Great Lakes Dredge & Dock (GLDD) - 2024 Q3 - Quarterly Report

PART I — Financial Information (Unaudited) This section presents the unaudited condensed consolidated financial statements for Great Lakes Dredge & Dock Corporation, including balance sheets, statements of operations, comprehensive income (loss), equity, and cash flows, along with detailed notes Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Great Lakes Dredge & Dock Corporation, including balance sheets, statements of operations, comprehensive income (loss), equity, and cash flows, along with detailed notes explaining the basis of presentation, earnings per share, property and equipment, accrued expenses, long-term debt, fair value measurements, share-based compensation, revenue disaggregation, and commitments and contingencies Condensed Consolidated Balance Sheets This section provides a snapshot of the company's financial position, detailing assets, liabilities, and equity at specific points in time | ASSETS (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :-------------------- | :----------- | :----------- | | Total current assets | $214,732 | $226,328 | | Property and equipment—Net | $681,552 | $614,608 | | Total Assets | $1,145,339 | $1,110,840 | | LIABILITIES AND EQUITY | | | | Total current liabilities | $177,722 | $179,443 | | Long-term debt | $412,531 | $412,070 | | Total liabilities | $719,930 | $725,292 | | Total equity | $425,409 | $385,548 | | Total Liabilities and Equity | $1,145,339 | $1,110,840 | - Total assets increased by $34.5 million (3.1%) from December 31, 2023, to September 30, 2024, primarily driven by an increase in net property and equipment[4] - Total equity increased by $39.86 million (10.3%) over the nine-month period, indicating improved financial health[4] Condensed Consolidated Statements of Operations This section details the company's financial performance over specific periods, showing revenues, expenses, and net income or loss | (in thousands, except per share) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Contract revenues | $191,173 | $117,185 | $559,919 | $407,896 | | Gross profit | $36,233 | $9,030 | $111,647 | $39,064 | | Operating income (loss) | $16,694 | $(5,123) | $62,758 | $(2,307) | | Net income (loss) | $8,852 | $(6,154) | $37,549 | $(7,652) | | Basic earnings (loss) per share | $0.13 | $(0.09) | $0.56 | $(0.12) | | Diluted earnings (loss) per share | $0.13 | $(0.09) | $0.55 | $(0.12) | - Contract revenues significantly increased by 63.1% for the three months and 37.3% for the nine months ended September 30, 2024, compared to the prior year periods[5] - The company returned to profitability, reporting net income of $8.85 million for Q3 2024 (vs. a loss of $6.15 million in Q3 2023) and $37.55 million for the nine months ended September 30, 2024 (vs. a loss of $7.65 million in the prior year period)[5] Condensed Consolidated Statements of Comprehensive Income (Loss) This section presents the total change in equity from non-owner sources, including net income and other comprehensive income or loss items | (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) | $8,852 | $(6,154) | $37,549 | $(7,652) | | Net change in cash flow derivative hedges—net of tax | $(2,661) | $2,155 | $(1,323) | $1,724 | | Comprehensive income (loss) | $6,191 | $(3,999) | $36,226 | $(5,928) | - Comprehensive income for the three months ended September 30, 2024, was $6.19 million, a significant improvement from a loss of $4.00 million in the prior year, primarily due to increased net income[7] - For the nine months ended September 30, 2024, comprehensive income was $36.23 million, reversing a loss of $5.93 million in the prior year period[7] Condensed Consolidated Statements of Equity This section outlines changes in the company's equity over time, reflecting contributions, distributions, and net income or loss | (in thousands) | Jan 1, 2024 Balance | Sep 30, 2024 Balance | | :------------- | :------------------ | :------------------- | | Common Stock | $6 | $7 | | Additional Paid-In Capital | $317,337 | $320,971 | | Retained Earnings | $70,220 | $107,769 | | Accumulated Other Comprehensive (Loss) Income | $(2,015) | $(3,338) | | Total Equity | $385,548 | $425,409 | - Total equity increased by $39.86 million from January 1, 2024, to September 30, 2024, primarily driven by net income of $37.55 million and share-based compensation[10] - Retained earnings increased by $37.55 million, reflecting the company's profitability during the nine-month period[10] Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities, providing insight into liquidity | (in thousands) | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $83,581 | $49,577 | | Net cash used in investing activities | $(93,203) | $(96,978) | | Net cash (used in) provided by financing activities | $(2,102) | $54,948 | | Net (decrease) increase in cash, cash