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Edited Transcript of GLDD earnings conference call or presentation 5-Nov-19 3:00pm GMT

Q3 2019 Great Lakes Dredge & Dock Corp Earnings Call

OAK BROOK Nov 13, 2019 (Thomson StreetEvents) -- Edited Transcript of Great Lakes Dredge & Dock Corp earnings conference call or presentation Tuesday, November 5, 2019 at 3:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Lasse J. Petterson

Great Lakes Dredge & Dock Corporation - CEO & Director

* Mark W. Marinko

Great Lakes Dredge & Dock Corporation - Senior VP & CFO

* Tina A. Baginskis

Great Lakes Dredge & Dock Corporation - Director of IR

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Conference Call Participants

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* Charles Kennedy Fratt

NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst

* DeForest R. Hinman

Walthausen & Co., LLC - Research Analyst

* Peter Kirk Lukas

CJS Securities, Inc. - Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2019 Great Lakes Dredge & Dock Corp Earnings Conference Call. (Operator Instructions) Please be advised that today's conference is being recorded. (Operator Instructions)

I would now like to hand the conference over to your speaker today, Tina Baginskis. Thank you. Please go ahead.

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Tina A. Baginskis, Great Lakes Dredge & Dock Corporation - Director of IR [2]

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Good morning, and welcome to our quarterly conference call. Joining me on this call this morning is our Chief Executive Officer, Lasse Petterson; and our Chief Financial Officer, Mark Marinko. Lasse will provide an update on the events of the quarter. Then Mark will continue with an update on our financial results for the quarter. Lasse will conclude with an update on the outlook for the business and market for the remainder of 2019. Following their comments, there will be an opportunity for questions.

During this call, we will make certain forward-looking statements to help you understand our business. These statements involve a number of risks, uncertainties and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in our earnings release and in filings with the SEC, including our 2018 Form 10-K and subsequent filings.

During this call, we will also refer to certain non-GAAP financial measures, including adjusted EBITDA from continuing operations, which are explained in the net income to adjusted EBITDA from continuing operations reconciliation attached to our earnings release and posted on our Investor Relations website, along with certain other operating data.

With that, I'll turn the call over to Lasse.

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [3]

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Thank you, and good morning. As stated in our earnings release this morning, in the third quarter, the company generated $8.8 million of net income from continuing operation and adjusted EBITDA from continuing operations of $27.1 million, bringing full year-to-date net income and adjusted EBITDA from continuing operation to $40.9 million and $103 million, respectively.

The third quarter results were in line with our expectations. As we discussed on our last call, third quarter results would be and were below those achieved during the first and second quarters this year, primarily due to several of our vessels entering dry dock. We were also affected by severe weather events, such as Hurricanes Dorian and Barry, impacting both the Gulf Coast and East Coast. And we had some unplanned maintenance on our mechanical fleet.

Apart from the weather delays, we experienced strong project performance, particularly on the port deepening projects in Jacksonville and Corpus Christi, where our mechanical and cutterhead dredges performed above expectations. We saw solid performance on coastal protection projects in Nags Head, Virginia Beach and Cape May attributable to enhanced focus on projects planning and execution.

Our rivers and lakes fleet completed the flood protection work in Houston, excavating sand from the San Jacinto River with good productivity. This fleet also completed a project repair on a levy breached during heavy flooding in the Missouri River. The Ellis Island has continued to perform well, both size and power twice that of any other Great Lakes hopper dredge, expands the typical capabilities we experienced previously in the U.S. with hopper dredges. Arrival of the Ellis Island has increased the company's hopper dredging capacity by 70%, proving to be a valuable fleet addition to meet the growing demands in the market.

The international market remains low. We are currently working on a large land reclamation project in Bahrain, which we target to complete mid-2020. A large cutter dredge, the Ohio, is in dry dock in Bahrain, for major upgrades to her engines and pumps. Upon completion of these upgrades, we will determine if she should continue in the international markets or be relocated back to the U.S. as we did last year with the cutter dredge, Carolina. Safe execution and strong performance go hand-in-hand. And our safety performance improved with a 34% decrease of recordable incidents compared to 2018.

I will comment on the future bid market later on this call. And with those updates, I'll turn the call over to Mark to discuss the results of the quarter.

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [4]

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Okay. Thank you, Lasse. I will start with the quarterly results and then discuss some specifics related to our business. Please remember that as of December 30, 2018, all results from our E&I segment, which was sold in the second quarter, have been placed into discontinued operations and, therefore, not included in the results that I will discuss.

