10-Q: Great Lakes Dredge & Dock Corporation Reports Strong Second Quarter Results Driven by Increased Revenue and Improved Project Performance

Great Lakes Dredge & Dock Corporation announced a significant increase in revenue and profitability for the second quarter of 2024, driven by strong performance in capital and coastal protection projects.

Summary

• Great Lakes Dredge & Dock Corporation reported a substantial increase in revenue for the second quarter of 2024, reaching $170.1 million, a 28% increase compared to $132.7 million in the same period last year.
• The company's six-month revenue totaled $368.7 million, a 27% increase from $290.7 million in the prior year.
• This growth was primarily driven by a significant increase in domestic capital and coastal protection revenues, partially offset by decreases in maintenance and rivers & lakes revenues.
• Gross profit for the quarter was $29.8 million, a 66% increase from $17.9 million in the same period last year, with gross profit margin increasing to 17.5% from 13.5%.
• For the six-month period, gross profit was $75.4 million, a 151% increase from $30.0 million in the prior year, with gross profit margin increasing to 20.5% from 10.3%.
• Net income for the quarter was $7.7 million, a significant increase from $1.7 million in the same period last year, and diluted earnings per share were $0.11 compared to $0.03.
• Net income for the six-month period was $28.7 million, a substantial increase from a net loss of $1.5 million in the prior year, with diluted earnings per share at $0.42 compared to a loss of $0.02.
• Adjusted EBITDA for the quarter was $25.8 million, up from $16.6 million in the same quarter last year, and for the six-month period, Adjusted EBITDA was $68.7 million, up from $26.9 million.
• The company's contracted dredging backlog was $807.9 million at June 30, 2024, compared to $1,039.1 million at December 31, 2023, with additional low bids and options pending.
• The company secured a $150 million second lien credit agreement to repay existing debt and fund new build payments.

Sentiment

Score: 8

Explanation: The document presents a very positive outlook with strong financial results, significant revenue growth, and improved profitability. The company's strategic expansion into offshore wind and the new credit agreement are also positive indicators. However, the decrease in backlog and below-investment-grade credit ratings temper the overall sentiment slightly.

Positives

• The company experienced a significant increase in domestic capital and coastal protection revenues.
• The delivery of the Galveston Island dredge contributed to increased revenue.
• Improved utilization and project performance drove higher gross profit and profit margins.
• The company secured a $150 million second lien credit agreement, providing additional financial flexibility.
• The company's credit outlook was changed from negative to stable by Moody's and S&P.

Negatives

• Maintenance and rivers & lakes revenues decreased during the current year periods.
• The company's contracted dredging backlog decreased to $807.9 million from $1,039.1 million at the end of the previous year.
• The company's win rate for the domestic dredging bid market was below its three-year average.
• Net interest expense increased due to higher borrowings and the execution of the Second Lien Credit Agreement.
• The company's credit ratings remain below investment grade.

Risks

• The company's backlog may fluctuate significantly from quarter to quarter based upon the type and size of the projects awarded.
• Federal government contracts, which make up a portion of the backlog, can be canceled at any time without penalty to the government.
• The availability of additional financing depends on market conditions and the company's credit ratings.
• The company's ability to fund its working capital needs and comply with financial covenants depends on future operating performance and cash flows.
• The company is exposed to counterparty credit risk associated with non-performance of its various derivative instruments.

Future Outlook

The company expects to perform on its offshore wind contracts using the Acadia, which is expected to be delivered and operational in the second half of 2025. The company anticipates that remaining new build program payments will be made with cash on hand, future cash flows generated from operations, revolver availability, proceeds from the Second Lien Credit Agreement and potential new sources of financing. The company believes its cash and cash equivalents, its anticipated cash flows from operations and availability under its revolving credit facility and the option to borrow additional funds under the Second Lien Credit Agreement will be sufficient to fund the company's operations, capital expenditures and the scheduled debt service requirements for the next twelve months.

Management Comments

• The company experienced a significant increase in domestic capital and coastal protection revenues, due in part to the delivery of the Galveston Island, the company's newest hopper dredge which began operations in February 2024.
• The higher gross profit and profit margins experienced for the three and six months ended June 30, 2024 were driven by increased revenues as well as improved utilization and project performance in the current year quarter.
• The company plans to participate in the offshore wind market, and in November 2021, the company entered into a $197 million contract with Philly Shipyard to build the first U.S. flagged Jones Act compliant, inclined fall-pipe vessel for subsea rock installation for wind turbine foundations, the Acadia, which is expected to be delivered and operational in the second half of 2025.

Industry Context

The company is expanding into the offshore wind energy industry, which is experiencing significant growth with several projects becoming operational and new power purchase agreements being awarded. The company's new vessel, the Acadia, is expected to play a key role in this market. The company also benefits from government funding for port deepening and channel maintenance projects.

Comparison to Industry Standards

• The company's revenue growth of 28% in the second quarter and 27% in the first six months of 2024 is strong compared to the dredging industry average, which typically sees more modest growth.
• The company's gross profit margin improvement to 17.5% in the second quarter and 20.5% in the first six months of 2024 indicates better project execution and cost management compared to industry benchmarks.
• The company's Adjusted EBITDA growth of 55% in the second quarter and 155% in the first six months of 2024 is significantly higher than the industry average, reflecting improved profitability.
• The company's backlog of $807.9 million is substantial, but the decrease from $1,039.1 million at the end of the previous year is a concern, as it indicates a potential slowdown in future revenue growth compared to competitors with growing backlogs.
• The company's below-investment-grade credit ratings are a concern compared to larger, more established competitors with investment-grade ratings, which may result in higher financing costs.
• The company's expansion into the offshore wind market with the Acadia vessel is a strategic move that positions it well for future growth compared to competitors that are not as heavily invested in this sector.

Corporate Governance

Legal Proceedings

• Various legal actions, claims, assessments and other contingencies arising in the ordinary course of business are pending against the Company and certain of its subsidiaries.
• The company does not believe any of its proceedings, individually or in the aggregate, would be expected to have a material effect on results of operations, cash flows or financial condition.

Stakeholder Impact

• Shareholders will benefit from the improved financial performance and increased profitability.
• Employees may benefit from the company's growth and expansion into new markets.
• Customers will benefit from the company's continued investment in its fleet and technology.
• Creditors will be impacted by the company's new debt agreements and its ability to meet its financial obligations.
• Suppliers may benefit from the company's increased activity and demand for materials and services.

Next Steps

• The company plans to continue to pursue and tender bids for multiple offshore wind projects for the Acadia.
• The company expects to start dredging work on the Rio Grande LNG and Port Arthur LNG Phase 1 projects in the third quarter of 2024.
• The company will perform its next scheduled annual impairment test of goodwill in the third quarter of 2024.
• The company expects to spend between approximately $130 million and $150 million on capital expenditures in 2024.

Key Dates

Keywords

dredging, revenue, profit, EBITDA, backlog, capital projects, coastal protection, offshore wind, credit agreement, financial results