset partially by an increase in maintenance and rivers and lakes project revenue. Current quarter gross profit and gross profit margin were $12.1 million and 7.7% respectively compared to $33.1 million and 17% respectively in the first quarter of 2022. Capital project revenue in the first quarter of 2023 was one-third of the capital revenue earned in the first quarter of 2022, contributing to the decrease in margin. Additionally, significant weather delays continued to severely impact a number of projects in the Northeast. Operating loss for the current quarter of $0.9 million decreased from $18.8 million of operating income from the prior year quarter. The decrease resulted from the lower gross margin offset slightly by lower G&A expenses compared to the prior year first quarter. In the first quarter of 2023, G&A of $13 million was $1.6 million lower than the same quarter last year. The decrease in general and administrative expenses from the prior year was primarily due to lower relocation, recruiting, and consulting expenses and our continued efforts on cost reduction. The net interest expense of $3.4 million for the first quarter of 2023 was down from $4 million in the first quarter of 2022, primarily due to an increase in capitalized interest on our new build program, partially offset by current quarter revolver interest expense. The first quarter 2023 income tax benefit of $0.8 million compared to $3.3 million of income tax expense from the same quarter of 2022 was driven by the lower current quarter income. Rounding out the P&L, the net loss for the first quarter 2023 was $3.2 million, down from $11.1 million of net income in the prior year quarter. Overall, we saw significant improvements in the first quarter compared to the second half of 2022 as the majority of our dredges were on projects the entire quarter with the exception of the Ohio, which was in the shipyard for most of the quarter, performing her regulatory dry docking. Our cost savings initiatives also paid dividends as spend was down in most categories. Turning to our balance sheet, we ended the first quarter of 2023 with $32.5 million in cash and $50 million drawn on our $300 million revolver. Total capital expenditures for the first quarter of 2023 were $28.7 million, consisting of $10.4 million for the Amelia Island, $9.7 million for the Galveston Island, $4.3 million for the build of the subsea rock installation vessel, the Acadia, and $4.3 million for the construction of the multicats and maintenance CapEx. Previous full-year CapEx guidance of approximately $175 million remains unchanged. As discussed last quarter in January of this year, we applied with the Maritime Administration for Title XI financing on our new wind vessel, which typically comes with very attractive terms. The review process, which can take up to nine months, is moving as expected, but in parallel, we continue to explore other sources of capital. As Lasse mentioned, we entered the second quarter with $327 million of backlog, but due to the delays in port deepening project bids in 2022, only $119 million of our current backlog consists of capital projects. While capital backlog will increase significantly upon the award of the Freeport job, we expect second and third quarter margins to be lower than normal due to the current mix of projects and backlog. We also have two dredges that will be in the shipyard for part of the second quarter undergoing the regulatory dry dockings and a third dredge that will enter the shipyard towards the end of the quarter for planned maintenance and repairs. We have no further regulatory dry dockings planned for the remainder of the year. With that, I will turn the call back over to Lasse for his remarks on the outlook moving forward.

Thanks, Scott. We continue to see strong support from the Biden Administration and Congress for infrastructure initiatives, including funding of ports and coastal protection projects that require the use of dredging equipment. On December 29 last year, the Omnibus Appropriations Bill for fiscal year 2023 was signed into law, which included another record budget of $8.7 billion for the U.S. Army Corps of Engineers civil works program, of which $2.3 billion is provided from the Harbor Maintenance Trust Fund to maintain and modernize our nation’s waterways. In addition, the Disaster Relief Supplemental Appropriations Act for fiscal year 2023 was approved which included $1.5 billion for the Corps to make necessary repairs to infrastructure impacted by hurricanes and other natural disasters and to initiate beach nourishment projects that will increase coastal resiliency. The increased budgets and additional funding support our expectation for a stronger bid market and dredging market in 2023 and 2024. We expect these budgeted appropriations to support the funding of several delayed capital port improvement projects, including Sabine, Houston, Corpus Christi, San Juan, and additional phases of Norfolk. Although the Corps was significantly delayed in bidding these capital projects in 2022, the first four months of 2023 have already seen bids for the port deepening projects for Norfolk and Freeport, which we have won. Included in our low bids pending are two liquefied natural gas projects that have been awaiting Notice to Proceed from our clients. Last month, FERC approved the Brownsville LNG projects for the next decade to proceed, which will enable completion of financing followed by the issuance of EPC construction and dredging contracts. FERC also approved the Texas LNG project to proceed with potential final investment decision later this year. Earlier in the quarter, Sempra made a decision to proceed with the Port Arthur LNG facility and bids for dredging are expected to be decided in the next few months. Based on this recent positive news, we are optimistic that dredging on one or two LNG projects would start in the second half of the year and continue throughout 2024. In March 2023, President Biden released the President’s Fiscal Year 2024. This is the starting point for negotiations in Congress over what will eventually become the actual Federal spending figures. The proposed amount for the Corps is targeted at $7.4 billion, which is a record amount for the President's budget, and we are hopeful that, in line with recent history, Congress will increase the Corps' budget for fiscal year 2024 when it is passed. At the end of 2022, the Water Resources Development Act of 2022, 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 would authorize the financing of Corps’ projects for flood and hurricane protection, dredging, ecosystem restoration, and other construction projects. The law features, among many other things, authorization for deepening the New York and New Jersey shipping channels to 55 feet, estimated at $6 billion, as well as the Coastal Texas Protection and Restoration Program, estimated at $34 billion, which includes dune and marsh restoration to safeguard the Texas Gulf Coast from hurricane surges. In 2021, the current administration announced an ambitious goal of 30 gigawatts of offshore wind power generation installed by 2030 and provided $3 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. We have tendered and are in discussions with several other wind farm developers for projects commencing rock placement in 2025 and beyond to ensure that we have a good work schedule for the Acadia when it starts operation. In conclusion, our main focus this year is to keep managing through the various challenges that the delayed bid market in 2022 has presented us with and with the goal of delivering improved year-over-year results. Combined with the delivery of the Galveston Island and the cost reduction on operational improvement initiatives we have in place, we are confident we can continue to manage through the current difficult market situation and return to more normal operating conditions toward the end of this year and beyond. And with that, I'll turn the call over for questions.

