Great Lakes Dredge & Dock - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 revenue was $193.8 million, diluted EPS $0.14, adjusted EBITDA $28.0 million, and backlog ~$1.013 billion; results were achieved despite four dredges in regulatory drydock and higher drydocking costs.
• Results beat Wall Street consensus: Revenue $193.8mm vs $177.7mm*, EPS $0.14 vs $0.093*, and EBITDA $28.0mm vs $24.6mm*, reflecting strong project execution and utilization; capital/coastal protection projects drove margins (88% of Q2 revenue). Values retrieved from S&P Global*.
• Liquidity strengthened via upsized revolver to $330mm and cash/liquidity of $2.9mm/$272mm; share repurchases reached 1.3mm shares for $11.6mm as of June 30, enhancing per‑share metrics.
• Management guided Q3 EBITDA to be higher than Q2 and raised full‑year expectations to “highest in company history” for both revenue and net income, supported by a robust backlog and newbuild progress (Amelia Island near delivery; Acadia launched, fully booked for 2026).
• Stock reaction catalysts: continued LNG award momentum (Woodside Louisiana LNG added to backlog), WRDA 2024 support, and offshore energy diversification for Acadia; bidding outlook normalizes near $2B with coastal protection focus.

What Went Well and What Went Wrong

What Went Well

• “Great Lakes delivered a solid second quarter, driven by strong project execution and high equipment utilization.” CEO highlighted revenue $193.8mm, net income $9.7mm, adjusted EBITDA $28.0mm, and ~$1.0B backlog with $215.4mm low bids/options pending.
• Mix shift supported margins: CFO noted 88% of Q2 revenue came from capital/coastal protection projects, driving gross margin to 18.9% despite drydock costs.
• Strategic liquidity and capital return: Revolver upsized to $330mm; buybacks totaled 1.3mm shares/$11.6mm YTD by 6/30; management expects Q3 EBITDA > Q2 and record 2025 revenue/net income.

What Went Wrong

• Drydock headwinds: four dredges in regulatory drydock pressured revenue/margins, with drydock costs and lost revenue noted; Q2 margins were the low point of the year.
• Backlog composition down from year‑end: total backlog declined to ~$1.013B at 6/30 from ~$1.239B at 12/31 amid strong conversion; coastal protection backlog decreased vs year‑end.
• Offshore wind uncertainty persists: while Empire Wind I resumed and 2026 utilization for Acadia is secured, management continues to diversify internationally given potential U.S. delays; 2027 work likely outside U.S..

Transcript

Speaker 3

Today, and thank you for standing by, welcome to the Q2 2025 Great Lakes Dredge & Dock Corporation earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press *11 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press *11 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your first speaker today, Eric Birge, Vice President of Investor Relations. Please go ahead.

Speaker 2

Good day and thank you, everyone, for joining us. Welcome to Great Lakes Dredge & Dock Corporation's second quarter 2025 financial results conference call. Before we begin, please note that certain statements made during this call are forward-looking in nature and are subject to various risks, uncertainties, and assumptions. These factors may cause actual results to differ materially from those anticipated. For a detailed discussion of these risks, please refer to our filings with the Securities and Exchange Commission. We will also discuss certain non-GAAP financial measures, including adjusted EBITDA. Reconciliation of these measures to the most direct comparable GAAP measure can be found on our earnings release and on the investor section of our website at investor.gldd.com, along with other supplemental operating information. Joining me on today's call is Lasse Petterson, our President and Chief Executive Officer, and Scott Kornblau, our Senior Vice President and Chief Financial Officer.

Lasse will begin with a review of the quarter's key developments, followed by Scott, who will provide a detailed overview of our financial performance. Lasse will then conclude the call with commentary on the business outlook and market trends. With that, I will now turn the call over to Lasse.

Speaker 1

Thank you, Eric. Following strong financial results in the first quarter of this year, the momentum continued into the second quarter with solid results driven by high equipment utilization and strong project performance, executing complex port deepenings and coastal restoration projects, leveraging the capability of our extensive fleet. We ended the quarter with revenues of $193.8 million and an adjusted EBITDA of $28 million. Our dredging backlog remains strong at $1 billion, with 93% coming from capital and coastal protection projects, plus an additional $215.4 million in awards and auctions pending. Our successful bid strategy from last year resulted in a large number of project wins and a quality backlog, which will support high asset utilization and a solid revenue generation for the remainder of 2025, as well as providing a good base and revenue visibility for 2026.

