Great Lakes Dredge & Dock CORP Q1 FY2025 Earnings Call

Good day, and thank you for standing by. Welcome to the Q1 2025 Great Lakes Dredge & Dock Corp. Earnings Conference Call. At this time, all participants are in 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 first speaker today, Eric Birge, Vice President of Investor Relations. The floor is yours.

Thank you, Gerald. Good morning, and welcome to Great Lakes Dredge & Dock's first quarter 2025 results conference call. Joining me on the call this morning is our President and Chief Executive Officer, Lasse Petterson; and Chief Financial Officer, Scott Kornblau. Lasse will provide an update of 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 and 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 filings with our Securities and Exchange Commission. During the call, we will refer to certain non-GAAP measures, including adjusted EBITDA, which are explained in the net income to adjusted EBITDA reconciliation attached to our earnings release and posted on the Investor Relations website, along with other certain operating data. With that, I will turn the call over to Lasse.

Thank you, Eric. Following strong financial results in 2024, Great Lakes started 2025 with a great first quarter, driven by high asset utilization and strong project performance, executing complex port deepening and coastal restoration projects, leveraging the capabilities of our extensive fleet. We ended the quarter with revenues of $242.9 million and adjusted EBITDA of $60.1 million. Good results also come from safe operations. In the first quarter of the year, we had 0 recordable injuries, a testament to the strong safety culture we have in Great Lakes. Safe work is a core value in our company, and we firmly believe good safety is also good business. Our dredging backlog remains strong at $1 billion with capital and coastal protection projects accounting for 95% of the backlog, plus an additional $265 million in low bids and options pending award. Our successful bid strategy from last year resulted in a number of large project wins and a quality backlog, which will support high asset utilization and a solid revenue year for the remainder of 2025, as well as providing a good base and revenue visibility for 2026. After the quarter ended, we received notice to proceed on the Woodside Louisiana LNG project. The awarded work will be added to our backlog in the second quarter, along with two options that will be added to our options pending award. Dredging operations are expected to commence early 2026. This, along with our two current LNG projects that started dredging activities in the third quarter in 2024, are capital projects which fit well with our core strength to perform large and complex projects. Our strong 2024 and first quarter 2025 results contributed to our Board of Directors approving in March a $50 million share repurchase program, as we believe our share price did not reflect the company's financial performance and long-term outlook. As of April 30, we have repurchased 1.2 million shares with a total spend of $10.4 million under this program. And post quarter end, we upsized our revolving credit facility to $330 million, which Scott will provide more details on later. Moving on to our newbuild program. Our newest hopper dredge, the Amelia Island, is expected to be delivered in the third quarter of this year, and will go straight to work on projects already in backlog. The Amelia Island and our sister ship, the Galveston Island, have been carefully designed for shallow and narrow waters along the U.S. coast lines and are efficient tools for us to work on coastal protection projects such as beach restoration, wetlands improvements, and barrier island construction. The Acadia, the first U.S.-flagged Jones Act compliant subsea rock installation vessel is also currently under construction with a scheduled delivery in the first quarter of next year. The target markets for the Acadia include domestic and international offshore wind projects as well as projects protecting critical subsea infrastructure such as oil and gas pipelines and power and telecommunication cables. I'll now turn the call over to Scott to further discuss the results of the quarter, and then I'll provide further commentary around the market and our business.

