On May 4 Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) reported financial results for the first quarter ended March 31 2010.
Douglas B. Mackie said “We had a strong start to 2010 with higher operating margins in the first quarter more than offsetting lower foreign dredging revenues producing an 18 percent increase in operating income. In addition we are seeing encouraging signs in the demolition business with improved margins and the quarter-end backlog level at more than twice what it was a year ago.”
FIRST QUARTER RESULTS
Total revenue for the quarter ended March 31 2010 was $161.4 million down 10 pecent from $179.2 million during the first quarter of 2009. Most of this decline was attributable to a decrease in foreign dredging revenues compared with a very strong first quarter in 2009 for foreign operations. Domestically a robust first quarter for beach work offset declines in capital and maintenance revenues. Demolition revenue in the quarter was $12.4 million consistent with revenue a year ago.
Gross profit for the first quarter of 2010 increased by 13 percent to $30.5 million from $27.0 million resulting in gross profit margin (gross profit divided by revenue) increasing to 18.9 percent versus 15.1 percent in the first quarter of 2009.
The increase in margin resulted from several factors one of which was a greater weighting of domestic dredging work in the project mix for 2010. In addition 2009 gross profit margin was negatively affected when a portion of the Company’s Diyar contract in Bahrain was reclassified from backlog to an option reducing the scope of the project and decreasing the overall project margin.
Also last year’s gross profit for the demolition business was negatively impacted by a write-off related to a large development contract that had been delayed due to the economic downturn. Operating income increased by 18 percent to $19.4 million versus $16.4 million for the first quarter of 2009 as the higher gross profit more than offset a $0.6 million increase in general and administrative (G&A) costs.
Interest expense of $3.2 million was down $1.0 million in the quarter due to the decrease in borrowings on the company’s revolving credit facility and a non-cash gain of $0.8 million on the valuation of is interest rate swaps. GLDD had no interest rate swaps in place during the first quarter of 2009. Net income attributable to Great Lakes Dredge & Dock Corporation for the quarter was $9.3 million or $0.16 per diluted share versus $7.3 million or $0.13 per diluted share a year ago. EBITDA* was $28.2 million for the 2010 quarter compared with $28.4 million in the prior year.
During the quarter the company paid down the $11 million that was outstanding on its revolving credit facility at year-end and increased its cash and cash equivalents to $20.9 million as of March 31 2010. Outstanding at quarter end was $175 million of 7 ¾ percent senior subordinated debt and performance letters of credit of $35.3 million including $19.6 million outstanding on the revolving credit facility. The company’s $155.0 million revolving credit facility matures in June 2012 and includes an $85.0 million sublimit for the issuance of letters of credit. At March 31 2010 Great Lakes had $125.4 million of borrowings available under this facility after excluding $10.0 million which is unavailable from a defaulting lender.
BID MARKET & BACKLOG
During the first quarter of 2010 $211 million of work was awarded in the domestic dredging bid market. Great Lakes won the only beach project awarded in the quarter totaling $10.4 million as well as 29 percent or $22.4 million of the maintenance projects. Overall the company won 16 percent of the first quarter bid market down from its average win rate of 46 percent over the past three years. However this type of quarterly variability in contract wins is not unusual and generally not indicative of the win rate the company will achieve for the full year.
Due primarily to the strong first quarter operating performance and the lower level of market awards won during the quarter the company’s overall backlog decreased to $296 million as of March 31 2010 compared with $344 million a year earlier. Dredging backlog at March 31 2010 and 2009 excludes $35 million and $63 million respectively of domestic low bids pending award additional phases (“options”) pending on domestic projects in backlog and the remaining option on the Diyar contract. Demolition services backlog at March 31 2010 was $51.2 million compared with $24.1 million at March 31 2009.
This increase reflects the success the demolition business has had in expanding into other markets specifically in New York.
|!|PLEASED WITH OUR START.|!|
Doug Mackie continued “We are very pleased with our start to 2010. The strong 2009 domestic bid market bolstered by stimulus funding provided a solid domestic backlog with which to kick off 2010.
“Momentum continues to build for the Harbor Maintenance Trust Fund (HMTF) initiative. In the past two months a bill related to the use of the fund’s revenues was introduced in Congress with support building on both sides of the aisle. In addition it currently appears that a new Water Resources Development Act (WRDA) bill is also gaining momentum and will be introduced in the coming months. We currently anticipate that the HMTF bill will be attached to the WRDA bill and that they will be passed this fall.
“We are also optimistic about longer term opportunities both domestically and in the Middle East. In the U.S. there is increased attention being focused on expansion projects for East and Gulf Coast ports. The number of ports and the size of projects which are being discussed in this regard will have a substantial impact on the U.S. dredging market as plans progress.
DREDGE OHIO IN MIDDLE EAST
“In the Middle East it appears that customers are beginning to feel more confident in moving forward with infrastructure projects although not of the massive scope we have seen in the past. Consistent with the expectation of heightened activity levels in the region during 2011 we are moving forward with an $18 million upgrade of the dredge Ohio that was purchased in 2007. This dredge already located in the Middle East will be a world class cutter suction dredge similar in size and capabilities to our dredge Texas which will make the Ohio well suited for many of the projects we see on the horizon.
“With regard to 2010 we’re looking forward to another strong year for Great Lakes. The precise timing of when the Corps brings dredging projects to market can be difficult to predict. However the continuing need to maintain the nation’s waterways and deepen its ports to maintain world class status ensures there will be ongoing demand for domestic dredging for the foreseeable future. We are also encouraged by signs that both the international market for dredging and the domestic demolition business are beginning to come back.”