For the third quarter of 2019, revenues were $169.8 million, net income from continuing operations was $8.8 million and adjusted EBITDA from continuing operations was $27.1 million. Revenues for the third quarter of $169.8 million brought our year-to-date revenues to $547.2 million, which is $99.6 million over year-to-date revenue from September 2018. Strong year-to-date revenues are a result of strong project performance throughout the domestic fleet.

Gross profit from continuing operations was $31.8 million compared to $39.6 million in the third quarter of 2018. Gross profit margin was 18.8% compared to 22.2% in the prior year quarter. As stated previously by Lasse, the decrease is a direct result of dry docks in the third quarter.

Total company operating income was $18.4 million, which is a decrease of $5.3 million over the prior year quarter. The decrease is a result of the lower gross margin, slightly offset by a reduction in general and administrative expenses compared to the prior year quarter.

Net income from continuing operations for the third quarter of 2019 was $8.8 million compared to net income from continuing operations of $11.9 million in the prior year quarter. Reduction in net income was related to the lower operating income, offset partially by a decrease in interest expense of $1.7 million in the third quarter of 2019 compared to the prior year quarter due to lower revolver usage and higher interest income.

Adjusted EBITDA from continuing operations for the third quarter of 2019 was $27.1 million, bringing total year-to-date EBITDA to $103 million, an increase of $30.9 million over the same period in the prior year.

Next, we turn to our balance sheet, where at September 30, 2019, we had $180.9 million in cash. Our net debt at September 30, 2019, was $141.8 million. Our net debt-to-EBITDA ratio is now down to 1.08x.

Our total capital expenditures for the quarter were $6.9 million. We now expect total capital expenditures to be $45 million for 2019, which is a $5 million increase from what we have discussed on previous calls. The additional $5 million will be invested in the existing fleet for performance upgrades as we expect the domestic market to be robust over the foreseeable future.

Contracted backlog at September 30, 2019, totaled $653.7 million compared to backlog at December 31, 2018, of $707 million and at September 30, 2018, of $689.2 million (sic) [$654.1 million]. High revenues and project performance year-to-date have contributed to the anticipated drop in backlog.

In addition, the backlog amount does not reflect a number of domestic bids pending formal award and additional options pending on projects of approximately $70 million. More work is expected to be bid in the fourth quarter but not at the same level that we saw in the third quarter.

With that, I will turn the call back over to Lasse for his remarks on the outlook moving forward.

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [5]

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Thank you, Mark. The third quarter saw a significant increase in bidding activity with over $1 billion of projects bid in the quarter. Great Lakes was awarded $270 million of those projects. In addition, an option on the Jacksonville project was awarded for $96.6 million, bringing the total amount added to backlog to $366.6 million.

The market for dredging services will continue to be strong and growing, and we expect our bid market for the year to approach $2 billion. Our main focus will remain on the large and technically challenging port deepening projects and shipping channel improvement projects driven by the larger vessels coming through the Panama Canal and new energy export facilities in the U.S.

These are projects where we can excel with our technical expertise, experience, safety performance and allow us to own a diverse fleet. The opportunities coming to the market in this category include additional phases of work in Corpus Christi, Charleston, Jacksonville, Port of Virginia and new deepening projects in Florida and in Texas. Natural river and coastal erosion and severe weather events generate a recurring work stream for our company, rebuilding beaches and restoring flood control infrastructure.

New research and forecast for the changing climate on earth indicate more frequent and severe weather events challenging our current river and coastal defenses. Hence we believe, we will see an increased demand for our services in years to come.

We are actively preparing for this demand increase, increasing the productivity in our existing fleet with upgrades and new technology and planning for the expansion of our fleet with new dredges. In this respect, we are currently finalizing the regulatory engineering for a new midsized hopper design. And we are in discussions with U.S. yards for construction pricing. Provided the new build cost meets our expectation, we could start the construction as early as Q1 next year with a delivery then anticipated towards the end of 2021 or '22.

Offshore wind power generation is coming to the U.S. with more than 15 gigawatts of power generation capacity planned for installation over the next 10 years. In the EU, the industry has developed over the last 20 years, which has provided the international dredging contractors with good opportunities to develop their fleet and their skills in this growing market.

Great Lakes plan to be active in this new industry in the U.S. providing dredging and related services during both the initial construction phase and during operations. We are actively engaging with developers and partners on project opportunities, carefully evaluating the developments as the timing of these projects are being finalized and the regulatory framework clarified.