Thank you, Lasse and good morning, everyone. I'll start by walking through the first quarter, which resulted in revenues of $242.9 million, net income of $33.4 million and adjusted EBITDA and adjusted EBITDA margin of $60.1 million and 24.7% respectively. Revenues of $242.9 million in the first quarter of 2025 increased $44.2 million from the prior year's first quarter as every active dredge was working for the majority of the quarter. Despite having one dredge in the shipyard for half the quarter performing her regulatory dry dock and two others beginning the regulatory dry dock later in the first quarter, the first quarter of 2025 was the second highest revenue quarter in company history. Current quarter gross profit and gross profit margin increased to $69.5 million and 28.6% respectively, compared to $45.6 million and 22.9% respectively in the first quarter of 2024. 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 first quarter of 2025, over 87% of our revenue came from these types of projects. Current quarter's operating income of $49.9 million increased over 58% compared to the prior year's quarter's operating income of $31.5 million. The year-over-year increase is driven by higher gross profit, partially offset by higher general and administrative expenses, mostly due to increased incentive compensation resulting from the strong current year first quarter. Net interest expense of $4.5 million for the first quarter 2025 was up from $3.9 million in the first quarter of 2024, primarily due to interest on the second lien credit agreement entered into during the second quarter of 2024, partially offset by decreased borrowings under our revolver. First quarter 2025 net income tax expense of $11.7 million increased from $7 million in the same quarter of 2024 due to the improved results and net income for the first quarter 2025 was $33.4 million compared to $21 million in the prior year's quarter. Total capital expenditures for the first quarter were $11.4 million, made up of $2 million for the hopper dredge, Amelia Island, $3.9 million for the subsea rock installation vessel, the Acadia, with the remaining $5.5 million coming from maintenance and growth. Our previous full year CapEx guidance of between $140 million and $160 million remains unchanged. Turning to the balance sheet. We ended the quarter with $11.3 million in cash and nothing drawn on our revolver, which doesn't mature until the third quarter of 2027. And as Lasse mentioned earlier, on May 2, we executed an amendment to our credit facility, upsizing our revolver by $30 million to $330 million, further enhancing our liquidity, which now stands above $300 million. Our balance sheet is in great shape with a trailing 12-month net leverage ratio of 2.7x, a weighted average interest rate on our total debt under 7% and no debt maturities until 2029. As our newbuild program will be substantially complete at the end of this year, we expect to be cash flow positive starting in 2026. As I discussed on the year-end earnings call, 2025 is a heavier-than-normal regulatory dry dock year for us, and the second quarter will be most impacted as we will have four vessels at the dock at various times, which will result in lower revenues than the first quarter. Utilization will remain strong on the other vessels, and we should see another solid quarter. Our expectation is that full year 2025 results will exceed 2024, which was the second highest in company history. With that, I'll turn the call back to Lasse for his remarks on the outlook moving forward.

Thank you, Scott. The Trump administration and Congress continue to demonstrate strong and consistent support for the dredging industry. The U.S. Army Corps of Engineers is operating in fiscal year 2025 under a continued resolution through September 30, which sustains the record funding levels established in the prior fiscal year's budget. This support, along with our $1 billion backlog, which includes a robust mix of large and complex projects in the beach renourishment and port deepening markets, enables us to continue to deliver on a very busy 2025 with sustained execution capacity and project visibility extending well into 2026. We expect the 2025 bid market to be a normalized volume of approximately $2 billion, more focused on coastal protection projects funded by the 2023 Disaster Relief Supplemental Appropriation Act and regular maintenance dredging coming off a very strong port deepening bid market in 2023 and 2024. Turning to the offshore wind market. In April, we saw a temporary pause on Equinor's Empire Wind 1 project, which currently is included in our offshore energy backlog. While the duration and impact of the temporary pause for the project are not known at this time, we remain in regular contact with our client, Equinor, who is evaluating further steps. Last year, recognizing early signs of potential delays in the U.S. offshore wind market, we proactively adjusted our strategic outlook for the Acadia to include international markets in the U.K., in EU, and in Asia for offshore wind project as well as for rock protection for critical subsea infrastructure such as oil and gas pipelines and power and telecommunication cables, paving the way for the expansion of our offshore wind business into the broader range of service offerings that we now refer to as offshore energy. In conclusion, building a strong performance in 2024, the company entered 2025 with significant momentum, achieving outstanding results in the first quarter. This success is a result of excellent safe project execution, the strength of our modernized fleet, and a robust backlog. And with a strong first quarter, solid liquidity to support the remainder of our newbuild program and ongoing strategic initiatives, we are well positioned for the future. And with that, I'll turn the call over for questions.

Thank you. At this time, we will conduct a question-and-answer session. Our first question comes from Joe Gomes of NOBLE Capital. The floor is yours.

Good morning. Congrats on the quarter.

Thank you, Joe. Good morning.

So I just wanted to touch base on the Equinor project, Empire 1. Kind of just spitballing worst-case scenario here, the project falls by the wayside. Just wondering when did Equinor have contracted out time for the Acadia? And how quickly can you refill that time that would have gone to Equinor again in a worst-case scenario type of situation?

Well, first of all, Equinor is in contact with the administration to clarify the situation on the project. The project was fully funded, fully permitted, and just starting the offshore construction activities with the vessels being on its way with the monopiles also on its way and also with the rock installation already started. So the stop on the project or the temporary stop on the project was a very large surprise for everybody. So Equinor has reached out to the administration to try to see what the issue is and get that clarified. And that is what we know at this point in time.

I'm wondering, in a worst-case scenario where the project is canceled, how quickly do you think you could repurpose the time slot that Acadia is currently contracted to work for Equinor?

The vessel will come out of the yard in the first quarter of next year. The plan is to go directly to work on the Empire Wind 1 project. It will be challenging to fill that time slot with other projects. However, there are plans to work on Ørsted projects in 2026. There are cancellation arrangements in the contract. In the worst-case scenario, if the project gets canceled, we have cancellation fees in place that will help cover some of the costs incurred on the project.

