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spk02: Good day and thank you for standing by. Welcome to the fourth quarter 2022 Great Lakes Dredge and Dock 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 1-1 on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded I would now like to hand the conference over to your speaker today, Tina Boginskas, Director of Investor Relations. Please go ahead.
spk01: Tina Boginskas Thank you. Good morning and welcome to our fourth quarter conference call. Joining me on the call this morning is our President and Chief Executive Officer Lassa Pedersen and our Chief Financial Officer Scott Kornblau. Lassa will provide an update on the events of the quarter and the year, then Scott will continue with an update on our financial results for the quarter and the year. 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.
spk07: Thanks, Gina. As seen in our financial results, 2022 turned out to be challenging. We entered the year with a good backlog, a solid cash position, and a record US Army Corps of Engineers budget of $8.3 billion. We had high expectations to return to normal operations after overcoming the challenges from COVID-19 in 2020 and 2021. Unfortunately, as the year progressed, we saw significant delays in the overall dredging bid market, and specifically large capital and port keeping projects were delayed, with bid dates now moved into 2023. According to our bid records, the overall dredging bid markets in the first four and a half months of 2022 was less than 50% of previous year's averages, which severely impacted our fleet utilization second half of 2022, as a portion of our annual revenues rely on projects bid and executed within the year, which we call book and burn. And typically, the majority of these projects are beach re-nourishment projects and coastal restoration projects, which carry higher margins. And overall for 2022, the bid market for beach re-nourishment projects were about only at 73% of the 2021 levels, and coastal restoration projects were at 57% of 2021 levels. To some extent, the lack of capital work was replaced by an increase in maintenance work. However, maintenance projects typically earn lower margins due to the nature of the work and the competitive landscape. As bidding picked up in the second half of the year, we won 47% of the bid volumes and ended the year with $375.5 million of dredging backlog and $594.7 million in open options and projects pending award. The US Army Corps of Engineers is the largest client, and during the year, we held numerous and constructive discussions with the Corps leadership. on what was impacting the bid market and how to resolve the issues. And we have started to see positive developments for 2023. Other external issues also significantly impacted operations. High inflations impacted projects and dry docking costs, and supply chain issues delayed dry docking completions. We experienced unseasonal and extreme weather conditions on some of our projects on the East Coast. We experienced more than normal challenging soils and site conditions on projects. Claims related to these projects are still pending resolution, and revenue and profit recognitions are impacted until these discussions are completed. The fourth quarter was impacted by the same issues as we have experienced this year. Specifically, we had significant weather impacts from storms in the northeast. The earlier than planned upper dredge requirement of the Terrapin Island dredge and both the Ellis Island and Padua Island had lengthy stays in dry dock, which increased costs and delayed revenues into 2023. We have, through the year, been taking action to adjust to the current difficult market conditions, as well as preparing for future years. We have temporarily cold-stacked two dredges and related support equipment, which will reduce operating costs. The cold-stacked dredges can easily be reactivated when we see the bid market improve. In our fleet renewal and improvement program, and the 42-year-old Hopper Dredge Terrapa Island was scheduled for retirement following the delivery of the new Hopper Dredge Galveston Island mid-2023. But a mechanical issues or major mechanical issue combined with a delayed bid market led to a decision to retire her now in the fourth quarter of 2022. And correspondingly, we have during the year been reducing our general and administration and overhead cost structure to reflect the current market conditions. Earlier this month, we had an additional 10% reduction in G&A and overhead staff, and we target a further 5% reduction in 2023 through natural attrition. As we adjust to the current market situation, We remain optimistic in the long-term outlooks for both dredging and offshore wind markets. Our ambition is to continue to be the U.S. industry leader in our selected market segments, and an important part of our strategy is to keep our fleet renewal program moving forward as planned. After decommissioning 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, is on budget and is expected to be operational in the middle of 2023. And her sister ship, the Amelia Island, is expected to be delivered in 2025. Our U.S.-flagged JOMSAT-compliant inclined four-pipe vessel for subsea rock installation It's on budget and expected to be ready for operations the first half of 2025 to start working on the Empire Wind 1 and 2 projects for Equinor and BP. And I will now turn the call over to Scott to further discuss the results of the quarter and the year, and then I will provide further commentary around the market and our business.
