Great Lakes Dredge & Dock Corporation

Good day and thank you for standing by. Welcome to the third quarter 2022 Great Lakes Dredge and Dock Corporation 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. You will then hear an automated message advising your hand is raised. Please be advised that today's conference is being recorded. I will now let the hand of conference over to your speaker today. Tina Boginskis, Director of Investor Relations. Please go ahead.

Thank you. Good morning and welcome to our third 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. Lassa 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 Lassa.

Thank you, Tina. During the third quarter, we continue to navigate a challenging operating environment driven by the continued delayed bid market, inflationary pressures, and continued impact from the second quarter's tight condition claims on certain projects. Overall year-to-date, bid volumes from the Army Corps sits at 90% of the 2021 year-to-date volumes, as we have seen some good improvements in bid volumes during Q3. Unfortunately, the severe delay in the bid market that we have seen through Q1 and Q2 this year had a significant impact on our fleet utilization in Q2 and Q3, as a portion of our annual revenues comes from projects bid and executed within the year, which we call book and burn. These projects are typically beach re-nourishment projects, And these volumes were only 53% of the 2021 bid market volumes. When these projects get delayed and or not tendered, it impacts the fleet utilization for the industry, both for Great Lakes and for our competitors. And we both have then dredges tied to the dock with no work. In September, we had nine major dredges in dry dockings or idle. We have used the time efficiently to accelerate repairs and maintenance work. And currently, the dredges are back in normal operations. We have held numerous and constructive discussions with the Army Corps leadership on what is impacting the bid market and how to resolve the issues. And we have started to see positive developments. In the latter part of Q3, the bid market gained momentum and Great Lakes won 50.1% of the volume's bid as we were awarded $338.9 million in dredging projects and open options, ending the quarter with $452.6 million of dredging backlog and $625.7 million in open options and projects pending award. The Army Corps continues to receive record funding, so we are optimistic that this situation is temporary, and we see a return to more normal market conditions over the next quarters, as more projects are scheduled to bid in Q4 and also into Q1 of 2023. During the quarter, we have seen inflationary pressures impacting cost of labor, cost of spares and consumables, and subcontractor pricing. Scott will give further details, but as an example, a cost of wire rope which we use a lot for our winches and cranes, has increased more than 100% since 2021. In our second quarter earnings call, we elaborated on an unusual number of projects that encountered differing and unanticipated site conditions and mentioned that this would also impact our operations in third quarter. Varying site conditions on projects are not uncommon. and there are established methodologies for resolving these contractually. Unfortunately, this takes time and revenue and profit recognition are delayed until these discussions are agreed upon. As we did back in 2017 when we went through a challenging environment, we are taking prompt and strong action to adjust to this situation. We will reduce operating expense by keeping the oldest and least productive dredges at the dock with minimum crewing. We are rationalizing our fleet of older support equipment. We have accelerated needle repairs to the most productive parts of our fleet to optimize production going forward. And our cost reduction initiatives are proving out as our SG&A is currently well below prior year, even in spite of the inflationary pressures we have experienced. Our fleet renewal program is moving forward as planned, commissioning several of our oldest dredges in 2017. We have invested in productivity upgrades to our best-performing vessels, and our new hopper dredge, the Galveston Island, will be ready for operation in the first half of 2023, and her sister ship is expected to be ready for operation in the first half of 2025. The delivery of the Galveston Island will provide us with added capacity and the opportunity to potentially retire some of our older dredges, which will have a positive impact on our overall margins in the coming years. These days, we are mobilizing our Empire Offshore Wind project team in Houston. This project for Equinor and BP with expected offshore rock installation started in 2025 is a solid start on a new venture to participate in the U.S. offshore wind market. We have entered and are in discussions with several other wind farm developers for projects commencing rock placement in 2025 and beyond, and are very optimistic to have a full work schedule for a new rock installation vessel as she starts operation in 2025. As we enter the fourth quarter, we expect results to improve as the fleet is busy, both for Q4 and for the first quarter of next year. We believe the fundamentals are in place for a return to a more normal dredging market in 2023. We believe the issues we have encountered this year are short-term in nature, and the ongoing demand for dredging services and a new and upgraded dredging fleet combined with a strategy for growth in the offshore wind market is a solid path for our company. I will now turn the call over to Scott to further discuss the results of the quarter and the year, and then I'll provide some further commentary around the markets and our business.