Yes. And Joe, I'm not going to get into the details of the termination. But obviously, we can't with this contract. I will remind you when the other contract we had last year was terminated, we did receive roughly $9 million to $10 million out of that. So termination provisions within these contracts are not unusual.

I'm just considering a worst-case scenario, but hopefully, Equinor can understand the administration's actions and get the project back on track. That would be the best outcome.

Yes. And Joe, sorry, I'll also add yesterday, the Attorney General of New York, along with a number of other states have also put in a formal challenge to the current interpretation that these fully permitted projects should continue as planned. So we'll see how it all plays out.

Thanks for that. Appreciate it. And then, Lasse, you talked about a $2 billion market you think for this year. I was just wondering, given that we had that continuing resolution for a while, and I guess we're kind of operating under a full-year continuing resolution. Just wondering what the pace of awards that you've seen so far here year-to-date?

Yes. The year has been slow when it comes to new port deepening projects. Fortunately for us, we had in our low bids and not yet awarded the Woodside LNG project, which is coming through, which is great news for us. The bid market, as I said, the visibility of large projects due to the fact that we are in a continued resolution is not that good. There are a number of coastal restoration projects that we have visibility to because they were funded back in 2023. So those projects, which are large and complex will come out to bid now in Q2 and Q3. And then we expect the maintenance market to be strong this year. As you know, we prefer to do the port deepening projects and the coastal restoration projects because that's where we excel. But we also do a number of maintenance projects when they are coming out to bid.

And Joe, the first quarter, as Lasse said, yes, it was a slower bid market, but that's not unusual. As you know, it's the middle two quarters that have the most activity. So we did not see an impact from the continued resolution. Everything that we expected to come out in the first quarter did. And our expectation is Q2 and Q3 will also play out like that.

Okay. Great. And then just one more for me. The competitive environment, given where we are, are you seeing any increase in the competitive environment has kind of stayed similar to what historically has been?

No, it's similar to what it has historically been. We have seen some dredges that have been taken out of operation, and then we have new builds that have come to the market from other competitors. And as I said on the call, we are getting the Amelia out now this year, but she goes straight to work. So we're in good shape. And I could also say that given the fact that we are fully booked here this year, we are selective with the bid opportunities that we are targeting.

Great. Congrats again on the quarter. Thanks. I'll get back in queue.

Thanks, Joe.

Thank you for your question.

Our next question comes from Adam Thalhimer from Thompson Davis. The floor is yours.

Hey, good morning guys. Great quarter. I didn't even know $243 million of revenue was possible. So congratulations.

There you go.

A quick question on the Woodside job. Are the options already in low bid pending or just the base work?

Yes. So the base was in low bid pending that will now go into backlog in Q2. The options were not in low bid pending, so that will get added in, in the second quarter.

Got it. Okay. And then, Scott, can you just give a quick update on the two LNG jobs that are ongoing? How those are going and an update on when they're projected to wrap up?

Yes. I mean, as we've been saying all along, this is the kind of work we like to do. The very large complex projects. They have high margins, and we have historically outperformed even how we anticipated doing, and these two projects are no exception. Our team is excelling on both projects. One of them should wrap up right at the end of the year. The larger one, Rio Grande, goes well into next year.

Got it. And then lastly for me, maybe just an update on the international conversations you're having for the Rockfall vessel, how those are going?

Yes, we are well received by developers in Europe. As I mentioned last year, we anticipated a slowdown in the U.S. potentially occurring in '27 and '28, so we initiated our business development efforts in Europe and Asia early. We have several bids currently outstanding in that market, which is more mature than the U.S. This results in a shorter lead time between bidding and awards. We are now bidding for work in '27 and '28 in Europe, and I am optimistic about achieving positive outcomes, although we likely won’t see project awards until the latter half of this year.

Got it. Okay, thank you both. Talk to you soon.

Thanks, Adam.

Our next question comes from Julio Romero from Sidoti & Company. The floor is yours.

Great, thanks. Hey, good morning, Lasse, Scott, and Eric. Thanks very much. Really strong performance this quarter across the board. Can you quantify the dry dock effect, if any, in the first quarter? And then the four dry docks that are expected in the second quarter, how many are hopper dredges? And was the first quarter dry dock also a hopper dredge?

