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spk01: 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.
spk00: 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.
spk04: 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.
spk05: Thank you, Lhasa, and good morning, everyone. Let me start by walking through our third quarter results in which contract revenues were $158.3 million Net loss was $9.9 million and adjusted EBITDA was $1.3 million. Revenue of $158.3 million in the third quarter decreased $10.3 million from the prior year third quarter, mostly driven by lower domestic capital and maintenance revenue, partially offset by higher coastal protection revenue. Third quarter 2022 revenue came in about $10 million below the guidance given on the last earnings call primarily due to the lack of book and burn beach and maintenance work that we typically see in the third quarter. For context, we had nine dredges either idle or in dry dock in September 2022 compared to just one idle dredge in September 2021. Current quarter gross profit and gross profit margin was $3.8 million and 2.4% respectively compared to $36.3 million and 21.5% respectively in the third quarter of 2021 and was lower than the guidance given on the last call, partially due to the lower than expected utilization and revenue previously mentioned. In addition, further differing site conditions on two of the projects we discussed last quarter contributed to the lower margin. These impacts will be added to the claims that we are working closely with our clients to resolve. We also experienced continued inflationary pressures on consumables in addition to rising diesel prices, which impacted the unhedged portion of our fuel, as we typically hedge around 80% of our estimated fuel usage. Finally, we accelerated maintenance and repairs on a number of our vessels that had unexpected downtime, mostly due to the previously mentioned lack of book and burn, though the cost Though the cost to do this maintenance impacts the current quarter, we felt it was prudent to take advantage of the downtime to set us up for next year. Operating loss for the current quarter of $9.5 million decreased from prior year quarters operating income of $21.4 million, primarily due to the lower gross profit, offset partially by a decrease in general and administrative expenses. Third quarter 2022 G&A of $13.3 million decreased $1.9 million from the prior year third quarter, primarily due to lower incentive expense and lower Houston relocation costs and was slightly below guidance due to the continued focus on cost savings. Net interest expense of $3.4 million for the third quarter 2022 came in at guidance. and was down from $4.2 million in the third quarter of 2021, primarily due to additional capitalized interest for the new builds. Third quarter 2022 income tax benefit of $3.3 million compared to income tax expense of $3.2 million for the same quarter of 2021 and was driven by the lower current quarter income. Rounding out the P&L, net loss for the third quarter of 2022 was $9.9 million, down from $13.8 million of net income in the prior year quarter. Next, we turn to our balance sheet, where we ended the third quarter with $38.8 million in cash. Third quarter 2022 capital expenditures were $33.7 million, which includes $11.1 million for our new scouts and multicasts, $8.5 million for the Galveston Island new build, $8.2 million in maintenance and other CapEx, $5.1 million for our second new hopper dredge, and $800,000 for the subsea rock installation vessel. I'll conclude with some commentary on the upcoming quarter. We expect fourth quarter 2022 revenues to be between $175 and $185 million as we are already seeing an uptick in utilization as currently 11 of our blue water dredges are working. Two others, the Padre Island and the Ellis Island, are undergoing their regulatory dry dockings and are expected to get back to work at the conclusion of their shipyard stays in December. Finally, we have brought two of our older dredges to the dock, which will drastically reduce crew and other costs, but gives us the ability to quickly bring them back to work if opportunities present themselves. We expect fourth quarter gross profit margin to be in the high single digits with some remaining drag from the issues around production and inflation encountered during the second and third quarters, the continued impact of high diesel prices on the unhedged portion of our fuel, the mix of projects in backlog, and the Ellis and Padre dry dockings. Fourth quarter G&A and net interest expense should remain relatively flat from the prior quarter. Inclusive of our three ongoing new builds, we expect fourth quarter CapEx to be approximately $55 million, taking full year CapEx to approximately $155 million. During the fourth quarter, we drew $10 million on our credit facility to support the new bill payments. Despite the challenges we faced this year, our liquidity remains strong. Our notes, which were refinanced last year at a very attractive 5.25% interest rate, don't mature until 2029, and our recently upsized $300 million revolver runs until mid-2027. These well-timed moves along with an improving bid market, support our new build initiative, setting us up for future growth. With that, I will turn the call back over to Lasse for his remarks on the outlook moving forward.