Thank you. Our first question comes from Joe Gomes of Noble Capital. Your line is open.

Good morning. Thanks for taking my questions.

Hey, Joe.

So I wanted to start a little bit on the competitive environment. I'm looking at some of the awards that the DoD releases. It looked like Dutra got a $68 million award for Norfolk, Cashman got a big one in Baltimore, some other ones, and obviously, we saw at the end of last week Galveston Harbor for you guys. Just a little bit more if you touch on what that competitive environment looks like today. And seeing these awards coming out, there seems to be a fair number of them going to some of the smaller participants. Are you guys getting an indication from the Corps that they're looking to spread out some more of the bids to some of the smaller companies out there, or is it still just normal operating environment on that side and they just happened to have been awarded those bids?

Yes. I guess the question is if there is a conscious policy from the Army Corps of Engineers to spread out the bids to smaller contractors and there's no change in their way of contracting out this work. Larger projects are normally split into one, two, three, four, five, six different phases for two reasons. One is to increase competition on these bids because if they awarded a large contract, it will probably just be Great Lakes and potentially Weeks who could bid those projects. And secondly, it has to correspond to the Army Corps of Engineers budgets for that fiscal year, but there is no change in the way that they are bidding out the work in that respect.

Okay. Thank you for that. And we've talked in the past, the last year about those three large projects that you had some unusual claims on. Maybe you could give us a little update on where we stand on those claims resolutions?

Yes, Joe. So as you recall, we did decide to call out three because they are unusually large in the scope of claims that we typically see. Not much different from what I said last quarter. The two larger ones are moving through. We have not changed the way that we feel about those and think that those look to get resolved in Q2, if not early Q3. So they're moving as expected. As I warned last year, these things just take some time to go through, but it's moving as expected. And then as I mentioned, the third one, which is the smaller of the three is a project that is not done yet and it is not a core job, and our expectations are that one is going to take a little longer to resolve.

Okay. And maybe on the capital expenditures, I was kind of surprised, I think if I heard you correctly, you did $28 million, $29 million of CapEx in the quarter. In the last quarter, you were looking more for that $70 million to $75 million in the first quarter. And I know things shift around, but that's a pretty big delta there. Maybe you could give us a little more color on the CapEx?

Yes. And it's exactly what I warned last year, we were in the midst of progress payments on the new builds. They're big payments, and if you have one or two of those slip a few weeks, it goes from Q1 to Q2. So as I mentioned, our $175 million that we guided at the beginning of the year total CapEx, that doesn't change. Again, it's just timing. These things do naturally move to the left and to the right a few weeks.

Okay. Fair enough. And maybe one more for me and then I'll let someone else ask. So on the wind projects that you've tendered bids on for additional work, any kind of timing as to when you might see some progress or some awards on that?

Yes. The wind projects are moving forward. As I said, we already have a position on one of them for 2025 and 2026. In the marketplace, there has been a slight movement to the right on one of the projects that we have bid and it's due to permitting, supply chain issues, and changes in design on these wind projects, where everybody wants to have larger turbines in because that's the most economical solution. But we believe that one of these projects that we have tendered will be awarded also this year and then for execution potentially in 2025, 2026, 2027.

Great. Thank you very much.

Thank you.

Thank you. Our next question comes from Adam Thalhimer of Thompson Davis. Your line is open.

Hey. Good morning, guys. Congrats on the improved results versus Q4.

Good morning, Adam.

Do you have any line because the bidding environment that you guys talked about is pretty compelling? Do you have any line of sight to bringing the cold stacked vessels back into service?

