Great Lakes reports fourth quarter and full year 2022 results

• Fourth quarter net loss of $31.2 million
• Fourth quarter negative adjusted EBITDA of $24.2 million
• Full year net loss of $34.1 million
• Full year adjusted EBITDA of $17.0 million
• Net loss and adjusted EBITDA include an $8.1 million charge for the retirement of the Terrapin Island hopper dredge in Q4
• Dredging backlog of $377.1 million on December 31, 2022

Great Lakes Dredge & Dock Corporation today reported financial results for the quarter and year that ended December 31, 2022.

Full Year 2022 Results

• Revenue was $648.8 million for the full year 2022.
• Total operating loss was $27.7 million for the full year 2022.
• Net loss was $34.1 million for the full year 2022.
• Adjusted EBITDA was $17.0 million for the full year 2022.

Management Commentary

Lasse Petterson, President, and Chief Executive Officer commented, “The fourth quarter continued to be impacted by a significantly delayed bid market combined with high inflation, significant weather delays on projects in the Northeast, fewer high margin capital projects, dredging project production issues, higher than anticipated drydock costs, and the retirement of the Terrapin Island.

We are adjusting to the current situation by taking swift and proactive action on cost reductions and fleet adjustments. We have retired the 42-year-old hopper dredge, the Terrapin Island, and we have cold stacked two major dredges as we wait for the bid market to gain momentum in 2023. Correspondingly, we are adjusting our general and administrative, and overhead cost structures to reflect the changed market conditions and dredging fleet.

Great Lakes ended the year with $377.1 million of dredging backlog, which does not include approximately $50.0 million dollars of performance obligations related to offshore wind contracts. In addition, we ended the quarter with $584.7 million in open dredging options pending award. The Company’s awarded work represents 33.1% of the fourth-quarter bid market.

Our fleet renewal program remains on budget with our mid-size hopper dredge, the Galveston Island, expected to be operational mid-year 2023, and her sister ship, which will be named the Amelia Island, is expected to be delivered in 2025. The two multicats, the Cape Hatteras and the Cape Canaveral will be operational in 2023, and we have already taken delivery of three new scows.

We are executing our strategy to enter the fast-growing U.S. offshore wind market. Construction of our U.S.-flagged Jones Act-compliant inclined fallpipe vessel for subsea rock installation is on budget and expected to be delivered and operational in the first half of 2025. In 2022, Great Lakes was awarded rock installation contracts for the Empire Wind I and II projects by Equinor and BP, with installation windows in 2025 and 2026. We are currently bidding on several other offshore wind farm projects with rock installations planned for 2025 and beyond.

To support our new build program, we successfully extended our revolving credit facility until July 2027 and increased its capacity to $300 million to complement our Unsecured Notes of $325 million which do not mature until 2029. We believe our balance sheet is well-equipped to complete our new build and fleet renewal strategy.

As we begin 2023, we expect to see the dredging bid market pick up in the first half of the year. The port deepening and widening projects that were delayed in 2022 are expected to be bid in the first and second quarters of 2023, with dredging anticipated to start in the second half of the year. We are also optimistic that one or two Liquified Natural Gas ("LNG") projects could achieve a final investment decision in 2023 with dredging potentially starting in the second half of the year and continuing into 2024. We expect that the improved market conditions, combined with the fleet adjustment and cost reduction initiatives we have in place, will provide improved results in 2023 and beyond.”

Operational Update

Fourth quarter 2022

• Revenue was $146.7 million, a decrease of $63.3 million from the fourth quarter of 2021. The lower revenue in the fourth quarter of 2022 was due primarily to lower capital project dredging driven by substantially less U.S. Army Corps of Engineers (the “Corps”) capital projects bid in 2022, and lower coastal protection dredging revenue, offset partially by higher maintenance project revenue.
• Gross loss was $16.2 million, a decrease of $69.2 million compared to the gross profit from the fourth quarter of 2021. The gross margin percentage declined to (11.0)% in the fourth quarter of 2022 from 25.2% in the fourth quarter of 2021. As mentioned in an earlier press release, the gross margin is impacted by the earlier-than-expected retirement of the Terrapin Island hopper dredge, significant weather delays on several projects in the Northeast, fewer high-margin capital projects, and some project production issues. Additionally, unexpected drydocking scope increases resulted in additional costs and delays for the hopper dredges the Ellis Island and Padre Island.
• Operating loss was $36.7 million, which is a $73.2 million decrease compared with the operating income from the prior year's quarter. The decrease is a result of $69.2 million lower gross margin and a one-time non-cash $8.1 million loss from the write-down for the retirement of Terrapin Island, offset slightly by lower general and administrative expenses compared to the prior year's fourth quarter.
• Net loss for the quarter was $31.2 million, which is a $55.9 million decrease compared to net income of $24.7 million in the prior year's quarter.
  