spk04: Thank you, Scott. As indicated earlier, bidding was delayed in the first half of the year, which then impacted the 2022 utilization. The bid market has picked up in the third quarter, which points to improved utilization in 2023. although some of the new phases on larger port deepening projects previously planned to bid in Q4 will likely slip into Q1 and Q2 next year. We expect port deepening projects to continue in 2023 for the ports of Freeport, Sabine, Euston, Corpus Christi, Norfolk and Mobile. The LNG projects we have been continue to update their plans in light of the changed energy situation in the EU and early works on the site has been initiated. We are in the process of updating our estimates for these projects, but final FID has not yet been authorized. We continue to see strong support from Congress for infrastructure investments and for the dredging industry. July 28 this year, the Senate passed a version of the Water Resource Development Act, or BRDA, which includes legislation that authorizes about $25 billion to help finance 20 new or modified U.S. Army Corps of Engineers projects for flood and hurricane protection, dredging, ecosystem restoration, and other construction projects. Since the House passed their version also recently, the legislation is expected to be conferenced and signed into law by President Biden in short order. As of July 28, both the Senate and House passed their respective fiscal year 2023 US Army Corps of Engineers budget proposals. The Senate's proposal was $8.7 billion and the House proposal was $8.9 billion. Prior to sending to President Biden for his signature, the House and Senate will meet to agree on a final amount, which will likely be another record budget for the Corps. And this will be under continued resolution until mid-December this year. And this increased budget and the funding from the Biden administration's infrastructure bill support our expectation of a stronger bid market entering 2023. We continue to see strong prevailing activity within the offshore wind market in the United States. Great Lakes has already been awarded by Equinor and BP the rock installation contract for the Empire Wind 1 and 2 projects with installation windows in 2025 and 26, which is expected to power more than 1 million homes in the state of New York. In parallel to the rock installation, there's a build, and this first contract We are bidding for a multitude of other offshore wind farm projects with rock installation planned for late 2025 and on. Major wind farm developers like Equinor, Dominion, Ørsted, Avangrid, and US Wind has already and they are in the process of selecting suppliers for their wind farm development. We are optimistic about securing one or more of these projects to fill up our backlog, providing solid utilization for our vessel from 2025 and onward. In conclusion, entering this year, we thought the worst effects of COVID was behind us, and with solid funding for dredging, that we would have yet another good year. However, the delayed bid market in dredging, combined with inflationary pressures, supply chain constraints, and change site conditions on projects severely impacted our results for Q2 and Q3 this year. In spite of these current difficulties, we maintain positive that Great Lakes' strong performance over the past five years after restructuring a rationalization program in 2017 has allowed us to not only manage through this challenging year, but has provided us with the ability to continue our strategy of investing in our fleet to improve our overall margin profile while executing on a strategy to invest in the rapidly growing offshore wind market that provide flying diversification and a new source of revenue growth. And with that, I turn the call over for questions.
spk01: Thank you. And as a reminder, if you have a question, please press star 11. Once again, to ask a question, please press star 11. Please stand by while we compile the Q&A roster. Our first question will come from Joe Gomes from Noble Capital. Your line is open.
spk10: Good morning, and thanks for taking the questions.
spk05: Good morning, Joe.
spk10: So I'd kind of like to start out here. You know, on the second quarter call, you gave the guidance, which obviously, you know, came in below the guidance. And just wondering, you know, that was a month in to the quarter. What changed in the last two months of the quarter or what was, you know, a surprise during the last two months of the quarter to cause that missed? especially on the gross margin side.