In conclusion, the third quarter's results has met expectation and positively contributed to a strong performance year-to-date. With solid projects in backlog, strong outlook in the domestic market and a healthy balance sheet, we believe our year-end results will place us in a good financial position to make timely, prudent investments in our fleet, enhancing the current assets and preparing for future additions.

And with that, I'll turn the call over for questions.

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Tina A. Baginskis, Great Lakes Dredge & Dock Corporation - Director of IR [6]

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We're ready for questions now.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Jon Tanwanteng with CJS Securities.

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Peter Kirk Lukas, CJS Securities, Inc. - Analyst [2]

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It's Pete Lukas for Jon. Just looking at -- sorry, looking at your win rate, it was down a bit in the quarter. Just wondered what the driving factors were there? And now that your competitors appear to be locked up with larger projects, can you expect win rates and perhaps margins to increase in Q4?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [3]

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Yes. So yes. Yes, the -- you've seen in the past, we've had some pretty dramatic variability from quarter-to-quarter, year-to-year. And we do expect that -- you're right, our competitors who have, by the way, added new capacity to the market as well as us adding new capacity with the Ellis and 58, moving the Carolina back, the competition is strong because as you see competitors' vessels tied up, that gives opportunities for the other industries. So yes, we do expect that our win rate will increase in the future as it has in the past.

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Peter Kirk Lukas, CJS Securities, Inc. - Analyst [4]

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Great. And can you talk about your -- what the dry dock schedule looks like in early 2020 and how that will impact earnings ability?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [5]

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Yes. So this year, in terms of major vessels, we had 7 regulatory dry docks. For 2020, that goes down to 5 spread out during the year, with a little bit of flexibility in times when you do it in terms of our schedule. So it will be lower in 2020.

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Peter Kirk Lukas, CJS Securities, Inc. - Analyst [6]

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Okay. And jumping to the current Mideast project. When do you expect that to finish? And what's the pipeline in terms of opportunity? And do you see the Aramco IPO impacting spending over there and helping out a bit?

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [7]

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Yes. The -- we see that project being completed in 2020. And what we do see in the market is it is improving slightly over what it has been, but it comes back from a low dip after the Suez Canal completion. And with oil prices stabilizing, as you say, and also the -- some spending increasing in the Middle East, that market is improving going forward.

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Peter Kirk Lukas, CJS Securities, Inc. - Analyst [8]

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Great. And last 1 for me. SG&A continues to be lower than expected. How should we think about that trending going into Q4 and 2020?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [9]

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Yes. So in Q4 and into 2020, we look at G&A as generally about this 8% of revenue is a good way to look at it. That's -- it moves a little bit this year based on incentive pay, but it's a pretty fixed number, moves a little bit related to the revenues.

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Peter Kirk Lukas, CJS Securities, Inc. - Analyst [10]

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And actually, if I could throw in 1 last one. Just how do you think about in terms of capital allocation, looking at stock repurchases?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [11]

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So we have everything based on our cash as we built up now over this period of time, really all -- from a capital allocation, everything is on the table, every option. But I would say, as we go back to when we started talking about the cash 18 months ago was our first, I'll call, priority was to delever, which we've done in terms of getting the revolver down to 0. The second piece was refreshing the fleet and investing in our existing fleet. So we have done some investments this year. As Lasse just mentioned, we're looking at this hopper dredge new build to make a decision in 2020 on that. So after that, then we'll look at these other options for capital allocation, but they're all on the table. But no decision at the moment.

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Operator [12]

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And your next question comes from the line of Poe Fratt with NOBLE Capital Markets.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [13]

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I was wondering if you could quantify the amount of idle time. And it sounded like the dry docking was the entire cause of the -- like 340 basis point change in gross margin. Can you just add a little more flavor on that, if maybe quantify the number of days that the fleet was down?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [14]

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Yes. So when we talk about the 3 vessels that were in regulatory dry dock, that's roughly about 160 days in the quarter. So it does have a pretty good impact in terms of the potential of revenue generation for specifically in the third quarter.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [15]

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And then would you -- Mark, are all the dry docks done? Were they done by the end of the third quarter? And sort of how should we look at the fourth quarter from a top line and then potentially margin line standpoint?