spk05: Thank you, Lhasa, and good morning, everyone. Let me start by walking through our fourth quarter results. which include a non-cash $8.1 million write-down for the retirement of the Tarleton Islands. For the fourth quarter of 2022, revenues were $146.7 million. Net loss was $31.2 million, and adjusted EBITDA was negative $24.2 million. Revenue of $146.7 million in the fourth quarter decreased $63.3 million from the prior year fourth quarter mostly as a result of lower capital revenue, which was driven by a substantial decrease in the Army Corps' capital projects bid in 2022 and lower coastal protection dredging revenue, partially offset by higher maintenance project revenue. Fourth quarter 2022 revenue came in lower than expected, primarily due to longer than expected dry docking of the Ellis Island and Padre Islands. the unexpected early retirement of the Terrapin Island, production issues on a few jobs, and significant downtime due to weather. Current quarter gross profit and gross profit margins were negative $16.2 million and negative 11% respectively, compared to $53 million and 25.2% respectively in the fourth quarter of 2021. Similar to revenue, Gross margin was impacted by the unexpected dry docking scope increases, which resulted in additional costs and delays for the dredges, the Ellis Island and the Padre Island. The earlier expected, earlier than expected retirement of the Terrapin Island and production issues on a few projects. The mix of projects also negatively impacted gross margins. as we had less than half the capital revenue in the fourth quarter 2022 compared to the same quarter of 2021 driven by the slow and unusual 2022 bid market. In addition, weather along the Northeast Coast continues to severely impact those jobs. During the quarter, we were working three major Northeast projects. Collectively, these jobs had over 40% downtime in the quarter due to inclement weather. We also worked several other smaller jobs along the East Coast that were similarly impacted. Operating loss for the current quarter of $36.7 million decreased from prior year quarters operating income of $36.5 million. The decrease is a result of the lower gross margin and the one-time non-cash $8 million charge due to the retirement of the Terrapin partially offset by lower general administrative expenses compared to the prior year fourth quarter. Fourth quarter 2022 GNA of $12.4 million is $4 million lower than the same quarter last year due to our continued efforts on cost reduction. Net interest expense of $3.2 million for the fourth quarter 2022 came in as expected, and was down from $4.2 million in the fourth quarter of 2021, primarily due to additional capitalized interest on the new bills. Fourth quarter 2022 income tax benefit of $8.4 million compared to income tax expense of $8 million from the same quarter of 2021 was driven by the lower current quarter income. Rounding out the P&L, net loss for the fourth quarter of 2022 was $31.2 million, down from $24.7 million of net income in the prior quarter. Turning now to our full-year results. Revenue for 2022 was $648.8 million, net loss was $34.1 million, and adjusted EBITDA was $17 million. These results represent a $77.4 million decrease in year-over-year revenue a decrease in net income of $83.5 million, and a decrease of $110.5 million in adjusted EBITDA. 2022 results were greatly hindered by rampant inflation, supply chain delays, less higher margin capital projects, significant weather delays, production issues, unplanned maintenance, and a high number of differing site conditions on projects. In addition to the slow bid market, which left us with more than expected idle time during the year. During 2022, we also had a regulatory dry docking on five dredges, including the Liberty Islands and the Ellis Islands, two of our largest and most productive dredges. In addition, we performed emission upgrades to the Carolina. Turning to our balance sheet, we ended 2022 with $6.5 million in cash and nothing drawn on our $300 million revolver. 2022 capital expenditures were $144.7 million, which included $42.9 million for the Galveston Island, $42.4 million for maintenance capex and emission upgrades, $27.2 million for the construction of new scows and multicast, $16.8 million for the design and build of the subsea rock installation vessel, and $15.4 million for the build of our second new hopper dredge, the Amelia Island. I'll conclude with some commentary on the upcoming year and quarter. We are entering the year with $377 million of backlog. However, because of the unusual 2022 bid market, only $148 million of the backlog is made up of high margin capital work. This is 39% of the prior four-year average of $379 million of capital work in backlog entering the year. Because of this, margins will be lower than historical levels during the first two to three quarters of the year. The path to normal margins returning in the fourth quarter of 2023 is contingent on the large port deepening and widening project bidding in the first half of the year. Moving to the fleet, As Lhasa mentioned earlier, we currently have two vessels cold stacked with no crews and minimal costs. If follow-on work does not materialize for a couple of other currently working older dredges, we will take similar cold stacking actions on them to take out costs. When the bid market picks up, we can quickly and efficiently reactivate these vessels. We have other cost-cutting initiatives ongoing, including the recent headcount reduction further rationalization of support equipment, and a greatly reduced operating expense budget. 