spk05: Yeah, no, Joe, appreciate the question. So really a handful of things. Even on the last call, as you're right, was just three months ago, we still had expectations like we typically see in a Q3 for book and burn towards the end of the quarter. That did not materialize. So utilization that we were expecting did not occur. In addition, the diesel impact, and as I'm sure you've been following, diesel has recently gone through the roof. That 20% unhedged portion based on some old legacy bids, that 20% differential came back and it was a very impactful number in the quarter. In addition, during the quarter, Two of the projects that we talked about last quarter with the differing site conditions, we had worsening differing site conditions. Again, as Lhasa talked about, that's a timing issue. We need to take the hit now, but we will add that to our claim, and we are having those conversations now with our customer, and we're comfortable they'll get resolved, but these things do take time. And then the last piece of it, which drove higher costs, was once we saw that we were going to have more dredges at the dock not working, cost of the lack in book and burn, we thought it was a really good idea, let's accelerate repairs and maintenance that we had planned for these dredges later on, take advantage of the downtime, get those out of the way, so when this market picks up, we can get back to work and not have to pause.
spk10: Can you, thank you for that. Is there any way to kind of, you know, give a, you know, a percentage of impact for these, you know, four or five different, you know, costs here? There are lower utilizations and the diesel impact for gross margin. You know, you list them, you know, which one was the most impactful? You know, I don't know if you can rank them. and break it out on a kind of a dollar basis as opposed to just saying these are the things that hit us?
spk05: Yeah. So, Joe, the four major ones that I just mentioned, the impact was about the same on all of them. There are little differences, but they really had about the same impact. The sum of those four Without those, if we didn't have them, it would have gotten us fairly close to where I think consensus was for the quarter. So these were, you know, things we did not anticipate. These are things that we typically do not see in a Q3, but all four of them were just as impactful as the others.
spk10: Okay. Thank you for that. Very, very helpful. Any impact from either hurricane Ian either positively or negatively? I understand it came right at the end of the quarter, but any impact that you could see maybe on the positive side or, again, on the negative side from the hurricane?
spk04: Yeah, the positives is that there are several large beach restoration projects that will come as a result of Hurricane Ian. However, it takes a while for the Corps to get these tenders out and bid before we can execute. So we expect these to come out to bid in Q2 next year. They will start to come out in Q2 next year. And then execution will be in the second half of next year for those beach projects, beach restoration projects.
spk05: And Joe, I will add, we had three dredges in the area, but the impact in downtown from it was very small and something that we've already contemplated for being in that area that time of year. So it did not impact operations more than just a few days.
spk10: Okay. And one last one for me, if I may. In the news here lately, obviously, was the acquisition of your competitor Weeks by Kiewit. Just wondering, kind of getting your guys' thoughts on how that may or may not change the competitive environment out there.
spk04: Yeah. The news came out here in the third quarter that Kivit was buying Weeks, and as you know, Weeks is our second-largest competitor. I know the Kivit organization from my prior life in oil and gas, and I see them as a very responsible and strong contractor with a very strong risk management strategy. program in place the acquisition doesn't change also the capacity in the industry so so we don't really see this as a major change for us so it competitively okay great thanks for taking the questions thank you one moment for our next question please
spk01: And our next question comes from Adam Thalheimer from Thompson Davis. Your line is open.
spk06: Hey, good morning, guys.
spk01: Good morning, Adam.
spk06: The two jobs that had the site conditions remained challenging in Q3. When did those jobs complete?
spk05: They both roll into next year.
spk06: And then what would be your thought, I guess, either positively or negatively on, you know, further surprises?
spk05: I mean, you know, both of these jobs now are, you know, well over 50% done. So I think we have a pretty good feel, you know, of what's there. But again, it can happen. We see, you know, we do as much pre-work and sampling that we can prior to, but we can't sample every area. And it can happen, but I do believe just as far as we are into these projects that we have a pretty good idea of those conditions and would not expect to see anything getting worse.
spk06: Okay. Got it. And then the nine major dredges that were either in dry docking or idle in September, how many of those were idle? of the nine?
spk05: Yeah, well, we had the two that were in dry docks, and then others were either between jobs getting ready to go to the backlog or book and burn that we thought we'd have that we didn't, and some of them already had scheduled repairs and maintenance, so a mix of those. But We just decided it was prudent. Let's take advantage of it and do it. But then, as I noted, as we sit here today, 11 of our vessels are working. So that was temporary, and we are getting our dredges back to work.
