Great Lakes Dredge & Dock Reports Record Bidding Activity, Brings Two Dredges Back to U.S.
Record Domestic Bid Market
Douglas B. Mackie, president and chief executive officer, said, “The domestic bid market, a key measure of dredging activity in the U.S., reached $845 million during the first nine months of this year. This year to date bid market already exceeds the size of any full year bid market since 2002, and (GLDD) was awarded contracts representing 50 percent of this total. This heightened activity reflects growth in the underlying market and the impetus of stimulus funding. During the third quarter, projects were awarded totaling more than $300 million. Since we believe this momentum will continue, during the quarter we repositioned two of our largest vessels from the Middle East to the domestic market.”
Third Quarter Operating Results
Total revenue for the quarter ended September 30, 2009 was $140.0 million, down slightly from $142.8 million during the third quarter of 2008. Dredging revenue of $128.4 million increased nearly four percent from a year ago, as strong performances from domestic operations more than offset a significant decline in foreign work. As expected, foreign revenue decreased in the quarter as work slowed on foreign contracts in backlog, and potential projects continued to be delayed whereas the domestic market has grown throughout 2009. The economic slowdown also continues to negatively impact construction activity, which has caused third quarter revenue in the company’s demolition business to drop from $19.0 million last year to $11.7 million.
Gross profit for the third quarter of 2009 declined slightly to $17.1 million from $17.6 million a year earlier. Gross profit margin for the third quarter of 2009 was 12.2 percent, and, while comparable to that of the prior year, was down from the first half of 2009. Fleet utilization was down during the quarter due to the mobilization of two vessels from the Middle East as well as three other dredges that were undergoing required drydock service for a good portion of the quarter. All of these vessels were actively utilized during the first six months of the year.
In addition, costs for mobilization of one of the hydraulic dredges will not be fully covered by revenue from the two projects for which the dredge was initially mobilized. As a result, approximately $3 million of additional expense was recognized in the third quarter, lowering gross profit margin by two percent. Nevertheless, (Great Lakes Dredge & Dock) recognized the importance of re-positioning this large hydraulic dredge, given the very positive dynamics in the U.S. market. Gross profit was also negatively affected by the reduction in demolition revenue relative to its fixed costs.
General and administrative (G&A) costs increased $0.8 million to $11.8 million due primarily to expenses related to the secondary stock transaction that occurred during the 2009 third quarter.
Third quarter 2009 pretax earnings were $2.0 million compared with $2.2 million last year. Net income attributable to Great Lakes Dredge & Dock Corporation was $1.7 million, or $0.03 per diluted share, versus $1.4 million, or $0.02 per diluted share, a year ago. EBITDA was $12.9 million for the 2009 quarter compared with $14.6 million in the previous year.
As of September 30, 2009, senior and subordinated debt, net of $11.9 million in cash and cash equivalents, was $193.1 million, including $30.0 million of borrowings under the company’s revolving credit facility. During the quarter, the company reduced its revolver borrowings by $11.5 million. At quarter end, outstanding performance letters of credit totaled $21.3 million, including $13 million outstanding on the revolving credit facility. The $155 million revolving credit facility matures in June 2012 and includes an $85 million sublimit for the issuance of letters of credit. At September 30, 2009 the company had $104 million of borrowings available under this facility, after giving effect to $8 million of unavailable commitment due to a defaulting lender.
Nine-Month Revenues Up
Revenues for the nine-month period ended September 30, 2009 increased by nearly nine percent to $461.7 million compared with $423.9 million for the same 2008 period, primarily as a result of greater dredging utilization in the first half of 2009. This increased utilization during the first six months and higher margins on domestic projects during the same period positively impacted gross profit margin which increased to 15.7 percent from 12.1 percent a year earlier.
Operating income more than doubled, reaching $38.3 million versus $18.5 million a year ago due to the increase in revenue and gross profit margin. Year to date 2009 EBITDA was $64 million, a 60 percent increase from $39.8 million for the same period in 2008. Net income attributable to Great Lakes Dredge & Dock Corporation for the year-to-date period was $16.4 million, or $0.28 per diluted share, versus $3.2 million, or $0.05 per diluted share, a year earlier.
ARRA and Beach Projects
Funding from the American Recovery and Reinvestment Act (ARRA) continued to stimulate bidding in the 2009 third quarter. In addition, a number of beach projects, which did not receive stimulus funding, were bid during the quarter after a relatively slow first half of 2009. The beach projects accounted for 32 percent of the third quarter domestic bid market total of $325 million. The year to date 2009 domestic bid market reached $845 million, compared with the full year 2008 bid market of $783 million. The company won 50 percent of the year-to-date total, including 40 percent, 82 percent and 37 percent of the maintenance, capital and beach work awarded, respectively. The market includes new work bid and options awarded on projects in the company’s backlog.
The contracted dredging backlog as of September 30, 2009 was $401 million, compared with $396 million at September 30, 2008. For comparison purposes, the 2008 backlog number has been adjusted for the portion of the Diyar contract in Bahrain that became an option pending award in the first quarter of 2009.
The September 30, 2009 dredging backlog does not reflect approximately $83 million of domestic low bids pending award, additional phases (“options”) pending on projects currently in backlog and the remaining option on the Diyar contract. The September 30, 2008 dredging backlog does not reflect approximately $132 million of domestic low bids pending award and options pending on projects currently in backlog. Demolition services backlog at September 30, 2009 was $18.6 million, compared with $19.0 million at September 30, 2008.
Secondary Stock Offering
In August, the company completed an underwritten secondary offering of approximately 12.5 million shares of its common stock owned primarily by Madison Dearborn Capital Partners IV, L.P. All proceeds of this offering were received by the selling shareholders, not by the company. This transaction has increased the trading liquidity for the company’s common stock and expanded its shareholder base.
“Strong performance in 4th quarter”
Doug Mackie concluded, “With our dredges now re-positioned to take advantage of opportunities in the domestic market, we are looking forward to closing the 2009 fiscal year with a strong performance in the fourth quarter. We are particularly encouraged that the market for beach nourishment work is recovering to complement the growth in demand we have been witnessing for maintenance projects.
“Over the longer term, we also see a number of factors that should positively influence dredging demand. The expansion of the Panama Canal, now underway, will make deepening ports along the East Coast more critical so that they can accommodate deeper draft vessels too large to navigate them at present. As a result of significant hurricane damage in recent years, a series of programs are being funded to restore and protect the Gulf Coast along the Mississippi, Louisiana and Texas shorelines, and dredging activity is expected to be a major component. Lastly, given the continued emphasis on infrastructure spending, there is increasing likelihood that the 2010 Water Resources Development Act will include an attachment related to the Harbor Maintenance Trust Fund, which will restore the use of funds for their primary purpose of maintaining harbors at their stated depths. For the reasons I’ve shared, we are very excited about the prospects for the domestic dredging market in both the short and longer term and for the ability of Great Lakes to continue to grow its leadership position.”