During the quarter, we received notice to proceed with the Woodside, Louisiana LNG project. The award work is included in our second quarter backlog, along with two auctions that are included in our auctions pending award. Dredging operations on the project are expected to commence early 2026. Our strong performance in Q1 and good outlook for the remainder of the year contributed to our decision to initiate our $50 million share repurchase program in March, as we believed our share price did not reflect the company's financial performance and long-term outlook. As of June 30, we have repurchased 1.3 million shares with a total spend of $11.6 million under this program. During the quarter, we upsized our revolving credit facility to further enhance liquidity, which Scott will provide more details on.

Moving to our new build program, which is nearing completion, our newest hopper dredge, the Amelia Island, is expected to be delivered in the next few weeks and will go straight to work on projects already in backlog. The Amelia Island and her sister ship, the Galveston Island, have been specially designed for the shallow and narrow waters in our U.S. coastlines and are efficient tools for us to work on coastal protection projects such as beach restorations, wetland improvements, and barrier island construction. The final vessel in our new build program, the Arcadia, the first U.S.-flagged Jones Act-compliant subsea rock installation vessel, is also currently under construction and hit a key milestone with her launch from drydock in July. Delivery is expected in the first quarter of 2026, at which time she will go straight to work on the Equinor Empire Wind 1 project.

The target markets for the Arcadia include domestic and international projects for protection of critical subsea infrastructure such as oil and gas pipelines, power and telecommunication cables, and offshore wind installations. I now turn the call over to Scott to further discuss the results of the quarter, and then I'll provide further commentary around the market and our business.

Speaker 0

Thank you, Lasse, and good morning, everyone. I'll start by walking through the second quarter, which resulted in revenues of $193.8 million, net income of $9.7 million, and adjusted EBITDA and adjusted EBITDA margin of $28 million and 14.4% respectively. Despite having four dredges performing the regulatory drydockings at various times during the second quarter of 2025, revenues of $193.8 million increased $23.7 million from the prior year's second quarter, as every active dredge was working for the majority of the quarter. Current quarter gross profit and gross profit margin increased to $36.6 million and 18.9% respectively, compared to $29.8 million and 17.5% respectively in the second quarter of 2024. The increase in gross margin is primarily due to improved utilization and project performance and a large number of capital and coastal protection projects, which typically yield higher margins. These projects accounted for over 88% of our second quarter revenue.

The quarter-over-quarter gross profit increase was partially offset by higher drydocking costs. Current quarter's operating income of $17.1 million increased $2.5 million compared to the prior year's quarter operating income of $14.6 million. The year-over-year increase is driven by higher gross profit, partially offset by higher general and administrative expenses, mostly due to increased incentive compensation resulting from the strong first half of the year. Net interest expense of $4.2 million for the second quarter of 2025 was flat compared to the second quarter of 2024, and second quarter 2025 net income tax expense of $3.4 million increased from $2.8 million in the same quarter of 2024 due to the stronger results. Rounding out the P&L, net income for the second quarter of 2025 was $9.7 million, up from $7.7 million in the prior year quarter.

Total capital expenditures, including capitalized interest for the second quarter, were $64.6 million, made up of $19.8 million for the hopper dredge, Amelia Island, $28.7 million for the construction of the Arcadia, $8.8 million related to the addition of support equipment, with the remaining $7.3 million coming from maintenance and growth. Our previous full-year CapEx guidance of between $140 million and $160 million, including capitalized interest, remains unchanged. Turning to our balance sheet, we ended the quarter with $2.9 million in cash and $5 million drawn in our revolver, which doesn't mature until the third quarter of 2027. As Lasse mentioned earlier, in May, we executed an amendment to our credit facility, upsizing our revolver by $30 million to $330 million, further enhancing our liquidity, which stood at $272 million at quarter end.

Our balance sheet is in great shape, with a trailing 12-month net leverage ratio of 2.7 times, a weighted average interest rate on our total debt under 7%, and no debt maturities until 2029. For the first half of 2025, we were $36 million free cash flow positive, and as our new build program will be substantially complete at the end of the year, we expect this number to significantly grow starting in 2026. As I discussed on the Q1 earnings call, 2025 is a heavier than normal drydock year for us, and during the third quarter, we will have three vessels at the dock at various times for regulatory surveys and repairs. Utilization will remain strong on the other vessels, and with the Amelia Island scheduled to come online, we expect to see third quarter EBITDA higher than the second quarter.

