August 4, 2009
Great Lakes Dredge & Dock gets boost from stimulus funding
Great Lakes Dredge & Dock Corporation (NASDAQ:GLDD)-- the largest provider of dredging services in the U.S.-- today reported financial results for the quarter and six months ended June 30, 2009.
"Great Lakes had a strong first six months versus 2008, as evidenced by a 40% increase in revenues from dredging operations which drove the 65% improvement in overall gross profit for the company," said President and CEO Douglas B. Mackie. "In addition, having the benefit of stimulus funds, the Army Corps of Engineers actively bid projects which resulted in the domestic bid market's second quarter activity for 2009 almost doubling from the first quarter and increasing by more than 30% from last year's first half. This is a positive sign for the domestic market for the remainder of 2009 and into 2010."
Noting that activity levels in the Middle East have reduced, Mr. Mackie said that, "given the positive domestic market outlook, we have decided to re-position the hydraulic dredges Texas and California back to the United States to take advantage of the robust domestic activity. The Texas will be arriving later this month and begin work in September on a deepening project in Jacksonville. The California is expected to begin work in the fourth quarter."
Total revenue for the quarter ended June 30, 2009 was $142.5 million, against $145.3 million for the second quarter of 2008. Dredging revenue of $128.5 million increased 16% from a year ago as strong performances from foreign operations generated $45.5 million, domestic maintenance activities produced $43.8 million and domestic capital work provided $37.7 million. During the quarter, work continued on capital projects in Bahrain, the Ports of New York, New Jersey and Tampa, as well as on coastal restoration in Louisiana. Maintenance work continues to be a big contributor to the company's results, more than twice the 2008 second quarter maintenance revenue of $20.9 million. Beach work was at low levels in both the 2009 and 2008 second quarters. The demolition business has been negatively impacted by the economic downturn and the resulting slowdown in construction activity which resulted in reduced demolition revenue of $13.9 million versus $34.8 million a year ago.
Gross profit increased to $28.6 million for the second quarter of 2009 from $21.6 million in 2008 boosting gross profit margin (gross profit divided by revenue) to 20.0% versus 14.9% last year. Better dredging fleet utilization as a result of the mix of projects performed during the quarter and operating efficiencies on certain domestic projects more than offset mechanical issues on other domestic projects. The demolition unit's gross profit was negatively impacted by having lower revenue to cover fixed costs.
General and administrative expenses were similar to the prior year. Increased gross margin combined with stable general and administrative expenses resulted in a 63% increase in operating income to $16.8 million, up from $10.3 million in last year's second quarter.
Second quarter 2009 pretax earnings improved to $12.0 million from $5.4 million last year. Net income experienced a similar growth rate reaching $7.4 million, or $0.13 per diluted share, versus $2.9 million, or $0.05 per diluted share, a year ago. EBITDA (as defined below) was $22.6 million for the 2009 quarter compared with $15.9 million in the previous year, due to the strong operating performance in the Company's dredging segment.
As of June 30, 2009, senior and subordinated debt, net of $9.6 million in cash and cash equivalents, was $206.9 million including $41.5 million of borrowings under the revolving credit facility. At quarter end, outstanding performance letters of credit totaled $29.0 million, including $13.3 million outstanding on the company's revolving credit facility. The company's $155 million revolving credit facility matures in June 2012 and includes an $85 million sublimit for the issuance of letters of credit. At June 30, 2009 the company had $92.9 million of borrowings available under this facility, after giving effect to $7.3 million of unavailable commitment due to a defaulting lender.
Six Months Ended June 30, 2009
Revenues for the six-month period ended June 30, 2009 increased by more than 14% to $321.7 million compared with $281.0 million for the same 2008 period, primarily as a result of increased dredging activity. Gross profit margin increased to 17.3% from 11.9% a year earlier largely due to favorable dredge fleet utilization. Conversely, 2008 was negatively impacted by the mobilization of the dredge Texas to the Middle East and repairs that were being made to the dredge New York.
Operating income grew to $33.2 million from $12.0 million, due to the increase in revenue and gross profit margin. Year to date 2009 EBITDA of $51.0 million was approximately double the EBITDA for the same period of 2008.
Interest expense for the six month period increased by $0.4 million to $9.0 million as higher debt levels were largely offset by lower interest rates. Net income was $14.7 million, or $0.25 per diluted share, versus $1.8 million, or $0.03 per diluted share, a year earlier.
Second Quarter 2009 Bid Market/Backlog
Funding from the American Recovery and Reinvestment Act helped stimulate bidding in the 2009 second quarter. During the quarter, projects that were already scheduled to bid were able to increase their scope and new projects were also bid. The domestic bid market, including capital, beach and maintenance work totaled $339 million, of which maintenance projects accounted for 65%. This second quarter increase brought the year to date domestic bid market to $521 million, compared with the full year 2008 bid market of $783 million. The company won 50% of the year to date domestic bid market, including 44% of the maintenance work bid and 75% of the capital work that included new work bid and options awarded on projects in the company's backlog.
Contracted dredging backlog as of June 30, 2009 was $390 million, ($344 million at March 31, 2009). The June 30, 2009 dredging backlog does not reflect approximately $142 million of domestic low bids pending award and additional phases ("options") pending on projects currently in backlog and the amount remaining as an option on the Diyar contract. The March 31, 2009 dredging backlog did not include approximately $63 million of domestic low bids pending award and options on projects in backlog at that time. Demolition services backlog at June 30, 2009 was $23.7 million, compared with $24.1 million at March 31, 2009.
"During the first half of the year," noted Mr. Mackie, "the company experienced a high level of utilization and an improvement in domestic margins. We were able to achieve these results due to our sizable backlog, successful bidding in the domestic market, favorable weather conditions and minimal mobilization and mechanical downtime. A positive factor for the dredging industry has been the American Recovery and Reinvestment Act which sparked an increase in bidding activity during the second quarter that has continued into the third quarter.
In the Middle East, "although significant long term prospects remain, the short term is likely to be less active until the economic environment stabilizes."
Mr. Mackie said the two hydraulic dredges being mobilized to the U.S. are "two of our largest revenue producers" that will "enable us to further benefit from the stimulus plan which should keep dredges in the domestic market busy for the remainder of this year and into 2010.
A large hopper dredges currently in Bahrain will mobilize to Brazil in the third quarter. We will continue to look, if necessary, for other opportunities internationally to utilize the dredges remaining in the Middle East.
"As we look out to the rest of this year, we recognize that we will be impacted by the slowdown in the Middle East and the mobilization of our two large hydraulic dredges and one hopper dredge. Even after taking these factors into account however, based on our record performance in the first six months, our current level of backlog and our expectations for continued good domestic bidding activity, we anticipate 2009 will be a year of strong performance for Great Lakes Dredge & Dock."