spk06: Okay. That's what I was trying to get a sense of. Are any of them still idle today, or everybody's working today?
spk05: Yeah. So as I mentioned, we have 11 working. We have still the two in dry dock. and then we have taken two to the dock, and we are going to drastically reduce costs on those two, but we can quickly bring them back if opportunities present themselves. So when we get to December, we'll have the two hoppers finish their dry dock. Besides those two sitting at the dock, it looks pretty good for Q1 right now. We still have some space to fill, but nothing that is unusual, and we had some really good momentum in Q3 in the bid market.
spk06: Okay. So I don't want to put words in your mouth, but when do you think we can get back to historical high teens gross margins?
spk05: So one of the challenges we have right now, even though We did see a much stronger bid market in Q3. It is the mix of work. We have not seen the level of capital projects this year bidding that we have in the past. Year to date, the capital project bid market is half of where it was a year ago. And as you know, that's the high margin work that we do very well on. So the current mix of backlog has lower high margin work than we typically see. The good news, though, is between now and the end of the first quarter, we have visibility to nine capital projects to be bid. Lhasa mentioned a number of them in his commentary. So we do see it coming, but these are jobs that got pushed to the right that should have bid already and have not, but are on the slate now the way we see it to bid in Q1. Okay.
spk06: So this... You mentioned six of them in the press release, Freeport, Sabine, Houston, Corpus Christi, Norfolk, Mobile. So those bids are actually earlier in 23 versus later.
spk05: That is correct.
spk06: Okay. That's encouraging. And then last one, the large LNG project, can you just update us on the timing of when that might first flip into backlog and then actually flip into construction?
spk04: Yeah. As I said, these projects are waiting for a final investment decision by the developers. And that final investment decision is dependent on several things. One is long-term supply contracts and also financing from the banks on the back of those supply contracts. We are seeing that the developers are updating their plans. We have been asked for price re-estimates. So if there is a positive FID later this year on one of them, we would see dredging starting in the second half of next year.
spk06: Great. Okay. Good luck in Q4. Thank you. Thank you.
spk01: Thank you. One moment for our next question, please. Our next question will come from John Tan Wintang from CJS Securities. Your line is open.
spk08: Hi, good morning, and thank you for taking my questions. Scott, I was wondering if you could break out in Q4 what you expect to be the impact of these lingering effects from change orders as well as inflation and dry docking expenses. And then second, maybe if you could answer what amount of expenses did you pull in from 23 on a maintenance basis just for the idle time that you had?
spk05: Yeah, so looking at the continuing impact again, I still think we're going to see some pressure on diesel. I mean, just in these last couple of weeks, it continues to increase to levels we haven't seen in a very long time. As I mentioned earlier, I don't think we'll see any continuing furthering differing site conditions on those projects. So I think we have a pretty good feel of the estimates of those. When I guided to the high single digits and then we have the dry docking, it contemplates everything that I just spoke of, the continued drag on some of them, and then I think we'll see continued inflationary pressure. So all of that is baked into the guidance that I gave on that I'm sorry, what was the second part of the question?
spk08: How much maintenance did you pull in?
spk05: Yeah, so during the quarter, we had planned maintenance on a handful of vessels already. There were three others in addition to the dry dockings. that were planned to be done either in Q4 or the first half of next year that we did. So, you know, between those unplanned ones, it was probably $4 to $5 million.
spk08: Okay, great. That's helpful. Second, just on your hedging program with the fuel, you mentioned you're 80% hedged on some legacy contracts. What is your level of hedging on projects that you're signing now?
spk05: Yeah, so we don't change the philosophy around our hedging program. We will, as we put on new bids, we still do that 80%, but we will put in the bid at the current rate, and then we will go ahead and hedge that portion. So we've always had this 20% exposure. Sometimes it works in our favor. Most of the time it is relatively flat, and then we have a quarter like this where it really hit us. So the philosophy hasn't changed. It's just we now know when we put in new bids, we are going to bid it at these higher prices and then hedge 80% of that right away to take that risk off the table.