equivalents and restricted cash | $(11,724) | $7,547 | | Cash, cash equivalents and restricted cash at end of period | $12,037 | $14,093 | - Cash provided by operating activities increased by $34.00 million (68.6%) for the nine months ended September 30, 2024, compared to the prior year, primarily due to higher net income[12][77] - Cash used in investing activities decreased slightly by $3.78 million, with significant investments in new build programs (Galveston Island, Amelia Island, Acadia) totaling $90.2 million[12][79] - Financing activities shifted from providing $54.95 million in cash in 2023 to using $2.10 million in 2024, mainly due to net borrowings under the revolving debt facility and Second Lien Credit Agreement of $10.0 million in 2024 compared to $55.0 million in 2023, and $10.9 million in deferred financing fees[12][79] Notes to Condensed Consolidated Financial Statements This section provides detailed explanations and additional information supporting the condensed consolidated financial statements 1. Basis of presentation This section outlines the accounting principles and methods used in preparing the financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with SEC rules and GAAP, with certain information condensed or omitted[13] - The Company operates in one reportable segment (dredging) and performed its annual goodwill impairment test as of July 1, 2024, determining no impairment[15] - New accounting pronouncements, ASU 2023-09 (Income Taxes) and ASU 2023-07 (Segment Reporting), are effective for annual periods beginning after December 15, 2024, and will impact disclosures[17][18][20] 2. Earnings (loss) per share This section details the calculation of basic and diluted earnings per share, reflecting profitability on a per-share basis | (in thousands, except per share) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) | $8,852 | $(6,154) | $37,549 | $(7,652) | | Weighted-average common shares outstanding — basic | 67,217 | 66,532 | 67,021 | 66,419 | | Earnings (loss) per share — basic | $0.13 | $(0.09) | $0.56 | $(0.12) | | Earnings (loss) per share — diluted | $0.13 | $(0.09) | $0.55 | $(0.12) | - Diluted EPS improved significantly to $0.13 for Q3 2024 from a loss of $0.09 in Q3 2023, and to $0.55 for the nine months ended September 30, 2024, from a loss of $0.12 in the prior year period[23] - The number of dilutive securities (stock options and RSUs) included in the diluted weighted average shares increased in 2024 due to the company's return to profitability[23] 3. Property and equipment This section provides details on the company's tangible long-term assets, including operating equipment and construction in progress | (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :------------- | :----------- | :----------- | | Operating equipment | $920,618 | $803,954 | | Construction in progress | $235,942 | $264,674 | | Total property and equipment | $1,187,866 | $1,099,380 | | Accumulated depreciation | $(506,314) | $(484,772) | | Property and equipment—net | $681,552 | $614,608 | - Net property and equipment increased by $66.94 million (10.9%) from December 31, 2023, to September 30, 2024, primarily due to an increase in operating equipment[24] - Construction in progress decreased by $28.73 million, indicating progress on capital projects, while operating equipment increased by $116.66 million[24] 4. Accrued expenses This section details liabilities for expenses incurred but not yet paid, such as payroll, insurance, and interest | (in thousands) | Sep 30, 2024 | Dec 31, 2023 | | :------------- | :----------- | :----------- | | Payroll and employee benefits | $15,268 | $11,986 | | Insurance | $14,397 | $12,521 | | Interest | $5,962 | $2,388 | | Fuel hedge contracts | $3,467 | $2,918 | | Total accrued expenses | $44,062 | $37,361 | - Total accrued expenses increased by $6.70 million (17.9%) from December 31, 2023, to September 30, 2024[25] - Significant increases were observed in accrued payroll and employee benefits ($3.28 million) and accrued interest ($3.57 million)[25] 5. Long-term debt This section provides information on the company's long-term borrowing arrangements, including new credit agreements and interest rates - On April 24, 2024, the Company entered into a $150.0 million Second Lien Credit Agreement, with $100.0 million funded initially and an option for an additional $50.0 million[26][27] - Net proceeds of approximately $88.7 million from the Second Lien Credit Agreement were used to repay ABL Credit Agreement amounts, cover fees, and fund general corporate purposes, including new build payments[27][30] - The Second Lien Credit Agreement carries a weighted average interest rate of 13.02% for Q3 2024 and matures on the earlier of April 24, 2029, or 91 days prior to the 2029 Senior Notes maturity[31][34] - The ABL Credit Agreement was amended on April 24, 2024, modifying