In its year end final quarter financial statement released on February 24 Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD) reported record backlog of $670 million compared to $543 million in 2013.
Executive Officer Jonathan Berger explained the unprecedented backlog in the company’s annual year end conference call on February 24 saying that 50 percent of the awards were for shore reclamation as a result of Hurricane Sandy.
“Coastal protection projects will begin this spring but $100 million worth of contracts will not be executed until 2016” he said adding that they expect to go back to historic levels of bidding after this year.
On March 5 a week after the year-end results were announced the Savannah Engineer District awarded GLDD the $134.5 million contract for deepening 18.5 miles of channel in the Savannah Harbor. (See Savannah District Awards Deepening Contract to GLDD in the April/May issue.)
"During 2014 the Company achieved several accomplishments that are critical pieces of our strategy to profitably grow and deliver results to our shareholders” said Berger. “We began the construction phase on the ATB hopper dredge completed the Magnus Pacific acquisition in November divested our historic demolition business and continued to execute our strategy of exiting non-core businesses through the sale of New York Sand & Stone and of the real estate owned jointly by our Amboy Aggregates and Lower Main joint ventures (Amboy Land). (See GLDD Acquires Magnus Pacific in the April/May issue.)
“The 2014 results were bolstered by a gain on the Amboy Land and completion of our subcontract work on the Wheatstone LNG dredging project in Australia which finished with a strong contract margin” Berger explained.
After completing the Wheatstone project the dredge New York was transported back to the United States to work on the Miami deepening project which GLDD has executed on throughout the year.
“Work will continue through the summer on schedule. This project has the attention of all the U.S. port communities and its success is critical to future port deepening projects” he said. “We are proud to be working on it.” (See Coral Relocation Completed for Miami Harbor Deepening; Project in the Final Stretch in the Jan/Feb 2015 issue).
“Results were negatively impacted by lower utilization of our fleet scope changes and cost overruns on an environmental and remediation project for which we are pursuing additional payment by higher operating overhead costs associated with investments for growth and by losses incurred related to the final project being performed by our TerraSea environmental joint venture that we decided to exit” said Berger.
“For the three months ending December 31 2014 Great Lakes reported revenue of $245.5 million income from continuing operations of $20.3 million and adjusted EBITDA from continuing operations of $31.8 million. For the year ending December 31 2014 Great Lakes reported revenue of $806.8 million income from continuing operations of $20.7 million and adjusted EBITDA from continuing operations of $77.1 million.
"Our dredging segment recorded record annual revenue in 2014 successfully executing projects in the United States Australia Brazil and the Middle East. Conclusion of Great Lakes' participation on the Wheatstone LNG project had a positive impact on dredging's results for the year. Results were adversely impacted by an underutilized fleet in the Middle East for much of the year and by the delay in several tenders related to Superstorm Sandy work until the fourth quarter 2014 which led to lower utilization of our domestic fleet in the first part of the year.
In October Great Lakes received a $140 million contract for the Suez Canal expansion in consortium with Dredging International whose share of the contract was $400 million. A second consortium with four members received the other dredging contract for the expansion. Sam Morrison and Bill Murchison represented Great Lakes at the contract signing on October 18. Great Lakes began dredging in December expects to finish up this August. (See Six Contractors Dredging ‘New’ Suez Canal in the April/May issue.)
“Working in Egypt has risks and we continue to monitor the geo-political landscape carefully” said Berger. “We have taken precautions along with the other dredging companies to protect our people and equipment he said.”
The dredging segment's backlog at December 31 2014 is $594.2 million with an additional $113.5 million in options and low bids pending award.
"Despite strong top-line growth the Environmental & Remediation segment encountered challenges in 2014 resulting in an operating loss Berger said.
The operating loss is attributed to a combination of factors the most substantial being $4.3 million in scope changes and cost overruns at a brownfield remediation project performed on the East Coast. On the site toxins were present in an area believed to be uncontaminated and in another area the amount of toxins was underestimated. The client took out an insurance policy against these changes but the insurance company denied the claim.
“We are in discussions with our client to receive payment for this additional work. We also made investments to maintain the segment's expanded equipment base which resulted in increased overhead costs. General and administrative costs also increased during 2014 driven by expenditures related to the addition of new business development personnel and the establishment of three satellite offices to expand the business" Berger said.
Mark Marinko chief financial officer added "Throughout the year we executed on several significant transactions that impacted our balance sheet. As we have stated previously one of our growth strategies has been to free up capital tied up in non-core or underperforming businesses. The sales of our historic demolition business and the Amboy Land and New York Sand & Stone operations have enabled us to redeploy capital to support the strategic growth of our core dredging and environmental businesses” he said.
Last April GLDD completed the sale of the company’s historical demolition business– NASDI LLC and Yankee Environmental Services LLC — to a privately owned demolition company for $5.3 million. In the fall GLDD completed the sale of 41 acres of land connected with Amboy Aggregates which is being liquidated.