spk08: Understood. Thank you. And then finally, in your discussions with the Army Corps, what gives you the confidence that awards will, I guess, improve to a more normalized rate? My understanding is that they're lacking manpower, and I don't know how quickly something like that could be turned around.
spk04: Yeah. In our discussions with the Army Corps, we are highlighting the issues that we see compared year by year on the bid volumes coming out. And we have seen a good pickup in third quarter. We have had detailed discussion on the port deepening bids that this schedule to come out or was scheduled to come out in fourth quarter. We know they are slipping into Q1 of next year. The Corps is well aware of the issues and are very keen to get back to our normal bid volumes. What gives me reason for optimism is the fact that funds are now being made, are available for the Corps for these projects, and our strong work on the Harbour Maintenance Trust Fund in the last years has secured that funding going forward.
spk11: Got it. Thank you, Les.
spk01: Thank you. One moment for our next question. And our next question will come from Andrew Casella from Deutsche Bank. Your line is open.
spk07: Hi. Thanks for taking the questions. I wanted to ask, just to remind us again, when you bid on a project, how quickly do you start mobilizing and getting funding for that? I guess as we think about the comments you were making on some of the capital projects that are bidding in the first quarter, does that essentially assume that you'll be mobilized as soon as you make the bid? Or just remind us again on that mechanism.
spk04: Yeah. Typically, what happens is that you bid the work, and if you are the low bidder, It takes four to five weeks to get that confirmed and turned into being a contract. And then it takes us some weeks to mobilize on the project. So typically between six and eight weeks. Could take longer, but if we want to go quickly on to the job, that's the timeframe.
spk07: Got it. So with that in mind, I guess as a follow-up to the question about kind of getting back to the high teams margin, certainly with the understanding that the mix needs to include some of these capital projects, it seems like that's a second half 23 event versus it being any time sooner.
spk04: Yes, I think that's okay.
spk07: Okay, got it. And then just as far as some of the cash sources and uses as we think about next year, and obviously with EBITDA running at these lower levels, I mean, definitely going to – with the CapEx program definitely going to, you know, strain liquidity a bit. Can you just remind us again how you're thinking about CapEx for 2023 and then just any comments on kind of how you're thinking about working capital?
spk05: Yeah, sure. So we expect, I gave 155 roughly for 2022. We expect next year to look about the same. You know, as we continue with the new build programs, we'll take delivery of the Galveston Islands. in the first part of the year, but will continue with the progress on the second hopper and the wind vessel. So CAPEX should remain relatively flat. We did recently upsize our revolver, and the plan all along was that we would use the revolver as short-term bridge financing. during this new build period so even you know in light of the 2022 results that did not change the way we were thinking about it we had always anticipated that our cap ...driven by the new build program would exceed operating cash flow starting in 2022. We will take delivery of the Galveston next year and in 2025 have all the new vessels in our toolkit quickly start building up cash again and quickly get the revolver paid off starting in 2025. Okay, got it.
spk07: And then final question for me, as you think about, you know, bidding on new contracts, does, you know, certainly this period of excess inflation and just how, I guess, broad it's been, is there a way to change some of the contractual mechanisms where you make it either more formulaic, where you're more protected, I guess, in kind of the you know, when you make the bid versus when it's executed. Just curious if there's a possibility of kind of changing some of those mechanisms on the prospective basis.
spk04: Generally, when you do a rip and read bid for the core, you cannot change those conditions. What we do do is to update our cost estimates and make sure that we include for the increased cost of consumables and fuel and so forth. If it's RFP, it's a different way of bidding. And then there could be different contractual requirements. You could have a way it's being put to your execution plan, to your people, your experience, and the type of equipment that you bring to the client. So there you have a better opportunity to change some of these items that otherwise is fixed.
spk05: And I'll add, you know, it's one of the you know, advantage of the diversification we're looking at to get into the offshore wind business. Those are more traditional RFP-type contracts where we're able to negotiate in escalation clauses and things like that to help de-risk some of these issues that we've seen.
spk07: Okay, I've got it. Thanks so much. I'll get back in the queue.
spk01: Thank you. One moment for our next question, please. Our next question will come from John Tangwatang from CJS Securities. Your line is open.