pricing, adding a minimum liquidity covenant, and providing a green loan option with lower interest rates for renewable energy projects[35][36][39] - As of September 30, 2024, the Company had zero borrowings on the ABL revolver (down from $90.0 million at Dec 31, 2023) and $256.3 million of availability under the ABL Amendment (up from $122.3 million)[39] - The weighted average interest rate on outstanding borrowings (after swaps) increased to 6.81% at September 30, 2024, from 5.57% at December 31, 2023[40] 6. Fair value measurements This section describes how the company measures the fair value of its financial instruments, particularly derivatives, using various input levels | Derivatives (in thousands) | Sep 30, 2024 Assets | Sep 30, 2024 Liabilities | Dec 31, 2023 Assets | Dec 31, 2023 Liabilities | | :------------------------- | :------------------ | :----------------------- | :------------------ | :----------------------- | | Fuel hedge contracts | $0 | $3,467 | $0 | $2,918 | | Foreign currency exchange hedge contracts | $2 | $21 | $358 | $0 | | Interest rate swaps | $0 | $536 | $0 | $0 | | Total derivatives | $2 | $4,024 | $358 | $2,918 | - The Company uses Level 2 inputs for fair value measurements of derivative instruments, including fuel hedge contracts, foreign currency exchange hedge contracts, and interest rate swaps[42][44][45][46] - Fuel hedge contract liabilities increased to $3.5 million at September 30, 2024, from $2.9 million at December 31, 2023, hedging 9.1 million gallons through February 2026[44] - Interest rate swaps with a notional value of $75 million became effective August 5, 2024, converting variable-rate debt to a weighted average fixed rate of 11.623%, resulting in a $536 thousand liability[46] 7. Share-based compensation This section details the costs associated with equity-based awards granted to employees and directors - The Incentive Plan, approved May 5, 2021, permits granting stock options, stock appreciation rights, restricted stock, and restricted stock units for up to 1.5 million shares, plus remaining shares from the Prior Plan[51] | (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Compensation cost charged to expense | $3,500 | $1,800 | $6,100 | $4,200 | - Compensation cost related to share-based arrangements increased by $1.7 million (94.4%) for the three months and $1.9 million (45.2%) for the nine months ended September 30, 2024, compared to the prior year periods[51] 8. Revenue This section disaggregates the company's revenue by type of work and customer, and provides information on backlog - Total dredging backlog at September 30, 2024, was $1.21 billion, with an additional $465.0 million in domestic low bids pending award and $44.9 million in offshore wind performance obligations[51] Revenues by Type of Work (in thousands) | Revenues by Type of Work (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Capital—U.S. | $108,682 | $54,602 | $249,329 | $125,234 | | Coastal protection | $43,913 | $23,567 | $178,034 | $131,362 | | Maintenance | $37,867 | $33,816 | $130,742 | $141,553 | | Rivers & lakes | $711 | $5,200 | $1,814 | $9,747 | | Total revenues | $191,173 | $117,185 | $559,919 | $407,896 | Revenues by Customer Type (in thousands) | Revenues by Customer Type (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Federal government | $85,876 | $78,681 | $339,352 | $328,211 | | State and local government | $39,330 | $33,316 | $108,493 | $74,497 | | Private | $65,967 | $5,188 | $112,074 | $5,188 | | Total revenues | $191,173 | $117,185 | $559,919 | $407,896 | - U.S. Capital dredging revenue increased by 99% for both the three and nine months ended September 30, 2024, driven by projects in Texas and the new Galveston Island hopper dredge[52][72] - Private sector revenue saw a substantial increase, growing from $5.19 million to $65.97 million (QoQ) and $5.19 million to $112.07 million (YoY), reflecting diversification[53] 9. Commitments and contingencies This section outlines the company's contractual obligations, potential liabilities from legal matters, and lease agreements - The Company had outstanding performance bonds with a notional amount of approximately $1.32 billion at September 30, 2024, covering $875.8 million in dredging backlog revenue[56] - The Company is not currently a party to any material legal proceedings or environmental claims, and any potential liabilities are accrued when probable and estimable[58] - Lease obligations for equipment and facilities include renewal/purchase options and default provisions linked to the ABL Amendment's debt maturity acceleration[59] Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the Company's financial performance, condition, and future outlook, covering operational highlights, detailed revenue and profit analysis, bidding activity and backlog, liquidity and capital resources, and critical accounting policies