"We amended our revolving credit facility by increasing it to $210 million and allowing the full use of the facility for issuance of letters of credit which gives us greater flexibility as we continue to grow top line revenues. We also executed a $50 million term loan to partially finance the $140 million construction cost of the ATB hopper dredge. We plan to utilize our working capital to finance the remaining $40 million needed to complete construction. We also completed a $25 million add-on to our existing $250 million in 7.375 percent Senior Notes to fund a portion of the Magnus acquisition. Finally the company's strong cash performance during the fourth quarter enabled us to pay down the outstanding amount on our revolving line of credit. The company remains committed to optimizing our balance sheet and deploying capital where we believe it will drive future earnings growth.
"In 2014 the company recorded a tax benefit including a tax benefit related to liquidation of a subsidiary from our former demolition business. This benefit along with the accelerated depreciation we will begin to record once the ATB comes on line is expected to mitigate our tax exposure over the next few years. This impact on our cash flow will be favorable" Marinko said.
FOURTH QUARTER 2014 HIGHLIGHTS
Revenue increased 13.5 percent to $245.5 million in the fourth quarter of 2014 compared to $216.3 million in the fourth quarter of 2013 driven by higher dredging revenue. Magnus contributed $15.3 million in revenue during the quarter.
Gross profit margin decreased to 8.5 percent from 12.9 percent in the fourth quarter of 2013 primarily driven by a negative gross margin at Terra due to the previously mentioned $4.3 million in scope cost overruns on a project. Magnus recorded negative gross profit of $1.7 million due to seasonality in its business. Similar to Terra the business is slow at year end and in the first quarter.
Operating income decreased 76.3 percent to $2.7 million from $11.3 million in the fourth quarter of 2013. The decline in gross profit margin in the fourth quarter 2014 and the $2.6 million gain from the sale of equipment in the prior year fourth quarter are primary drivers for the difference between the two periods.
Income from continuing operations was $20.3 million compared to $4.7 million in the fourth quarter of 2013. Current year income from continuing operations includes a $15.1 million gain on the sale of the Amboy Land. Net income (which includes both continuing and discontinued businesses) was $19 million and includes an $11.1 million income tax benefit which includes the tax benefit realized from the sale of the demolition business. In the fourth quarter of 2013 net loss was $11.5 million which included a net loss of $16.2 million from discontinued operations.
Adjusted EBITDA from continuing operations was $31.8 million a 27.2 percent increase from $25 million in the fourth quarter of 2013. Adjusted EBITDA in the current period included a $15.1 million gain on the sale of the Amboy Land.
Dredging revenue was $211.6 million for the quarter a 19.7 percent increase over prior year period revenues on higher domestic capital and foreign capital revenues partially offset by lower coastal protection maintenance and Rivers & Lakes revenues.
Gross profit margin was 13.7 percent in the fourth quarter of 2014 versus 10.7 percent in the fourth quarter last year. Gross profit margin increased primarily due to improved fixed cost coverage because more vessels were working and there was a strong contract margin on the Wheatstone LNG project. These benefits were partially offset by lower contract margin on other projects and higher overhead costs compared to 2013 including higher labor.
Operating income increased to $17.5 million for the quarter from $8 million in the fourth quarter of 2013 primarily due to higher gross profit margin during the quarter.
Environmental & Remediation
Revenue decreased 15.5 percent to $35.2 million in the fourth quarter of 2014 from $41.6 million in the fourth quarter of 2013 with one very large project driving the fourth quarter 2013 revenue. Magnus contributed $15.3 million in revenue during the current year quarter.
Negative gross profit margin was 22.9 percent in the fourth quarter compared to gross profit margin of 21.8 percent in the prior year. The loss in the fourth quarter of 2014 primarily is due to the $4.3 million in cost overruns on the project previously mentioned. Magnus recorded a negative gross profit of $1.7 million due to seasonality in its business as previously mentioned.
Operating loss was $14.8 million compared to operating profit of $3.4 million in the fourth quarter of 2013 primarily due to the negative gross profit margin.
YEAR ENDED DECEMBER 31 2014 HIGHLIGHTS
Revenue increased 10.3 percent to $806.8 million for the year ended December 31 2014 compared to $731.4 million for the year ended December 31 2013. Magnus contributed $15.3 million in revenue to 2014.
Gross profit margin decreased to 11.5 percent for the year ended December 31 2014 compared to 13.7 percent for the year ended December 31 2013. Substantially lower gross profit margin in the Environmental & Remediation segment was partially offset by higher contract margin in the Dredging segment. Magnus recorded a negative gross profit of $1.7 million due to seasonality in its business.
Operating income was $23.9 million down from $51.4 million in the prior year. In addition to the higher gross profit margin 2013 operating income is impacted by the $13.4 million settlement from the loss of use claim that was received during that period.
Income from continuing operations was $20.7 million in 2014 compared to $19.9 million in the prior year. Net income (which includes both continuing and discontinued businesses) was $10.3 million in 2014 compared to a net loss of $35 million in the same period in the prior year. The current year included an $11.5 million tax benefit while the prior year included a $10.5 million income tax provision.
