USA: GLDD Posts 2012 Third Quarter Results
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, today reported financial results for the quarter and nine months ended September 30, 2012.
Chief Executive Officer Jonathan Berger said, “Our third quarter results were hampered by certain factors we will outline. We entered the fourth quarter with scheduled revenues and margin to achieve our previously stated annual goals. Since then the epic Hurricane Sandy has had a significant impact on our expected results for the fourth quarter as we will have lost a total of 25 working days over seven projects because we were forced to move our dredges and support equipment to protected waters. Our operations team and crews did a wonderful job of executing our emergency plans safely and efficiently. We were able to ride out Sandy with minimal damage to our operating equipment and have gotten the projects back up and running quickly. We currently estimate approximately $6 million of revenue and $3 million of gross margin has been pushed into next year, and we will incur $3 million of additional one time expenditures in the fourth quarter due to the storm. We have therefore modified our projected full-year adjusted EBITDA range to $85 to $90 million.
“Hurricane Sandy has significantly affected coastal communities along the East Coast. As a Company, Great Lakes’ thoughts and prayers go out to each and every one of the individuals and families impacted. The dredging industry has performed beach nourishment and shore protection in these markets for decades. We have received positive reports that the Nags Head Beach in North Carolina weathered the storm well as a result of a large beach nourishment project we completed last year. We believe Hurricanes Sandy, Debby, and Isaac should result in increasing focus and demand for supplemental Federal funding critical for coastal restoration and beach projects in the Gulf of Mexico and on the East Coast.
“Our third quarter was challenging as our dredging segment utilization was impacted by Hurricane Isaac, which not only delayed four large dredging projects, but added costs and lowered expected margins on these projects. We were further impacted by projects that were bid later than expected, therefore the notice to proceed was received and work started late in third quarter and early into the fourth. Also, $30 million in options on the projects in the third quarter were not awarded until the fourth quarter. This shift in revenue to the fourth quarter resulted in lower fixed cost coverage and compressed gross margin in the third quarter. Although late bid award timing caused us a short term challenge in the third quarter, the pickup in the domestic bid market late in the quarter positions us well for a strong fourth quarter and beyond. Approximately $134 million in projects were awarded to the Company during the third quarter of 2012. These awards, along with the award of a $47 million project in the Middle East, helped drive total backlog up to $506 million.
“After several strong quarters, the demolition segment’s results were negatively impacted by cost overruns caused by weather and scope changes outside those allowed to be reimbursed under the contract. These impacts lowered the demolition gross margin by over 9% and were limited to the third quarter. On a positive note, the demolition segment was awarded a $3 million power plant project in North Carolina prior to quarter end and another $12 million industrial demolition project in Ohio in October. Management continues to focus on large complex projects with higher margins, such as bridge, industrial, municipal and utility demolition and remediation.”
Mr. William Steckel, Senior Vice President and Chief Financial Officer added, “Our management team is focused on delivering strong results in the upcoming fourth quarter. The third quarter reflects the negative impact of the shift of project execution into the fourth quarter. We have prepared our equipment and personnel for the project workload planned in the upcoming quarter. As planned, we have experienced a significant increase in our working capital, and corresponding decrease in our cash this year. Two projects with the most significant investment are Wheatstone and the Scofield coastal restoration. Collectively we have invested nearly $40 million in these important projects that we expect to be monetized in 2013. We have a strong focus going forward on working capital management and generating positive cash flow.”
President and Chief Operating Officer Bruce Biemeck said, “Projects awarded prior to September 30, 2012 provided sufficient backlog to meet our original fourth quarter plan and previously reported earnings guidance. However, with the impacts of Hurricane Sandy, we are lowering our full year Adjusted EBITDA guidance to $85 to $90 million. We will need to execute well on projects in backlog and experience average weather conditions going forward, but our management and operations teams have a proven track record of delivering results.
“We commend our team for the outstanding job in managing personnel and equipment during the hurricane. Our personnel are safe, after successfully protecting our equipment, and are back at work executing on projects. Our readiness plans are well thought out, have been properly rehearsed and have proven to be effective.
“We have made investments in our equipment, preparation for the Wheatstone LNG project and we have increased our pipe inventory, resulting in continued utilization of our working capital. With the high level of operating activity expected in the fourth quarter, as well as dredging beginning in Australia in 2013, we expect to begin monetizing our working capital buildup and to replenish the cash balance over the next several quarters.
“We continue to be excited about our near term market prospects. The timing of the Miami award has moved into the first quarter of 2013 and we believe we are well positioned for this project. In October, the U.S. Army Corps of Engineers released specific details on this project and began to solicit proposals. In addition, we currently expect three sizable beach projects, another New York deepening project and a Gulf Coast project to be let to bid before year-end. We also see several desirable bidding opportunities in the first half of 2013.
“Internationally, we expect to see significant impact to our results from the Australian Wheatstone LNG project in 2013 and 2014. In the third quarter, we added a land reclamation project in the Middle East for nearly $50 million. We continue to identify 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 potential opportunities in Brazil. We are focusing on our international sales and marketing effort as we see an abundance of international opportunities ahead, which we believe can yield better, more consistent results.
“The demolition management team 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 an important component 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 businesses collaborating with our TerraSea joint venture on new prospects adds to the list of opportunities.”
Mr. Berger concluded, “Our enthusiasm for the near and long term prospects for Great Lakes has not been deterred by the short term challenges of the third quarter. The recognition of the need for additional investment in U.S. ports and waterways is expected to support an increase of appropriations to future U.S. Army Corps of Engineers’ budgets for maintenance dredging. The public investment in port infrastructure is necessary as the ongoing expansion of the Panama Canal and initiatives to increase exports heightens the need for the U.S. to deepen its East and Gulf Coast ports to facilitate larger draft vessels from international trade. With regard to coastal restoration, discussion continues between the Justice Department and BP regarding the fines related to the Deepwater Horizon Oil Spill. Once settled, we expect a significant amount of the resultant penalties will be allocated to restoration that will involve dredging, and this could add well over $1 billion into the dredging market over the next five years.
“Although we are modifying our full year guidance as noted above, we are excited about a very strong fourth quarter and the prospects ahead. This includes projects in backlog which will drive our fourth quarter and 2013 results, as well as projects on the horizon providing for continued long term growth in both dredging and demolition. We continue to believe opportunities for further growth coupled with our segment managements’ disciplined approach to project execution will result in increased momentum in our financial results 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.”
Press Release, November 6, 2012