spk08: Hi. Thanks for the follow-up. My question is just on the offshore wind industry. I was wondering if you could just give us a little more color on the health of that market. I read yesterday that the Massachusetts Commonwealth wind project was endangered due to rising costs. Number one, are you bidding on that? Are there any other projects of that kind of headwind?
spk04: Yeah. In general, there are a number of projects that are scheduled for start installation in 25 and 26 and 27. We have bids out for all of the ones that are now starting up and being planned here in the early phases. There will be some movements on these projects. We know that from history and large projects. There are hearings. There are approvals that needs to be obtained. And there has been some talk about supply chain on generators that is delaying some of the plans for the developers. There is also a trend towards larger generators. Currently, they're looking at 15 megawatts per tower. There are talks about a 20 megawatt turbine, and clearly the economics of the developments are better with larger generators per item. So these things are included in the developer's consideration, but we are fairly optimistic that several of these projects will go forward with ROC installation in 2025 and 26. As I said, we already have a contract in place with Equinor and BP for Empire Wind. and we need one more contract to have a good utilization as we get into 2025. Got it.
spk08: One more question just on the language that you've used in your prepared remarks in the press release over performance obligations and options versus your prior, I guess, low-good pending award. What's the difference there, and is there anything we need to be thinking about?
spk05: Yeah, it's no different. We just clarified and used different terminology. The low bids always included options as well, so we just put that clarifying language, but you don't need to think about it any different than you have been in the past.
spk08: Should we think about performance obligations as backlog?
spk05: Yeah, yes, they will eventually turn into backlog.
spk08: Okay, and that's from the Equinor project.
spk05: So the backlog that we listed excludes the Equinor project. So you will see us starting to refer to dredging backlog. So the backlog numbers are dredging. Then in addition, we have the Equinor contract.
spk08: Understood. Thank you.
spk01: Thank you. One moment for our next question, please. Our next question will come from Andrew Casella from Deutsche Bank. Your line is open.
spk07: Hi, thanks for taking the follow-up. Just, I'm not sure if you guys disclosed this, but do you have, you know, I guess the total quantum of claims you're kind of making on these two site condition issues? I guess just trying to understand what the P&L opportunity is ultimately and then, you know, any sense of when you potentially could kind of resolve that since it's been a lingering issue and seems like it'll You know, it seems like it's been going on for a couple quarters now.
spk05: Yeah, and, you know, as Lassa said, these are not unusual. These happen quite often. What's unusual is the size of these and that we had multiple larger ones hit in the same period. So, again, this is normal operation. I will tell you, in addition to these two, again, there's a number of these just normal course of business that we have all along. Between all the potential claims right now, it's in the $10 to $20 million range. Not that we will necessarily settle every single one of these at 100 cents on the dollar, but our success rate has been very good in the past, so we do expect to get a large portion of that. These do take time, though. Getting, you know, our discussions with our clients, getting them to agree that there's merit to it, that typically is fairly easy. We can all agree that we thought the conditions were going to be X and they turned out to be Y. Then it's quantifying the impact of those differing site conditions that just take a little time to work through. So I don't expect either of these that I called out to get resolved this year. but we have a lot of people focused on it. We have ongoing conversations. We're motivated to get these done, but I do think it's going to be a first half of next year.
spk07: Got it. And just as far as the mechanism with that, do you have to, I mean, is this a rolling process where, you know, you'll have the, I guess the quantum of the issues you had in the second quarter, you go to the, you know, the customer side, try to get those back, then you have additional ones in third quarter, or do you have to kind of wait to the end of the project to go back and, I guess, resolve all of them all at once?
spk05: Yeah. Typically, the resolution occurs at the end of the project. The conversations start immediately.
spk07: Okay, great. Thanks so much.
spk01: Thank you. As a reminder, to ask a question, please press star 1-1. One moment for our next question. Our next question will come from William Feely from Feely Capital Markets. Your line is open.