General This section provides an overview of the company's business, market position, and strategic initiatives, including expansion into offshore wind energy - Great Lakes is the largest provider of dredging services in the U.S. and is expanding into the offshore wind energy industry[63] - The Company's dredging revenues from federal government agencies decreased to approximately 61% in the first nine months of 2024 (from 74% average in 2023), due to increased revenues from state, local, and private customers[63] - Dredging began on two significant LNG projects (Port Arthur LNG Phase 1 and Brownsville Ship Channel) in Q3 2024, with the latter being the largest project in the Company's history[64] - The Company's first U.S. flagged Jones Act compliant, inclined fall-pipe vessel, the Acadia, is expected to be delivered and operational in H2 2025, supporting the growing U.S. offshore wind market[64] - The U.S. offshore wind development pipeline expanded by 53% over the past year to approximately 80.5 GW, with the Company securing rock installation contracts for Empire Wind I and Sunrise Wind projects[65][66] Results of operations This section analyzes the company's financial performance, including gross profit, operating income, net income, and Adjusted EBITDA, and their drivers Metric (as % of Contract Revenues) | Metric (as % of Contract Revenues) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :--------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Gross profit | 19.0% | 7.7% | 19.9% | 9.6% | | Operating income (loss) | 8.7% | (4.4%) | 11.2% | (0.5%) | | Net income (loss) | 4.6% | (5.4%) | 6.7% | (1.9%) | | Adjusted EBITDA | 14.1% | 4.6% | 17.1% | 7.9% | Net Income (Loss) and Adjusted EBITDA (in thousands) | (in thousands) | Three Months Ended Sep 30, 2024 | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2024 | Nine Months Ended Sep 30, 2023 | | :------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) | $8,852 | $(6,154) | $37,549 | $(7,652) | | Adjusted EBITDA | $26,983 | $5,332 | $95,728 | $32,186 | - Consolidated gross profit increased by 302% (QoQ) and 185% (YoY), with margins improving to 19.0% and 19.9% respectively, driven by increased revenues, improved utilization, and a higher proportion of capital and coastal protection projects[73] - Operating income significantly improved to $16.7 million (QoQ) and $62.8 million (YoY) from losses in the prior year periods, despite higher general and administrative expenses[73] - Net interest expense increased due to higher borrowings and the Second Lien Credit Agreement, while the income tax provision increased due to higher pre-tax income[73] - Adjusted EBITDA increased by 406% (QoQ) and 197% (YoY), reflecting strong operational performance[73] Bidding activity and backlog This section reviews the company's bidding performance and the status of its project backlog, indicating future revenue potential | Backlog (in thousands) | Sep 30, 2024 | Dec 31, 2023 | Sep 30, 2023 | | :--------------------- | :----------- | :----------- | :----------- | | Capital—U.S. | $898,898 | $741,839 | $736,322 | | Coastal protection | $218,321 | $138,394 | $103,617 | | Maintenance | $89,050 | $152,104 | $182,470 | | Rivers & lakes | $6,870 | $6,765 | $11,320 | | Total backlog | $1,213,139 | $1,039,102 | $1,033,729 | - Total dredging backlog increased to $1.21 billion at September 30, 2024, up from $1.04 billion at December 31, 2023, with significant growth in U.S. Capital and Coastal Protection segments[75] - The backlog does not include $465.0 million of domestic low bids pending formal award and $44.9 million of offshore wind performance obligations[75] - The domestic dredging bid market for Q3 2024 was $1.31 billion, a $454.9 million increase YoY, with the Company winning 30% of the $2.49 billion year-to-date market[76] - The 2024 Energy and Water Appropriations Bill provided a record $8.7 billion to the Corps, supporting a strong bid market, and the 2025 budget is expected to be another record[75] Liquidity and capital resources This section discusses the company's ability to generate and manage cash, including operating cash flows, investing activities, and financing strategies - Cash provided by operating activities increased to $83.6 million for the nine months ended September 30, 2024, from $49.6 million in the prior year, driven by higher earnings[77] - Investing activities included $102.5 million in property and equipment purchases, with major investments in the Galveston Island ($5.1 million), Amelia Island ($29.1 million), and Acadia ($56.0 million) new build programs[79] - Financing activities resulted in a net use of $2.1 million, compared to a net provision of $54.9 million in the prior year, primarily due to the Second Lien Credit Agreement and associated fees[79] - The Company expects 2024 capital expenditures to be between $130 million and $150 