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [16]

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Sure. So yes, there's 1 -- actually 1 planned domestic dry dock left in the fourth quarter for about 60 days. And when you talk about going into the fourth quarter -- and this will be in our Q when we release it -- the fourth quarter revenue, we expect to earn 29% of our 9/30 backlog. So that's approximately $190 million of revenue, and we expect a slight uptick on the gross margin from where we were in Q3.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [17]

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It's really helpful. And then when you look at CapEx and working capital, it looks like the third quarter working capital -- I know there's a bond. You pay your bond payments in the second and fourth. So there's a little bit of positive there. But it looks like even ex that, you had a really positive change in working capital, maybe to the tune of like $35 million over and above the bond interest?

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [18]

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Yes. So the -- so in terms of -- yes, we didn't have any -- we'll pay our interest on the bonds in November. So that will be a fourth quarter item. It would be about $13 million. And when you look at it on the working capital, the big positive movement we had was increase in billings in excess of contract revenues in the quarter. That will reverse over time. So it'll be a little bit more negative as we get into fourth quarter and into 2020, as those get worked off. So that's really the big movement related to working capital in the quarter.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [19]

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Great. And then it sounds like work CapEx might be well -- we might see a big jump in CapEx in the fourth quarter. Am I thinking in the -- if I'm thinking in the $24 million range, is that in line with what you're thinking? And then also, can you give us a little more color on where that money is going? You talked about upgrading the existing fleet, but can you be a little more specific on that $37 million?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [20]

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So, yes, we're going to have a -- so we -- I think we're year-to-date $37 million in CapEx. So be at $45 million for the year. So that's that $5 million increase. I just talked about the $45 million. The big increase there is -- I'd say it's kind of in a couple areas. As Lasse mentioned, the Ohio dredge that's out in the Middle East. We're doing some major upgrades to that in terms of production and power and performance. We also did some engine upgrades to the Illinois in the last quarter. So we really -- those are the pieces looking at the existing fleet in terms of improving performance for the -- as the market moves forward. Yes, I think -- did I answer both of your questions there? Yes, I think I did.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [21]

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Yes. I guess, year-to-date, you're at $37 million, did I hear you say, Mark, for CapEx?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [22]

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Right.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [23]

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Okay. I thought it was a little lower, but I might not be including that $10 million of the second payment on the clamshell.

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [24]

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Oh, that's correct. Yes, that would include my $10 million on that, correct.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [25]

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Okay. And then when you look at 2020 CapEx, and it sounds like it might be -- there might be a 2 scenario look at it. But can you sort of give me an idea where you're looking right now on 2020 CapEx?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [26]

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Sure.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [27]

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And then potentially, if you go forward on the medium-sized hopper dredge, how much that would cost? And then sort of what the 2020 and 2021, if you have any idea at this point in time, how that's going to land?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [28]

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Yes. So let me give you -- for next year, forget about -- aside the new hopper build, so we're looking at about $40 million of CapEx next year. When we talk about the new build on the hopper dredge as we do not have pricing yet for that. It's a mid-sized hopper dredge. So it would be substantially lower than the Ellis Island. We're just starting to talk to shipyards now about that. But the point on that from a cash perspective is, it's about an 18-month to 2-year build. So you would pay for that over that -- through that time frame. So it all wouldn't be in 1 shot.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [29]

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And I know that you're in the bidding process, but sort of framing it at $50 million, would that be a reasonable working estimate at this point in time? Or sort of -- can you give me an idea of sort of where to think about it?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [30]

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Yes. It's -- I just don't have a number yet to give you. There's a pretty big range. So at this point, I got -- I can't give you a number yet.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [31]

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And you're thinking 5,000 to 7,000 cubic meters -- or cubic yard of capacity sort of 40% to 50% of what the Ellis Island is?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [32]

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I think that's a good range, right, for a midsized hopper. Yes.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [33]

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Got you. And then, Lasse, you talked about the market looking into 2020 still being robust, and it looks like the fourth quarter is the bid market, if you get to $2 billion is going to be about $550 million or so according to what my run rate is. Can you talk about sort of the project mix and where you -- are there -- is there any implication that we see as far as -- it looks like you're going to see less capital projects going into 2020? And can you sort of give us a little more flavor on how you're looking at the 2020 bidding environment?