spk09: Good morning, gentlemen. Good morning. Two brief questions. The first question is whether the difficulties in the Mississippi River and low drafts and that sort of thing represents an opportunity for GLDD or not. And then second, and excuse me if I'm not up to date on this issue, but would it be troublesome to ask for maybe a two-minute update on sort of the state of play, if you will, generally speaking, on a lot of discussions that seem to be going on about the Jones Act and the impact on GLTD?
spk04: Yeah, the water levels in the Mississippi River is extraordinary low, which gives challenges for the navigation on the river. We have several projects in the area. We have been asked if we have a large coverage available to go in and help out. And so it adds some work. It typically worked at for us, but it's on the rivers and lakes part of our business. And it has work that is different from previous years, where previous years we have much more sedimentation in the outer part of the delta, which is not happening this year, which then gives work for hopper dredges typically. So the nature of the work has changed. I don't know what you are referring to with the Jones Act. Could you clarify?
spk09: You know, next quarter, I'll study the issue in the meanwhile. It seems to me there's been a lot of discussion about the benefits of, you know, waiving it or eliminating it. I think it relates to the LNG market. You know, but I'm not... I'm not up to date on the topic, so let's just leave that.
spk04: I can give a quick comment. That is that the support for the Jones Act and the Dredging Act is extremely strong in Congress. There are very strong support for the Jones Act from a national security point of view, and that is in support of both domestic shipping and also for dredging. Every time there is a natural disaster that hits, there are speculators, oil traders that are speculating in getting dispensations for delivery of LNG and diesel. That happened this time too, this dispensation. There is a system in place for waiving the Jones Act in time of national emergency. We don't think this time was a national emergency, but there was a dispensation given.
spk09: Okay. Thanks so much, Lassa.
spk01: Thank you. One moment for our next question, please. Our next question will come from Steven Hansel from Eclectic Investment Partners. Your line is open. Please check that your line is not on mute.
spk11: Thank you.
spk02: Can you speak to the projected economics of the wind farm business relative to other parts of your business?
spk05: Yeah, I'll take that. Yeah, we have said all along that the margins that we will see on the wind business are at the upper echelons of what we see on our most lucrative capital projects on the dredging side. So our expectation in the early years, and we think we can push it after that, is that we are in the 30%, low to mid 30% range. range margins. And again, I think we have expectations that we can continue to push on that.
spk02: And are there any different competitors that you expect in that business?
spk04: Currently, there are two components to this. Part of the work needs to be, can be done by international contractors if they go to Canada and pick up the rock there. And the other part is strictly Jones Act. Clearly, there is opportunity for competition with the international contractors, such as Puskalis and Dimi, Van Oort, Jan Den Ull, which are the active contractors in the North Sea. And then on the Jones Act, there is no other rock installation vessel being built. And I would like to just make a comment also. In the United States, for the next 10 years, the plans are for 30 gigawatts of offshore wind generation capacity to be installed. In Europe, they're looking at 200 gigawatts, which will put a very high demand on all the international vessels to participate in that market. So we do believe that we have a very strong competitive position here in the United States, in the U.S.
spk02: market. Final question. Did you consider – I think the stock sort of signaled an early warning, but did you consider giving one during the quarter when – it became more obvious that numbers were going to be significantly different from what had been projected?
spk05: So, you know, top line, you know, we were, I think, fairly in line with consensus. You know, we have been, you know, signaling for some time that we would continue to feel a lot of the pressures that we felt in Q2, that those would continue into Q3. You know, I don't know if everybody contemplated and, you know, took what we were saying, you know, as the truth, but it was something we believed. So this was, except for that book and burn piece, you know, which again, we really thought we would vessels to work and didn't, you know, again, we knew all these other pressures that we saw were going to continue. And, you know, I think we signaled them pretty strongly on the last call that, you know, this would continue for some time.
spk02: Okay. Thank you very much.
spk01: Thank you. And I am showing no further questions from our phone lines, and I'd like to turn the conference back over to Tina Baginskis for any closing remarks.
spk00: Thank you. We appreciate the support of our shareholders, employees, and business partners, and we thank you for joining us in this discussion about the important developments and initiatives in our business. We look forward to speaking with you during our next earnings discussion. Thank you.
spk01: Thank you. This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.
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