2023 will be a lighter dry docking year than 2022. Currently, the Ohio is in the shipyard for her regulatory dry docking. Two other dredges are scheduled to go into dry dock this year, one in the second quarter and one in the third quarter. Timing of dry dockings are estimates and can move to the left or right depending on scheduling. Turning to capital expenditures, we expect 2023 CapEx to be around $175 million, comprised of approximately $85 million for the SRI wind vessel, $35 million and $20 million, respectively, for the Amelia Island and Galveston Island new builds, $10 million to finish construction of the multicast, and $25 million for maintenance CapEx. So far this year, we have drawn $65 million on our revolver to help fund the progress payments that were due and plan to continue utilizing the revolver and operating cash flow to support the new bill program. However, in January of this year, we applied with the Maritime Administration, or MARAD, which is a unit of the Department of Transportation for Title XI financing, which typically comes with very attractive terms. MIRAD announced in 2022 that they want to facilitate more offshore wind construction and have designated vessels like our subsea rocks installation ship as vessels of national interest, which will prioritize our application for review and funding through Title 11. While we work with MIRAD on the process, which can take up to nine months, we will continue to explore other sources of capital. Moving to the first quarter of 2023, Utilization looks solid as most of the available vessels have worked for the majority of the quarter. Both the Ellis Island and Padre Island are currently working following their dry docking. The Ohio should complete her regulatory dry docking towards the end of the first quarter and will go straight from the yard to a job. Though utilization is strong, the first quarter will be negatively impacted by some remaining drag on prior year projects that are still ongoing. Weather continues to be a problem on multiple projects in the Northeast. Finally, the projects we are working in Q1 consist of a high volume of lower margin maintenance work. With that, I will turn the call back over to Lhasa for his remarks on the outlook moving forward.
spk07: Thank you, Scott. We continue to see strong support from the Biden administration and Congress for the dredging industry. And then, as you saw in December of 2022, the Omnibus Appropriation Bill for fiscal year 2023 was passed, which included another record budget of $8.7 billion for the US Army Corps of Engineers Civil Works Program, of which $2.3 billion is provided for the Harbor Maintenance Trust Fund to maintain and modernize our nation's waterways. In addition, The Disaster Relief Supplemental Appropriations Act for fiscal year 2023 was approved, which includes an additional $1.5 billion for the Corps to make necessary repairs to infrastructure impacted by hurricanes and other natural disasters, and to initiate beach re-nourishment projects that will increase coastal resiliency. We anticipate bids for new phases for larger port deepening projects previously planned to be bid in 2022. We bid in the first half of 2023. Expected port deepening bids include the ports of Sabine, Freeport, Mobile, San Juan, Houston, Corpus Christi, and additional places on Norfolk. Included in our low-bid spending are two liquid natural gas projects that has been a waiting notice to proceed for my clients. Several North American LNG export projects have been delayed in the past couple of years during the pandemic, but these LNG projects appear to be gaining momentum and are targeting final investment decisions in 2023. Our expectation is that we will contract at least one of these major dredging projects this year. The increased budget and additional funding combined with expected bids for the delayed port deepening projects and L&D projects support our expectation for a strong 2023 bid market. At the end of the year, the Water Resources Development Act of 2022, or the WERDA 2022, was approved by Congress and signed into law by the President. is on a two-year renewal cycle that includes legislation that authorizes the financing of course projects for flood and hurricane protection, dredging, ecosystem restoration, and other construction projects over the next five years. The VERDA 22 features, among other things, authorization for the New York and New Jersey shipping channel to be deepened to 55 feet, estimated at $6 billion, as well as the Coastal Texas Program estimated at $30 billion. Finally, a few comments around offshore wind. In 2021, the current administration announced the ambitious goal of 30 gigawatts of offshore wind by 2030 and provided $3 billion in federal loan guarantees for offshore wind projects. As stated previously, Equinor and BP has already awarded great lengths the rock installation contract for the Empire Wind 1 and 2 projects. We have tendered and are in discussions with several other offshore wind farm developers for projects commencing rock placements in 2025 and beyond, which supports our plan to have a full work schedule for the FRI vessels as she starts operation in 2025. In conclusion, we have been managing through a very unusual and difficult environment in 2022. And we are starting 2023. We look forward to an improved bid market and dredging work volumes in second half of the year and onwards. Combined with delivery of the Galveston Island and the cost reduction and operational improvements initiative we have in place, we are confident to manage through the current difficult market situation and deliver improved results in 2023 and beyond. And with that, I'll turn the call over for questions.
spk02: Thank you. As a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. Please sign by while we compile the Q&A roster. Our first question comes from the line of Adam Tolimer from Thompson Davis. Your line is open.