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [34]

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Yes. As you have seen bid market for us has increased from last year to this year. And I see the drivers in that market all going in the right direction also for the next year. The Harbor Maintenance Trust Fund is now being established. The revenues from that goes back into the Corp of Engineers, let's say, funds. We do see continued high allocations to the Corp of Engineers' budgets. So -- and that combined with the fact that all the ports along the East Coast and now also in the Gulf of Mexico are looking for deepening and widening, I do see a strong bid market also in 2020 and also going into 2021. To give a number, I don't want to give a number, but it should not be all that different from what we have seen this year. And the mix on these projects, we will focus in on the more complex and the larger projects, as we have done the last couple of years. So the mix for our focus will be, there's good opportunities to bid new deepening projects and port widening projects, combined with large beach restoration work for next year.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [35]

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Okay, great. And then, Mark, can I just go back to the fourth quarter and just -- you had -- I think you said -- you gave us a little flavor for that. But -- so roughly, the fourth quarter will be a rebound from the third quarter. The third quarter will be -- will have taken the highest hit as far as the downtime that you guys have been talking about since the early part of the year. Is that fair?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [36]

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Yes, that's fair. So I'd just say, yes, it'll have increased revenue in the fourth quarter, as I kind of just stated, and we'll have that in the Q. And then I expect a slight uptick in the gross margin percentage as we have fewer vessels in dry dock in the quarter. So yes, it should be a rebound from the third -- we expect a rebound from the third quarter.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [37]

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And then with the restructuring projects or program with the Ellis Island, you looked at 2019 as sort of a year where 20% gross margins were the sort of new normal. And obviously, there's going to be some quarter-to-quarter change. But can you put a flavor on 2020 as far as your sort of what you think a reasonable expectation for gross margin would be? Any reason to think that 20% is not a reasonable level starting point for 2020?

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [38]

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Yes, I do think that improvements over this year, is what I expect. Although we have come through a very dramatic improvement over the last 2 years. So the rate of change will not be the same going forward. But improvements in the gross margins, as I said last earnings call, is what I expect to see going forward. Maybe, Mark, you put some color to that.

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [39]

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Yes. Well, when you look at -- I think 1 thing to add to that is I think the question that was asked earlier to have 7 major vessels in dry dock, they're shooting at 5 next year, got strong market. Yes, I would expect, again, another slight uptick in the gross margin percentage as you get into 2020 versus 2019. So your 20% should be our baseline.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [40]

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Okay. And then just a nitpicky one. You had mentioned unplanned maintenance or unplanned downtime.

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [41]

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Yes.

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Charles Kennedy Fratt, NOBLE Capital Markets, Inc., Research Division - Senior Transportation and Logistics Analyst [42]

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Was it a material factor? What sort of -- can you put a little color on that? And what may have happened and sort of how you're trying to avert that going forward?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [43]

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Yes, it has an impact. We had -- I'd say in terms of unplanned, we had 2 vessels in the quarter that were unplanned and it's not a -- I'd say it's nowhere near like the dry dock time frame where you have vessels in dry dock for 60 or 90 days or 30 days or more. But it does have an impact on the quarter when it's unplanned. So we had 2 unplanned kind of maintenance where you're doing an engine repair, and that does have a slight impact in the quarter.

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Operator [44]

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(Operator Instructions) Your next question comes from the line of DeForest Hinman with Walthausen & Company.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [45]

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Pretty good results. Can you just give us some thoughts on capital allocation? 1 thing really stands out to me, looking at the balance sheet, having $181 million roughly of cash, $325 million of debt, a situation we haven't been in a number of years, very positive improvement in the debt-to-EBITDA level. Mathematically, almost $2.80 a share of cash. How should we think about the senior notes heading into 2020?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [46]

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Yes. So good -- thanks, DeForest. It's Mark. Yes. So we have that first call we can do on the senior notes in May of 2020. Again, it's at a 104% premium. As you will -- we are very zeroed in on that date looking at -- the market will drive that kind of decision, but we'll look at whether it makes sense to refinance those or even bring them down potentially in May of 2020 at that 104%. So the market situation at that time will drive the math we do at that point in time. So we are geared up to look at them in May of 2020.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [47]

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Okay, that's helpful. And then this is a very high level problem to have. If we look back in the 2017, 2018 time frame, what is the true cash balance needs, so I can do some math in my head in terms of how much excess cash do we have? Is it $15 million? Is it $10 million? Is it $20 million of cash? How much money do we need to run this business on a day-to-day basis?