Despite the large number of drydocks, our expectation is that full-year 2025 results will be the highest in company history for both revenue and net income. With that, I will turn the call back over to Lasse for his remarks on the outlook moving forward.

Speaker 1

Thank you, Scott. The administration continues to demonstrate strong and consistent support for the dredging industry. The U.S. Army Corps of Engineers is operating in fiscal year 2025 under a continued resolution through September 30, which sustains the record funding levels established in the prior fiscal year's budgets. This support, along with our $1 billion backlog, which includes a robust mix of large and complex projects in the beach renourishment and port deepening markets, enables us to continue to deliver on a very busy 2025 and provides clear revenue visibility extending well into 2026. We expect the 2025 dredging bid market to be at a normalized volume of approximately $2 billion, focused on coastal protection projects after very strong port deepening bid markets in 2023 and 2024.

As we look further ahead, we are beginning to see meaningful progress on the next phase of deepening projects, including New York, New Jersey, Tampa, New Haven, and Baltimore, among others, with dredging work likely to commence in 2027. In response to early signs of potential delays in the U.S. offshore wind market, we proactively adjusted our strategic outlook for the Arcadia. Over the past couple of years, we have expanded our target markets for the Arcadia to include the safeguarding of critical subsea assets, including oil and gas pipelines, power transmission lines, telecommunication cables, and international offshore wind farms, increasing our opportunities into a broader range of services we now refer to as offshore energy. The Arcadia is engineered to precisely deposit rock for the protection of subsea infrastructure against environmental forces such as weather and potential acts of sabotage by hostile entities.

We are actively pursuing engagement across these sectors, bidding work for 2027 and onwards, as we have between Empire Wind 1 and Ørsted Sunrise Wind Arcadia fully booked for work in the U.S. for 2026. In conclusion, we are confident of strong project execution and results for the remainder of the year, and our strong backlog gives us good revenue visibility for 2026. Our new build program is coming to an end, and we are looking at generating solid positive cash flows for 2026. With that, I'll turn the call over for questions.

Speaker 3

Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press *11 on your telephone and wait for your name to be announced. To withdraw your question, please press *11 again. Please stand by as we compile the Q&A roster. Our first question comes from Joe Gomes of NOBLE Capital. Your line is now open.

Speaker 5

Good morning. Congrats on the quarter. Thanks, Joe. I wanted to start off with just kind of taking a look at the pace of awards. Is it running to expectations? Are you seeing anything being kind of pushed out to the right? Is there anything there that leads you to have any concern about the award level for this year?

Speaker 0

Yeah, Joe. As we have talked about at year-end, one, we expected a more normalized bid market for this year. That's playing out. We also knew as the current deepening cycle was starting to come to an end, there would be very little capital projects. That also was playing out. As Lasse said, we do see early signs of the next wave of deepening projects coming out in the next 18 months or so, which is a good sign. The third thing, with our utilization, with our backlog, we were not going to be able to participate in a lot of the bids that came out just because we didn't have availability. For the first half of the year, we did not bid on well over 50% of the projects that came out.

One, we just didn't have the availability, or two, it just didn't fit into the profile of the limited available that we have. This market ebbs and flows. Our win rate is going to ebb and flow, and we have the backlog like I have. It's just impossible for us to keep winning at the rate that we were winning over the last couple of years.

Speaker 5

Okay, thanks for that. On the Arcadia, obviously, I've mentioned you've got it fully booked in 2026, and you're exploring other markets in 2027. Is there the possibility that you think that vessel could still be in the U.S. in 2027, or are most of your efforts looking overseas in the international markets for 2027?

Speaker 1

Yeah, I guarantee we are bidding a lot of work in Europe, and we are also looking at Asia for the remainder of this decade. The market in Europe is continuing to be strong, and it is probable, or most probable, that the vessel will be in Europe when we enter 2027.

Speaker 5

Okay. One last one for me, kind of more 10,000-foot level, Lasse. You guys have mentioned the new build program should be coming to an end here, and all the positives for that. Is there anything out there, maybe far out in the horizon right now that would make you reconsider and say, maybe we need to build more vessels, or is this, hey, we are definitely done here for whatever the next phase of years is?

