Great Lakes Dredge & Dock Corporation

Good day and thank you for standing by. Welcome to the Q2 2022 Great Lakes Dredge and DOT 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 star 11 on your telephone. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Tina Beginsis, Director, Investor Relations and Financial Planning. Please go ahead.

Good morning and welcome to our second quarter conference call. Joining me on the call this morning is our President and Chief Executive Officer, Lassa Pettersson, and our Chief Financial Officer, Scott Kornblau. LASA will provide an update on the events of the quarter. Then Scott will continue with an update on our financial results for the quarter. LASA will conclude with an update on the outlook for the business and market. Following their comments, there will be an opportunity for questions. During this call, we will make certain forward-looking statements to help you understand our business. These statements involve a number of risks, uncertainties, and other factors that could cause actual results to differ materially from our expectations. Certain risk factors inherent in our business are set forth in our earnings release and in filings with the SEC, including our 2021 Form 10-K and subsequent filings. During this call, we also refer to certain non-GAAP financial measures, including adjusted EBITDA, which are explained in the net income to adjusted EBITDA reconciliation attached to our earnings release and posted on our investor relations website, along with certain other operating data. With that, I will turn the call over to Lhasa.

Thank you, Tina. As stated in our earnings release, second quarter results did not meet expectations. As we navigated challenging environments, driven by external factors including supply chain delays, inflationary pressures, and adverse weather conditions, combined with some atypical dredging project challenges. During the quarter, we had three projects encountering differing and unanticipated site conditions, which negatively impacted production and in turn margins. We are now working to resolve the cost impacts through contractual discussions with our customers. However, revenue and profit recognition is delayed until these discussions are agreed upon and finalized. We also had several projects impacted by unseasonably rough sea conditions along the East Coast. These weather events caused several vessels to stop operating and seek shelter. which extended completion timelines and delayed scheduled commencement or work on subsequent projects. Our project estimates include weather event days based upon historic weather records. Unfortunately, weather patterns seem to be changing, and we will, on future projects, adjust the estimates to include more frequent severe weather. Although these severe weather events cause short-term impacts to our projects, they also cause an increase in beach and barrier island erosion and sedimentation of shipping channels and ports that in turn need to be re-nourished and maintained in the following years, which add to the recurring nature of our business. During the quarter, we saw inflation impact labor, operating supply costs, and the cost of dry dockings. Moreover, supply chain issues extended the duration of dry dockings and delayed mobilization on several projects. The high-earning hopper dredge Liberty Island had her dry dock extended by several weeks, as installation of her new system for automation and dredge process systems were delayed. Also, the delivery of the Corallina's new emission reduction equipment was delivered late. which delayed her mobilization by about a month to the Houston Ship Channel project, where she eventually started work in third quarter in July. These extended idle periods increased the cost of the dry dockings. However, the following impact on the delayed start and scheduled completion of their assigned projects had a major impact on our Q2 results. Bidding for projects for the core was unusually slow in Q1 and for the two first months of Q2, resulting in delayed bidding for beach and maintenance projects that we have historically seen in the second quarter for execution in the current year. Since these bids for new dredge projects did not materialize as early as in previous years, two dredges were idle for part of the second quarter. Bidding is now picking up to Q3, and we expect the full year's bid market for the U.S. Army Corps of Engineers to be as strong as 2021. And in addition, the bid market for private and state and local clients will this year be substantial, with the bids for Port of Houston Project 11, Phase 2, and potentially Phase 3, and the potential notice to proceed on one or more of the pending LNG projects. As we enter Q3, we are focused on ensuring that new projects start up and are executed on schedule, as well as mitigating and resolving the contractual issues from the events in the first half of the year. However, we do not anticipate meeting a full year's expectation as the effect of the first half year events is not expected to be fully recovered in the second half of the year. In spite of the short-term challenges, the outlook for Great Lakes remains strong. We continue to see increased market demand from the U.S. Army Corps of Engineers, backed by strong government support that we expect will benefit Great Lakes and our market position in the coming years. The energy situation in Europe is driving the LNG exports facilities here in the U.S. towards final FID, which we expect to add to our markets in 2023 and 2024. Our new build program is on schedule with the new hopper dredge, the Galveston Island, which is expected to be ready for operation in the first half of 2023. In addition, in June, we announced the exercise of the option to build the Galveston Island sister ship, which will be ready for operation in 2025. After decommissioning several of our oldest dredges in 2017, we have invested in productivity upgrades to our best performing vessels. Throughout our fleet renewal program, we are installing newer, more efficient port tier engines that will help conserve fuel and reduce emissions. Our fleet is already using low sulfur fuel, and all our hydraulic systems are now using a biodegradable product to avoid environmental impacts from minor spills. We believe our ongoing fleet renewal program will position us well to meet the current and future market demands. Turning to our offshore wind initiative, it is gaining momentum with the formal signing of the Empire Wind rock installation contract for Equinor this past month. We are now in discussions with several of the developers for projects commencing in 2025 and are very optimistic to have a full work schedule for the vessel as she starts operation in 2025. I now turn the call over to Scott to further discuss the results of the quarter and the year and then I'll provide further commentary around the market and our business.