Yes, we do. And we have to adjust our capacity that we have out there in the market to the bid market that we see. And we are optimistic to bring those vessels back into operations as soon as we are now starting to work on these new projects that are coming in. So the answer is yes. That is our plan.

Okay, good. That's what it sounded like. And then you said Q2, Q3 margins below normal. So my question is, what are you guys thinking about as a normal margin and is there a chance that we – that's achievable as we look out to Q4?

Yes. We've always said normal to us is in that high-teens, 20% range, but with the mix of projects that we have right now, it's just not going to be there. So even with this Freeport Award, Lasse said these jobs take some time to get started. We're probably full-blown on that, possibly the end of Q3, but it's going to be Q4. So I mentioned we're at a $120 million in change of capital backlog right now. This is the work we're going to be executing over the next two quarters. So I would not expect to see a huge deviation from what we saw this quarter on margins until we start executing on more capital work.

Understood. Okay. And then with utilization rate ticks down in Q2, up a little in Q3 and then more in Q4?

That sounds fair.

What are your thoughts on kind of Q3 utilization versus Q1?

Yes. I mean, so right now there still is some white space in Q1, but that's not unusual. At the end of Q3, we still have some. As we see some of these projects coming, we are seeing some book and burn coming out. We feel we will get those utilized again. So I don't know how I'm going to compare it to Q1 right now, but we have a number of vessels that are already completely fully booked for the rest of the year, including Q3, and we have a little white space to fill, but we're not concerned about it at this point.

Is it too early to start getting even more excited for 2024?

Yes. It's interesting to look at this market, even though it is quite depressing at times. When we, as the largest dredging contractor in the U.S., our focus has always been on the large and complex projects and the bid delay from 2022, and I just want you to understand the dimensions here. It was a whole year of revenue of bid projects that got delayed from 2022 that is now coming out to bid in 2023, and that had a significant impact on us. I'm very optimistic about, as I said on the last call, on our bid market here for 2023. The signs for Q1 and what we see for Q2, Q3 look very good, which then ends up with a very good 2024 when it comes to execution. So I'm optimistic and with the development that we see on the LNG side where we already have two projects where we have negotiated contracts, one of them is most probably going to be executed late this year and onwards. And that is a good situation to look at.

All right. Good color. Thanks a lot.

Okay.

Thank you. Our next question comes from Jon Tanwanteng of CJS Securities. Your line is now open.

Good morning. Thank you for taking my questions. I was wondering, what is the risk here from the debt limit, if the U.S. defaults and just the impact on budgets and government, how are you planning for that if something does happen?

Are you referencing the Title XI financing that we're applying for?

No. Just the operation of the Army Corps. What happens if…

With their budget. Sorry. Well, the debt limit, as we have seen in previous years, the politicians are using this situation to negotiate a lot of different issues. I think the probability of my expectation is that the debt limit will be raised, and hence there is no impact on the financing of the U.S. government. I do believe that the discussion that is coming up here towards the end of the year, when it comes to approving the federal budget for 2024, you will see more of these discussions and potential continuing resolution for a while, as we have seen in previous years.

Okay, great. And then what are the other capital projects that could still make it into Q4 this year? You have some of the LNG projects that could start, you have Freeport, what else is in the pipeline that could actually still start this year and get that margin back up?

Yes. We are hopeful that some of these coastal protection projects that were part of the supplemental funding could come to bid and be executed towards Q4. That is good work, good margin work, and we do those projects well. So in addition to the port deepening projects, the coastal protection projects that were in that bill could come out and get executed in Q4.

Okay. Great. Scott, could you – I don't know if you said this before, could you give us a better cadence for the remaining capital spending in the year?

Yes. Again, subject just to slip to the left or the right a bit, but to round out to roughly $175 million, looking at about $55 million each of Q2 and Q3 and then about $35 million in Q4.

Understood. Thank you. And then lastly, just looking at lower utilization in Q2, are you planning to cold stack more dredges or are you going to keep them hot? Just expecting a bit more work in Q3 and then going Q4?

Yes. I mean, we do have – as I mentioned, there is some white space to fill. We are going to be, as we mentioned, aggressive in taking costs out and putting vessels on the dock if we do not see anything. So we'll continue to monitor that, but we are not going to keep spending money if we don't have clear visibility of a vessel quickly going to work. But as we have mentioned, we can get these things out of cold stack very quickly and efficiently and bid them and get them to work.

So as it stands now, you have two in storage and no plans to put any more in at this point?

Yes. We'll monitor as we have vessels roll off of contracts if we feel that there is something on the horizon for them or not, and we'll make the call at that point. It's not something we have to spend a lot of time planning to do. We can shut them off quickly and turn them back on just as quickly.

Okay. Fair enough. Thank you.

Thank you. I would now like to turn the conference back to Tina Baginskis 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.

This concludes today's conference call. Thank you for participating and you may now disconnect.