Speaker 1

We've been looking at our fleet. It's my opinion, we have invested heavily into our hopper fleet. We have now four very young, modern hoppers in the market, plus we have two older ones, smaller ones. We have a fleet that is updated and very competitive. Our cutter fleet is also large. We are continuously updating the equipment on board our cutters. At this point in time, we don't see any need for building any new dredges, but that may change over time. I would say for the coming couple of years, it's not on the agenda. Scott, do you have any comments?

Speaker 0

No, I think that's right. You know, Joe, we've said we may look to do some strategic upgrades on some of the non-hopper fleet, but we're comfortable with the number of dredges that we have right now. We strategically invested over the last few years, and I think we're already starting to see the dividends paying off and can continue to expect the same sort of results.

Speaker 5

Okay, great. Thanks for that. I'll get back in queue. Thank you.

Speaker 3

Thank you. Our next question comes from the line of Julio Romero of Sidoti & Company. Your line is now open.

Speaker 4

Great, thanks. Good morning, Lasse, Scott, and Eric. Maybe staying on the Arcadia for a bit, what's your confidence level in Arcadia delivery to you in the first quarter of 2026 versus potentially later in the year? What would be your best guess as to Arcadia revenue dollars in 2026 if we assume it does get delivered on time and goes straight to work on Empire Wind 1?

Speaker 1

Yeah, we have a high confidence in getting the vessel delivered in Q1. That is the date that the yard is giving us. The acquisition of the yard by the Koreans, Hanwa, has resulted in additional resources coming to the yard, and the progress is good. As I said, we are out of the drydock, and it's now at the outfitting team at Philly Shipyard, and they are looking at trying to improve the delivery dates to an earlier delivery in Q1. As we are speaking today, that is what the yard is telling us. Revenue expectation?

Speaker 0

Yeah, Julio, there are some options that will get exercised. We're still finalizing pricing on that. I'm going to keep numbers a little closer there. With the end of Q1 delivery and, call it another month, month and a half of commissioning, we should see a little more than six months, give or take, of revenue. I think we have said that in the U.S., this vessel is definitely capable of getting well north of $100 million revenue for a full year. Again, call it seven months, give or take, with this year, just normal ebbs and flows and moves between jobs. I think you can get directionally correct on how we're thinking about it.

Speaker 4

Fair enough. Any update on potential wins for the offshore energy awards for the Arcadia, and a quick refresher on what the lead time is between bidding and award for offshore energy in Europe and in Asia?

Speaker 1

Yeah, and that lead time is much shorter in those markets. It's much fewer markets. Here in the U.S., we were fortunate to be able to book projects very early for the Arcadia due to the newness and the novelty in the market and lack of vessels or U.S.-flagged vessels in the international markets. It's more looking at maybe a year, maybe less in lead time between award and you actually execute the project.

Speaker 0

Yeah, Julio, there has not been one project in Europe or Asia that we have bid on for 2027 or beyond that's been awarded to anybody yet.

Speaker 4

Okay. I appreciate the finer point on the lead time there and, you know, a year or less. That's very helpful. Just maybe on the base business, you know, are you, I think you touched on it earlier, but you know, are you seeing any change in customer hesitation at all or any delays in decision-making on the base dredging business?

Speaker 1

As you know, we are in a continued resolution, which is good and bad news. The U.S. Army Corps of Engineers cannot bid new projects in this situation, but they have the revenue or the guaranteed revenues similar to the prior years. That means that there's a lot of projects which are being executed in this situation. We have to wait until the government or the Congress get together and make a new budget for next year. There is a number of new projects that should be included in that new budget. That is the clarity that we have around it. There's a number of beach renourishment and reconstruction projects that are being bid at this point in time, and that market is very strong. As you know, we perform extremely well on those projects on the East Coast.

Speaker 4

For LNG, I guess is also what I was getting at. If the order cadence of LNG, any change from customer decision-making on that front?

Speaker 1

We are currently engaged in three projects in the LNG space. There are a couple of other projects where it's either being done by other dredgers. There's probably two LNG projects other than the three that we are working on that are going forward and where our competition will be fully engaged. Beyond that, it's probably more a discussion on the general LNG market. Is there room for more capacity to be built in the U.S., and how can the export markets really absorb these volumes of LNG going forward?

Speaker 4

Helpful. I'll pass it on. Thanks.

Speaker 3

Thank you. Our next question comes from the line of Kevin Gainey of Thompson Davis. Your line is now open.