spk03: Thanks. Good morning, guys. Can you give a little bit more details on what you're currently seeing from the Corps in terms of bidding? And then what's your confidence that the bidding will improve as we move through this year?
spk07: Yeah, I can comment on that. The last year's activity in the bid market was really the change of mix from capital works to maintenance dredging works. And we see the projects that were delayed from 2022 to 2023 has fairly, let's say, defined bid dates. So we are optimistic to see these capital projects now being bid and executed through 2023. The LNG projects will take some time before the dredging works picks up in large volumes, but that will, we see that start happening towards the end of the year.
spk03: Okay. But you're on the larger capital projects, LASA, your teams are working on those now, or you're still waiting for formal notifications from the Corps?
spk07: But what we are waiting for on the port deepening projects is for the bids to be issued to the market. And these bids for the ports that I mentioned, the port deepening that I mentioned, seems to have firm bid dates. And then from the time that the bids are issued until dredging has started, as we have said before, is typically some six to eight weeks.
spk03: Perfect. Okay. Very helpful. And then, Scott, are you willing to kind of help level set? And I think you gave a good way to think about margins for 2023, but just for Q1 specifically, I'm curious if margins for Q1 we should expect at least on the gross margin line a positive result.
spk05: Yeah, so... Adam, I'm not going to give that kind of granularity. You know, I will kind of this quarter, like I did, will continue to give updates, you know, how we see the fleet in terms of which vessels will be working, how utilization is shaping up, dry docking, if there's any challenges we're facing like we are, the weather this year, you know, and on the bid market. You know, utilization is strong this quarter. The vessels that are not cold stacker and dry dock have, you know, are working the majority or all of the quarter, but we do have the drag that I talked about. Just with all the macro drivers that do influence results quarter to quarter, I'm going to shy away from guidance, but I will give commentary on how we see it shaping up. To answer your question, do I expect to see margins higher than Q4? The obvious answer is yes, but that's not saying much with how Q4 went. But so far, Q1 is shaping up as expected. We have not seen any surprises except for the weather.
spk03: Good. Okay. Last one, and then I'll turn it over. The differing site conditions, are you still in discussions with customers on potential compensation on those?
spk05: Yeah, so Adam, you know, we called out the three claims last quarter. Those have not settled. They are in various stages of discussions right now. Two of those have been submitted. And the third one, the job is wrapping up and should be done this quarter. You know, the reason we pointed these out last year, it's unusual to have three large claims hit in one period. So we wanted to have visibility on that. The good news is, We haven't seen any other majoring different site conditions. We had said it was an anomaly, and it's proven out to be. You know, as I previously mentioned, two of these claims are with clients that we have a very long-standing relationship with, and we may have good conversations going on and expect those to settle, you know, in the next quarter or so. The third one is a smaller, different government entity that we settled along. This one will take longer to resolve. So nothing has changed on that. But these are progressing as they normally do. They just take some time.
spk03: Okay. Good color. Thanks, guys. Good luck in Q1. Thanks.
spk02: One moment for our next question. Our next question comes from John Tangwanting from CJS Securities. Your line is open. Hey, good morning.
spk08: Thank you for taking my questions. I was wondering if you could break out the headwinds that you faced in Q4, you know, between weather, you know, slight issues, unexpected inflation, the dry docks and the retirements. Could you just tell us, you know, what relative sizes those were in the buckets and kind of how much you budgeted for each of those leaking into Q1, whether it's weather, inflation or other stuff?
spk05: Yeah, I'm not going to quantify. I will, however, talk in kind of degree of severity on what impacted us. You know, I mean, and obviously the $8 million write-off of the terrapin, we can kind of normalize it from that. We did, though, lose about half the quarter of projected terrapin margin as well in addition to the write-off. So, you know, that was just lost work. The dry docking scope increases. Again, that's a double whammy. There were some increased costs, but I think more relevant, especially for the Ellis, was that delay did not allow her to earn margin. And as you know, she is right at the top of the margins to have that. So that was pretty impactful. The weather, you know, I talked about that, you know, having three major jobs with 40% downtime. I mean, 40% of the time it was not working And then even when it is working in higher seeds, it does impact production. We were able to work that 40% with actually zero down days. Those were really the big drivers that had, I would say, the largest impact. Inflation was not as impactful as we had seen in the past. I told you we were going to make adjustments to the way we did the project. A lot of these projects that we started working in Q4 was that, $390 million of work that we did win in Q3. So, we did make adjustments there. So, we did not see a huge impact of that. It was really weather production, the dry docking, and then the terrapin missed opportunity and write-down.
spk08: Okay, great. How much of an impact has weather been in Q1 so far?