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [48]

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Yes. So, I'm going to try to answer your question, I hope I answer. But I think about the requirements of what we -- one, are required to pay. We have our senior notes. At this point in time, you have $26 million of interest you have to pay, $13 million every 6 months. So I look at that, number one. Number two, I look at the CapEx to keep the fleet going. And to give you -- as I just stated, we talk about 2020 being about $40 million. That will include some growth CapEx. The maintenance CapEx, let's say, to keep the fleet going is closer to a $30 million number. So when you take the $30 million with the $26 million, you're talking about kind of, you want to have that cash balance around $50 million in terms of those types of needs.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [49]

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So roughly, right now, using that math, you have $130 million of excess cash. And if we think about the $325 million, it's kind of a permanent capital.

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Mark W. Marinko, Great Lakes Dredge & Dock Corporation - Senior VP & CFO [50]

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Yes. That's 1 of the ways we're looking at it, right.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [51]

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Okay, that's very helpful. And then in terms of the new hopper dredge we're thinking about. In the past, I think we had made some comments. This was a number of years ago. It was some commentary about potentially international dredge, shipyards, lacking orders. Maybe we could give some financing to build a vessel internationally. Can you help us understand the state of the domestic shipyards and how they're looking at getting a bid to do some vessel construction? I'll stop there.

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [52]

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Yes, we're going through a prequalification around now with the different yards in the U.S., and we have received very strong interest in our project. So we are looking forward to receive their bids over the next months. And as we see it, there is a very strong interest in this project.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [53]

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Maybe asking that same question differently, are their order backlogs large? Or would you characterize them as low?

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [54]

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I would characterize it as low.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [55]

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Okay. And can you just remind everybody the capacity that's come back or been added into the domestic dredge market?

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [56]

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Yes. So over the last couple of years, we have had a significant increase to our fleet. First of all, we got the Ellis delivered, which I said in my remarks. That increased our hopper capacity by 70% for the domestic market. Then we took back a mechanical dredge from Brazil, which we have added to our fleet here, and it's been working very well on the deepening projects. And then we took back the Carolina, which is a large cutter dredge from the Middle East last year. She is almost as large and strong as the biggest we have, Texas. And Ohio is in the same category. And then we bought a mechanical dredge from a competitor, and we have had full utilization of her since we put her on the deepening project. So in all, we have added 4 major dredges to our capacity over the last 2 years. And this has been absorbed by the market. And so it just underlines that there is a good, strong domestic market for dredging services here in the U.S.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [57]

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I was asking about the North America as a whole for competitors, which you mentioned earlier?

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [58]

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Yes. Well, our own capacity is closest to our heart. But on the competitor side, 1 of our competitors has added 1 large hopper dredge or midsized to larger hopper dredge and also taken delivery of a large cutter dredge, and then another competitor is in the process of building a cutter dredge.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [59]

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When we think about the fleets that are out there, and we have made disclosures on some of our age -- I think we continue to make disclosures on the age profile of some of the dredges. When we see competitors adding new dredges, are they net capacity adds? Or will they -- or are they replacing a vessel that's 30 or 40 years old?

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [60]

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Yes. Currently, the added capacity or the capacity that has come to the market has been added capacity. But as you know, we went through a restructuring process 2 years ago, and we decided to take out some capacity that was approaching 60 years. And as the dredges get up to that age, the cost of keeping them in class and maintained just goes up to the extent they are not profitable anymore. And that's why we did the rationalization we did 2 years ago.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [61]

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And when you discussed the midsized hopper earlier, would that be focused on a particular market we would be good at or project type that we'd be good at?

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [62]

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No, we are looking at a dredge that can address the market in general, both beach work and also deepening work.

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DeForest R. Hinman, Walthausen & Co., LLC - Research Analyst [63]

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And would the plan be to retire 1 of our older vessels if we did do that project?

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Lasse J. Petterson, Great Lakes Dredge & Dock Corporation - CEO & Director [64]

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Well, as I said, we are looking to make a final investment decision here over the next months. And part of that is, clearly, we would like to see this as added capacity to the market. And then as we see either the market develops, or we see some of our dredges may need additional funds and CapEx to stay in class, we may then retire the old dredges. But initially, we see this as added capacity.

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Operator [65]

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And there are no further questions at this time. I will now turn the call back over to the presenters for closing remarks.

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Tina A. Baginskis, Great Lakes Dredge & Dock Corporation - Director of IR [66]

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Thank you. We appreciate the support of our shareholders, employees and business partners, and we thank you for joining us in this discussion about the important developments and initiatives in our business. We look forward to speaking with you during our next earnings discussion. Thank you.

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Operator [67]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.