Adjusted EBITDA from continuing operations was $77.1 million a decrease of 22 percent from $98.8 million over the same period in the prior year primarily due to losses in the Environmental & Remediation segment. The prior year included a $13.4 million settlement from the loss of use claim and $5.8 million gain on equipment sales.
Revenue increased 8.6 percent to $697.7 million for the year ended December 31 2014 driven by an increase in domestic capital maintenance and foreign capital revenue partially offset by lower coastal protection and Rivers & Lakes revenue.
Gross profit margin for the year ended December 31 2014 was 12.9 percent compared to 13.3 percent for the year ended December 31 2013. Strong contract margin on the Wheatstone LNG project was offset by higher overhead costs and lower absorption of our fixed costs due to lower utilization of our fleet.
Operating income was $41.6 million for the year ended December 31 2014 versus $54.7 million in the prior year. The results for the same period last year include the $13.4 million in settlement from the loss of use claim as well as $5.8 million gain on sale of assets.
The Company had won 38 percent or $569.9 million of the 2014 domestic dredging bid market of $1.5 billion at December 31 2014 with an additional $113.5 million in low bids and options pending awards. The awards broken down by project type are: capital projects: 33 percent $150 million; coastal protections: 44 percent $266 million; maintenance dredging: 18 percent $59 million; rivers and Lakes: 65 percent $95 million. (Includes the $90 million Lake Decatur project awarded in the first quarter of 2014.)
Environmental & Remediation
Revenue increased 20.6 percent to $114.4 million for the year ended December 31 2014 compared to $94.8 million for the year ended December 31 2013 driven by a greater number of environmental remediation projects along with an increase in the number of larger projects. Magnus contributed $15.3 million in revenue in 2014.
Gross profit margin declined to 1.9 percent from 15.9 percent.
Operating loss was $17.8 million for the year ended December 31 2014 compared to operating loss of $3.3 million in the prior year. In addition to the lower gross profit margin Terra incurred higher general and administrative costs largely driven by the addition of personnel and the establishment of regional offices to support its expansion efforts.
"A robust backlog is an essential factor in optimizing the Company's profitability’ Berger stated. “Project execution is just as vital. In 2015 we will continue to focus on superior execution on every project. With our record backlog work in place in the Middle East for most of the year the completion of the Magnus acquisition and the significant investments made in our Environmental & Remediation segment we look upon 2015 with a renewed commitment to deliver a strong performance.
"The domestic dredging bid market was once again at a record level in 2014 at $1.5 billion. With 38 percent of the bid market we were slightly below our average combined bid market share over the prior three years. Coastal protection work accounts for $266.5 million of the awards and includes several Superstorm Sandy-related projects. Several awards for capital projects including the Freeport Channel widening project Delaware River deepening the final option of the PortMiami deepening and the Arthur Kill deepening comprised a significant portion of our awards totaling $149.5 million.
"In 2015 our fleet will be utilized on several coastal protection projects in New Jersey and New York as well as capital projects in Texas Florida and Maryland. The PortMiami project is on schedule to be completed in the summer 2015. We will commence the second year of dredging operations on the $90 million Lake Decatur project this spring. We will utilize our fleet in the Middle East on the Suez Canal deepening project in Egypt for the first nine months of the year and on a project in Bahrain through the first quarter 2015. Project execution on the deepening coastal protection and international work will be paramount as we work off dredging backlog in 2015.
"In 2014 we continued to see strong support for upgrading America's infrastructure including ports from both President Obama and Congress. Several industry milestones were achieved delivering positive momentum for the dredging industry in the United States. President Obama signed the Water Resources Reform & Redevelopment Act (WRRDA) into law in June. Furthermore the spending bill that President Obama signed in December both increases the U.S. Army Corps of Engineers' budget in 2015 and also includes the $100 million incremental increase in Harbor Maintenance Trust Fund funding for maintenance dredging as called for in WRRDA. Although the President's proposed fiscal year 2016 budget for dredging is disappointing we anticipate and expect Congress to maintain its commitment to invest in our infrastructure including ports.
"With $75.3 million in backlog and our broadened suite of capabilities and geographic reach our Environmental & Remediation segment is well positioned to have a strong year. We plan to capitalize on the significant investments made to open three regional offices and add qualified personnel by capturing opportunities and growing our presence in regions that will offset the seasonality that this segment experiences. Terra has already had success growing beyond its primary geographic footprint and is in the process of finalizing a $22.2 million contract with a new client a large utility on the East Coast. Magnus has several large projects along the West Coast and in Colorado in its backlog and is finalizing a $35.5 million contract. In 2015 we are committed to ensuring a fulsome integration of Magnus into the Company with a long-term goal of marketing Terra's and Magnus' full suite of service offerings to demanding clients. Finally we also will be focused on improving operating margins in this segment with consistent project execution at the forefront” he concluded.