  

Full-year 2022

• Revenue was $648.8 million, a decrease of $77.3 million from 2021. The lower revenue in 2022 was due primarily to lower capital project dredging and maintenance dredging revenue, offset partially by higher coastal protection project revenue.
• Gross profit for the full year 2022 was $31.2 million, a decrease of $114.1 million from 2021. The gross profit margin percentage decreased to 4.8% for the full year 2022 as compared to 20.0% for the full year 2021. The 2022 result was greatly hindered by high inflation, supply chain delays, fewer high-margin capital projects, more than the usual number of weather delays, and substantially differing site conditions on projects. The slow bid market in 2022 left us with some idle space on our utilization during the year and we proactively used the downtime to perform preventive maintenance on our dredges. During 2022, we also had regulatory drydocking on five dredges, including Liberty Island and Ellis Island. In addition, we performed emission upgrades to the dredge Carolina.
• Operating loss for the full year was $27.7 million, a decrease of $111.1 million compared to the operating income from 2021. The decrease was directly attributed to the decrease in gross margin, offset slightly by the lower general and administrative expenses compared to 2021. Also included in the operating loss was the $8.1 million loss on the retirement of Terrapin Island.
• Net loss for the full year was $34.1 million, an $83.5 million decrease compared to the $49.4 million of net income in 2021. This decrease is a result of a lower operating income, offset slightly by a decrease in net interest expense and income taxes.
  

Balance Sheet, Dredging Backlog & Capital Expenditures

• On December 31, 2022, the Company had $6.5 million in cash and cash equivalents, and total debt of $321.5 million, and availability under its revolving credit facility of $245.7 million with no cash draws outstanding at the end of the year. Currently, the Company has drawn $65.0 million on its credit facility to support the newbuild payments.
• On December 31, 2022, the Company had $377.1 million in dredging backlog as compared to $551.6 million on December 31, 2021. Low bids and options pending award totaled $584.7 million as of December 31, 2022.

Total capital expenditures for 2022 were $144.7 million compared to $99.9 million in 2021. The 2022 capital expenditures included $42.9 million for Galveston Island, $27.2 million for the construction of new scows and new multicats, $16.8 million for the design and build of the subsea rock installation vessel, and $15.4 million for our second new hopper dredge the Amelia Island.

Market Update

We continue to see strong support from the Biden Administration and Congress for the dredging industry. In December 2022, the Omnibus Appropriations Bill for the fiscal year 2023 was passed which included another record budget of $8.66 billion for the U.S. Army Corps of Engineers civil works program of which $2.32 billion is provided for the Harbor Maintenance Trust Fund to maintain and modernize our nation’s waterways. We expect these budgeted appropriations and the 2022 Corps budget to support the funding of several delayed capital port improvement projects including Sabine, Freeport, Mobile, San Juan, Houston, Corpus Christi, and additional phases of Norfolk. In addition, the Disaster Relief Supplemental Appropriations Act for the fiscal year 2023 was approved which included $1.48 billion for the Corps to make necessary repairs to infrastructure impacted by hurricanes and other natural disasters and to initiate beach renourishment projects that will increase coastal resiliency. This increased budget and additional funding support our expectation for a stronger bid market in 2023.

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. 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. In addition, this legislation includes policy changes that will allow future ports, waterways, and coastal projects to be more readily approved and funded.

Included in our low bids pending are two LNG 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 with the increase in LNG prices, some of these LNG projects are currently gaining momentum and are targeting final investment decisions in 2023.

In 2021, the Biden 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. Equinor and BP have already awarded Great Lakes the rock installation contracts for the Empire Wind I and II projects, with installation windows in 2025 and 2026, which is expected to power more than 1 million homes in the State of New York. Great Lakes continues to tender bids on multiple offshore wind projects for our subsea rock installation vessel and additional contract awards are anticipated in 2023.

The Company will be holding a conference call at 9:00 a.m. C.D.T. today, February 15, 2023, where we will further discuss these results. Information on this conference call can be found below.

Use of Non-GAAP measures

Adjusted EBITDA, as provided herein, represents net income (loss) from continued operations, adjusted for net interest expense, income taxes, depreciation and amortization expense, debt extinguishment, accelerated maintenance expense for new international deployments, goodwill or asset impairments and gains on bargain purchase acquisitions. Adjusted EBITDA is not a measure derived in accordance with GAAP. The Company presents Adjusted EBITDA as an additional measure by which to evaluate the Company's operating trends. The Company believes that Adjusted EBITDA is a measure frequently used to evaluate the performance of companies with substantial leverage and that the Company's primary stakeholders (i.e., its stockholders, bondholders, and banks) use Adjusted EBITDA to evaluate the Company's period-to-period performance. Additionally, management believes that Adjusted EBITDA provides a transparent measure of the Company’s recurring operating performance and allows management and investors to readily view operating trends, perform analytical comparisons and identify strategies to improve operating performance. For this reason, the Company uses a measure based upon Adjusted EBITDA to assess performance for purposes of determining compensation under the Company's incentive plan. Adjusted EBITDA should not be considered an alternative to, or more meaningful than, amounts determined in accordance with GAAP including (a) operating income as an indicator of operating performance; or (b) cash flows from operations as a measure of liquidity. As such, the Company's use of Adjusted EBITDA, instead of a GAAP measure, has limitations as an analytical tool, including the inability to determine profitability or liquidity due to the exclusion of accelerated maintenance expense for new international deployments, goodwill or asset impairments, gains on bargain purchase acquisitions, interest and income tax expense and the associated significant cash requirements and the exclusion of depreciation and amortization, which represent significant and unavoidable operating costs given the level of indebtedness and capital expenditures needed to maintain the Company's business. For these reasons, the Company uses operating income (loss) to measure the Company's operating performance and uses Adjusted EBITDA only as a supplement. Adjusted EBITDA is reconciled to net income (loss) attributable to common stockholders of Great Lakes Dredge & Dock Corporation in the table of financial results. For further explanation, please refer to the Company's SEC filings.