Good morning, Lasse, Scott, and Eric. Nice quarter on a heavy drydock.

Speaker 5

Thanks, Kevin.

I was hoping that maybe we could kind of touch on the Arcadia conversations that you guys are having. At this point, what is more likely to happen? Is it going to be more international wind work or asset protection jobs, and kind of how those conversations are unfolding?

Speaker 1

Yeah, it's a very interesting market for us. I think I've been saying on these calls that we always knew that the offshore energy business would be both U.S. and international work. The fact that we now have a slowdown in the U.S., as we are seeing, means that the international work had to be addressed earlier. We started that almost two years ago to talk to clients that we have here in the U.S. about their European operations. We have been bidding very actively for that work starting in 2027 and onwards. It's offshore wind farms as large volumes of rock needed for the offshore wind farms, but also the power cable or transmission cables that are being installed in Europe require a lot of rock protection.

It's a large market, and we are actively engaged in bidding for that work. There have also been discussions around the communication cables, the sabotage that's been happening in the Baltics, and the, let's say, unprotected infrastructure that you see in the North Sea of oil and gas pipelines. There are discussions ongoing on how to protect those from sabotage. There are several markets here which are interesting for Arcadia.

Thanks, Lasse. I appreciate that color. As far as I think you mentioned, Scott, drydocks are in Q3 going to be three. Is there any setup for Q4 as well currently?

Speaker 0

Right now, and again, the caveat, these can still ebb and flow left or right. We have two planned at various times, not necessarily full quarter, during Q4. I'll answer the next question you didn't ask. Because it was such a heavy drydock year this year, we expect to see a lower-than-average drydock schedule for 2026.

To clear up on cash flow, what was the operating cash flow Q2, and do you have any thoughts about second half cash flow?

Yeah, Q2 operating cash flow was right around $30 million. I'm sorry, about $60 million for operating cash flow. As I mentioned on the call, free cash flow for the first half of the year, well above $30 million. We expect to see, I'm not going to say the numbers will be the same, but this year is going to look like a normal year. The bookend quarters, Q1 and Q4, will be the strongest, and the middle ones, something less. We saw that the first half of the year. My expectation is we'll see that in the second half of the year. I think we do still have to finish up the payments on the Amelia Island. We obviously have some more to do on the Arcadia for this year. We still have some CapEx this year.

My guess is if you just kind of look at total cash flow second half of the year, we'll be probably flattish, give or take. As we talked about next year, as the new build program winds down at the beginning of the year, that's when we really start generating cash.

Great. Sounds good.

Speaker 3

Thank you. As a reminder, to ask a question, please press *11 on your telephone. Our next question comes from the line of Jon Tanwanteng of CJS Securities. Your line is now open.

Good morning. It's Jeremy on for John. Thanks for taking the time to take questions. How should we think about capital allocation beyond CapEx? Given the stronger performance, has your preference shifted more towards repurchases versus debt paydown?

Speaker 0

No, I think with where we're at now, I think we kind of go back to the priorities we had been stating all along. Let's get through the new build program and then let's start delivering the new build program. I mean, the buyback program we put in place was more a reaction to the softball that the market gave us where we just saw this huge depression in the stock price. We put the program in place. We were able to take some swings at it at a very depressed price. Now, as long as we see the price where it's at or higher, not that we think it's properly valued now, we'll just go back to the other priority. The program's still in place. If we see another huge disconnect, we can always start nibbling again.

Right now, as I see it, let's get through the new build program and then let's start delivering.

Makes sense. Thank you. Can you just discuss the expansion of the revolving credit facility and the rationale behind doing so?

Yeah, a couple of things drove that. We did have on our second lien paper the ability to upsize it by $50 million that expired during the second quarter. We weren't going to take it, but we did have the opportunity to upsize the revolver at much, much more favorable pricing to the tune of $30 million. We did it. Also, with the LNG work that we have and the progress we're making on the offshore energy, those projects typically require letters of credit as opposed to the base dredging business, which are usually surety bonds. The revolver for us is not just a mechanism to borrow cash. It's also the facility that we use to issue letters of credit. You'll see we're going to issue our 10Q later today. We have roughly $60 million of letters of credit outstanding right now to support the LNG and offshore energy backlog.

Awesome. Thank you.

Speaker 3

Thank you. I'm showing no further questions at this time, so I would now like to turn it back to Eric Birge for closing remarks.

Speaker 2

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

Speaker 3

Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.