Great Lakes Dredge & Dock Corporation, the largest provider of dredging services in the United States and a major provider of commercial and industrial demolition and remediation services, reported financial results for the quarter ended March 31, 2012.
Chief Executive Officer Jonathan Berger said, “We were very excited with the number and quality of projects won in the first quarter. The projects add significantly to backlog, provide a longer term perspective of our operating results and expand our customer base. The win rate in the domestic bid market was an impressive 53%, and was complemented by adding $180 million for the Wheatstone LNG project in Australia. This resulted in a total backlog of $584 million, setting a new record high level. The demolition segment continues on the right track, performing well on projects in backlog and securing larger, more complex projects that should result in higher margins.
Mr. Berger added, “First quarter Adjusted EBITDA fell short of our budget by 16%, which was primarily attributable to offshore weather conditions, mainly wind that produced rough seas, during portions of January and February that delayed and impacted margins on certain projects. However, we remain on track for our full year expectation and therefore are well positioned to have a solid 2012.
Mr. Berger continued, “In January 2008, our dredge New York was hit by the Orange Sun tanker in the approach channel to Port Newark, New Jersey, sustaining heavy damage including a large rupture in her port side. During the first quarter of 2012, the Company received a favorable judgment on its loss of use claim against the Orange Sun and her owners, with a judgment to Great Lakes of $11.7 million in damages plus interest. Judgment was rendered in the aggregate amount of $13.2 million. While this judgment has been appealed, we believe the judgment will ultimately be upheld.”
Revenue & Gross Profit
Revenue was similar between quarters, although dredging revenue declined due to weather delays on projects as well as the non-recurring $15.7 million of Louisiana berm work included in the 2011 first quarter results. Demolition revenue increased $13.8 million, driven by continued growth in bridge demolition work.
Gross profit margin (gross profit divided by revenue) declined in the quarter due to weather impacts and subsequent lower dredge utilization that resulted in lower fixed cost coverage.
Demolition gross profit margin improved to 12.5% from a loss of 1.8% in 2011. Projects that previous demolition management had entered into, and for which loss reserves had been recorded, are now nearing completion.
In addition, operating income was negatively affected by increased general and administrative expenses primarily due to legal expenses related to litigation for the dredge New York and loss of use claim.
Net Income Attributable to Great Lakes
First quarter net income attributable to Great Lakes was affected by lower operating earnings, while the 2011 first quarter included debt restructuring expense of $5.1 million related to the issuance of the $250 million of 7.375% senior notes.
Cash and cash equivalents
Cash and cash equivalents declined due to working capital investments for certain 2012 projects and the investment to prepare people and equipment to mobilize to Australia for the Wheatstone project.
Bid Market & Backlog
The domestic dredging bid market for the quarter ended March 31, 2012 totaled $230 million, compared to $197 million in the prior year. The Company won 53% of the overall domestic bid market, above its prior three year average of 39%. For the first quarter of 2012 Great Lakes won:
76%, or $20 million, of the beach nourishment projects awarded;
100%, or $53 million, of the capital projects awarded;
22%, or $23 million, of the maintenance projects awarded; and
56%, or $24 million, of the rivers & lakes projects awarded.
The domestic dredging bid market grew year over year largely from capital dredging and rivers & lakes dredging projects. Despite continued budget pressures at the federal, state and municipal levels, addressing infrastructure and coastal protection needs continues to gain visibility, thereby growing in importance and political momentum. As previously noted, project timing, competitive factors and equipment utilization/deployment can result in significant variability in bid results in any given period.
Great Lakes’ bidding success in the first quarter, along with the addition of the Wheatstone LNG project in Australia, resulted in record dredging backlog and pending awards of $539 million at March 31, 2012, which compares favorably to $355 million at December 31, 2011. Rivers & lakes backlog and pending awards at March 31, 2012 were $43.4 million, a record level for this division. The Company’s contracted dredging backlog was $524 million at March 31, 2012 compared to $319 million at December 31, 2011.
Demolition segment backlog was $60 million and $51 million at March 31, 2012 and December 31, 2011, respectively.
Mr. Berger continued, “We are excited about the prospects in all our lines of business. The demolition segment continues solid financial improvement related to its project execution and the rivers & lakes division has won several new large projects giving it a healthy backlog to execute and add on to throughout the year. While the dredging segment experienced adverse weather in the quarter, we currently expect results for the remainder of the year to recover any shortfall allowing us to meet our 2012 plan.
“As we announced last week, there has been progress in the legislation for the Harbor Maintenance Trust Fund and the Restore Act. The timing is uncertain for the enactment into law of these legislative components of the various transportation bills working through Congress. However, the continued dialogue and focus on our ports is beneficial to the U.S. economy as well as our industry. The attention to this postponed need is clear to the many well informed officials in Congress who supported this legislation.”
President and Chief Financial Officer Bruce Biemeck said, “As we look at the market for the remainder of 2012, we still anticipate a deepening project in Miami to be released in the second half of the year. Florida officials and the Army Corps of Engineers are actively working to responsibly resolve environmental concerns related to the execution methods and impact of this project to ensure timely execution. This process has been dealt with responsibly, compassionately and expeditiously, which has resulted in a minimum of project postponement. In another important market, the Gulf Coast, we expect additional coastal restoration projects to be let for bidding in the second half of the year, for which we have made a working capital investment in pipe and feel we will be well positioned to execute.
“Internationally, we will see significant impact to our results from the Wheatstone project in 2013 and 2014. For 2012, we have identified other international dredging projects that may be a good fit for our vessels, particularly in the Middle East, and we continue to follow the many opportunities in Brazil. We have recently made strategic moves to bolster our international sales and marketing effort as we see an abundance of international opportunities ahead, which we believe can yield better results from a more aggressive approach.
“The demolition business had a strong start to the year, showing that good project execution can begin to improve those projects that had a history of recorded loss reserves under prior management. The new management team in this business is working diligently to add opportunities leading to growth by elevating the range of professional services offered through a more capable support team. The successful partnership of our demolition and dredging businesses is key to our Company’s growth as evidenced by the recent focus on bridge demolition and salvage work required under some projects, which was formerly sub-contracted outside the Company. Additionally, our dredging and demolition business collaborating with our TerraSea joint venture on new prospects adds to the list of opportunities.”
Mr. Biemeck concluded, “Over the past few years we have deferred providing guidance until the second quarter earnings announcement. This year, we feel due to the level and strength of our backlog that we can provide guidance now for the full year. We currently forecast Adjusted EBITDA from operations to be in range of $93 – $100 million for the full year 2012. Exclusive of the gains on the sale of assets in 2011, this would result in double digit growth over 2011. This requires strong results for the remainder of the year, but our 2012 plan and current backlog, as well as the focus and dedication of our leaders throughout the organization, support our optimism for achieving these results. We believe opportunities for further growth in our financial results will appear starting in 2013. As always, we thank the Great Lakes dredging and demolition teams for their continued efforts in providing world class service and delivering strong results for our shareholders.”
Dredging Today Staff, May 2, 2012