Yes. So the one that was in and out during the quarter was down for a little more than half the quarter, and that was a hopper. Moving forward to the second quarter, there is one hopper that will be down for most of the quarter performing her dry dock, and then the three others in the second quarter, they're not hoppers. I'm not going to give an exact dollar impact of the dry docks. And Q1 was somewhat of a normal dry docking, having one down for most of the quarter and then another two starting. But the difference this year is we are pulling vessels off of jobs because of all the backlog we have. So it's not hypothetical revenue that's lost. It is real revenue and then the cost of the dry docking. A typical dry dock is somewhere in that 60-day period. The cost of the dry dock itself, again depending on what you have to do, could be in the $3 million to $6 million range, and then you take the revenue off. So yes, it is impactful. And that's why I pointed out Q2 will be the most impacted. And then hopefully, the second half looks lighter on the dry docking schedule.

Really helpful. I appreciate that. I'm just trying to think about the second quarter because we're coming off such a strong first-quarter base, right? And I'm just looking at how do we think about the gross margins? Should that be the low point of the year for '25?

Yes. Second quarter should be the lowest on revenue and on margins, and then it will look a lot more normalized in the second half of the year.

Okay. Great. And I was hoping you could just talk a little bit high level about your tariff exposure. And while you have a large percentage of your revenues coming from publicly funded contracts, we've heard some other companies talk about index pricing in publicly funded contracts that sometimes can help. I was wondering if you have any index pricing within your contracts.

Yes. Well, and let me hit the tariff question first, and I'll probably answer the second. So yes, as a U.S. Jones Act company, we purchase most of our supplies and equipment here in the U.S. So very little is purchased overseas. The impact so far in this first quarter was immaterial. We don't expect it to change moving forward. That being said, we have identified some of the larger items that we do procure internationally, and we're actively looking to see if we can source them here in the U.S. or from countries that have lower tariffs, but really don't anticipate a material impact to us at all. And on our new builds, the vast majority of the equipment that was coming from overseas is already sitting here in the U.S. and paid for. So very little exposure there as well.

Okay, great. I will pass it on. Thanks very much.

Thanks.

Thank you for your questions. Our last question comes from Jon Tanwanteng from CJS. The floor is yours.

Hi, guys. Thank you for taking my questions and congrats on a strong quarter. I was wondering, Scott, if you could break down maybe what part of the outperformance was overperformance on projects versus what you budgeted? And if there are any pull-ins of projects or pushouts of expenses, if any?

Yes, the significant number was driven by the performance on these high-capital projects. We did experience a slight delay with the two dry docks that began at the end of the quarter, each starting about a week later than we anticipated. However, the main factor contributing to our success was our exceptional execution on the large projects currently in our backlog.

Okay. Great. Thank you. And then what's actually scheduled to liquidate in Q2 with the four dry dockings you have?

Yes, we don't provide a detailed breakdown of how much will be utilized each quarter. However, I can say that when we release our Q results later today, we expect that 60% of our current backlog will be used for the remainder of the year.

Thank you. I was wondering if you could discuss when you think the strong mix of capital and coastal work will start to normalize. Additionally, considering the recent decline in trade due to tariff impacts, do you believe that port budgets might decrease in the coming years and quarters if disruptions continue, specifically regarding deepening projects?

If I knew all that, it would be great. Regarding large projects, we are focusing on them because we have a substantial fleet. Once we embark on a large project that spans over a year or a year and a half, we can utilize equipment designed for various phases of these projects. This leads to our strong performance and the higher margins we can achieve. The coastal protection market was quite slow in 2022 and early 2023, especially in Florida, but it has picked up again in 2024 and 2025, and we expect this trend to continue. The push for port deepening was driven by the Panama Canal expansion, starting with Savannah, and this initiative is ongoing along the coast. New York is set to begin its deepening project in 2027, which will be a long-term endeavor. We are also exploring large projects in Florida and the Gulf, with more visibility likely in the latter part of this year and early next year. Funding for dredging mainly comes from the Harbor Maintenance Trust Fund, which has been robust. We are utilizing all annual revenues from this fund for dredging and expect that to continue. There was a mention in the President's proposed budget about reducing the use of the Harbor Maintenance Trust Fund, but a careful reading shows that the administration prioritizes dredging, with reductions aimed at other areas. Therefore, I believe it will be a strong budget for next year, supported by both the administration and Congress.

Okay, thank you.

Thank you for your question. This concludes the question-and-answer session. I would now like to turn it back over to Eric Birge, Vice President of Investor Relations for closing remarks. The floor is yours.

Thank you, everybody. We appreciate the support of our shareholders, employees and business partners, and we thank you for joining us in the discussion about the important developments and initiatives of our business. We look forward to speaking to you during our next earnings call. If you have any questions, please feel free to reach out.

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.