million, funded by cash on hand, operations, revolver availability, and the Second Lien Credit Agreement[79] Commitments, contingencies and liquidity matters This section addresses the company's credit ratings, its ability to meet financial obligations, and factors influencing future funding - The Company's credit ratings were upgraded by S&P Global Ratings from CCC+ to B- with a stable outlook in Q3 2024, and Moody's changed its outlook from negative to stable, reaffirming B2[80] - Management believes current cash, anticipated operating cash flows, and revolving credit facility availability are sufficient to fund operations, capital expenditures, and debt service for the next twelve months[80] - Future funding beyond 12 months depends on operating performance, cash flows, economic conditions, and compliance with financial covenants[80] Critical accounting policies and estimates This section confirms that the company's key accounting policies and estimates remain consistent with previous reports - The Company's critical accounting policies and estimates remain materially unchanged since December 31, 2023, as detailed in its Annual Report on Form 10-K[81] Quantitative and Qualitative Disclosures About Market Risk The Company's market risk profile for its financial instruments has not materially changed as of September 30, 2024, compared to December 31, 2023 - No material changes in the market risk of the Company's financial instruments were reported as of September 30, 2024, compared to December 31, 2023[83] Controls and Procedures Management, including the CEO and CFO, evaluated the effectiveness of the Company's disclosure controls and procedures as of September 30, 2024, concluding they were effective, with no material changes in internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were evaluated and deemed effective as of September 30, 2024[84][85] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended September 30, 2024[86] PART II — Other Information This section provides additional information not covered in Part I, including legal proceedings, risk factors, equity sales, defaults, and other disclosures Item 1. Legal Proceedings. The Company refers to Note 9, Commitments and contingencies, for details on legal proceedings, which states that the Company is not currently a party to any material legal proceedings or environmental claims - The Company is not currently involved in any material legal proceedings or environmental claims[58][88] Item 1A. Risk Factors. There have been no material changes to the previously disclosed risk factors, except for the potential adverse impact of the unpredictable political environment and governmental fiscal/monetary policies, particularly concerning federal spending and support for the dredging and offshore wind industries - No material changes to risk factors were reported, except for the potential adverse effects of the political environment and governmental policies[89] - Uncertainty from the 2024 U.S. presidential election could impact business, economic growth, and financial stability, potentially reducing federal funding for dredging and offshore wind development[90] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. There were no unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds were reported[91] Item 3. Defaults Upon Senior Securities. There were no defaults upon senior securities to report - No defaults upon senior securities were reported[91] Item 4. Mine Safety Disclosures. This item is not applicable to the Company - Mine Safety Disclosures are not applicable to the Company[91] Item 5. Other Information. This section details the termination of a Rule 10b5-1 trading arrangement by the CEO, Lasse Petterson, on August 26, 2024, under which 250,000 shares were sold, with no other officers or directors adopting or terminating trading plans during the quarter - CEO Lasse Petterson terminated a Rule 10b5-1 trading arrangement on August 26, 2024, after selling 250,000 shares[93] - No other officers or directors adopted or terminated Rule 10b5-1 trading plans or non-Rule 10b5-1 trading arrangements during the quarter ended September 30, 2024[94] Exhibits This section lists the exhibits filed with the Form 10-Q, including certifications under the Sarbanes-Oxley Act and Interactive Data Files - The report includes certifications pursuant to Rules 13a-14 and 15d-14 (Sarbanes-Oxley Act Sections 302 and 906) and Interactive Data Files in Inline XBRL format[94] SIGNATURE This section formally concludes the report with the authorized signature of a company officer Signature The report was duly signed on behalf of Great Lakes Dredge & Dock Corporation by Scott Kornblau, Senior Vice President and Chief Financial Officer, on November 5, 2024 - The report was signed by Scott Kornblau, Senior Vice President and Chief Financial Officer, on November 5, 2024[96]