spk05: So, it's been, it's Q1, I mean, January in particular, it did just kind of follow on, you know, to December when we, you know, made our adjustments at the end of the year when you kind of estimate the remaining job. We did up our weather impact. It has turned out to be pretty severe. The expectation is that we won't have as much of an impact because we adjusted the estimates at year end, but January was still pretty nasty. So it'll have some impact, but my expectation is not as big of an impact as it had in Q4. Okay.
spk08: Do you have a scheduled liquidation of backlog for the quarter? And is that adjusted for weather?
spk05: I'm sorry, can you repeat that?
spk08: Do you have a backlog liquidation schedule for this quarter and is weather factored into that?
spk05: It is. It is. It's all been adjusted based on our best estimate after we saw the December weather issues that we had.
spk08: Okay. You frequently provided that number to investors. Would you care to do that today?
spk05: Well, I gave the quantity as far as how many days were down. The impact, I'm not going to quantify. I can tell you it was well above the way that we had estimated the weather on these jobs when we first put in the bid. 40% downtime on these jobs is unusual.
spk08: I'm sorry. I meant the revenue you expect to generate in the quarter from backlog. That's the number I'm looking for.
spk05: Yeah. So we don't have any – if where you're going with it, we're not assuming any additional revenue on top of what we have in backlog for Q1. So, but again, I'm not going to give a revenue number for this quarter or going forward.
spk08: Okay, understood. Second, I was just wondering if you'd give us a little bit more color on how you expect your revolver draw to progress through the year just based on your expectations for margin and obviously what's in backlog and early schedule. How much can we expect to see just in terms of drawdown at the worst as you start funding these shifts? And is there a schedule for cap exit that makes any one quarter worse than any other?
spk05: Yeah, so again, I'm not going to give what my expected draw is going to be. I will, however, kind of give you a cadence of the way the CapEx is flowing. Q1 is the heaviest CapEx quarter by a long shot. You saw that our full year 2022 CapEx was under what we were expecting, and that's because some of the Q4 payments got pushed into Q1. So of that 175 million that I guided to for the full year, I think 70 to 75 million, again, these are fluid. They can move left or right, but you will see the largest amount then. Q2 is fairly light, and then the remaining balance kind of gets split equally between Q3 and Q4.
spk08: Okay, great. Thank you. Lassa, do you have an expected bid market for this year? Last year was obviously a lot lower than expected. Do you have a forecast for that? What's your confidence level in that being hit?
spk07: The overall bid market for last year came out somewhat less than what we had in 2021. What really was the impact on us was the lateness of the bidding. there was very little bids issued for four and a half months in addition to the two last months of 2021 where there was no bid issued. So that delayed the whole, let's say, revenue stream for us on Book and Burn. There was a lot of bids issued in June and July, and then it tapered off again. And the big impact was really the change of the mix. The capital projects for port deepenings that we thought was ready and teed up by the Corps to be issued did not happen. And they were delayed into 2023. So the Corps has now a very good budget for the year. We have the additional appropriations that was done, which will fund beach restoration in the southeast. So I have very high confidence actually on the bid market for 2023. based upon those facts. There's nothing certain in this world, but it certainly looks as we're going to have a good bit market for capital projects. I think the LNG projects, one or two of those, will go to FID. So I'm optimistic.
spk05: And John, let me just put a little more color on that. We talked about the slowness at the beginning, but I think we lost it, right? It was really this mix. If you look at the core's capital budget in 2022, or I'm sorry, the bids in 2022 on capital projects of the core compared to 2021, 2022 is 38% of the levels in 2021. Now, again, the good news is these jobs didn't go anywhere. They are just pushing into this first half of the year. But it was pretty severe on that mix of projects from what we were expecting.
spk08: Okay, great. I'll jump back in queue.
spk09: Thank you. One moment for our next question.
spk02: Our next question comes from the line of Joe Gomez from Noble Capital. Your line is open.
spk04: Thank you. Good morning. Thanks for taking my questions.
spk05: Good morning, Joe.
spk04: So just, you know, one of the things we had talked about previously you know, and I think you touched about a little bit, but maybe we get some more color, you know, with Hurricane Ian and the impact and you talked about, you know, how quickly some of those replenishment and jobs might come out. I mean, how are you seeing those today? Are you seeing a fair number of opportunities to help restore the beaches? that were impacted by the hurricane?
spk07: Yes. I think on the last call we commented that there would be a flurry of projects for the southeast coming to bid here in mid this year, mid 2023. And that is then funded by the additional uproar that was put through Congress. So I expect these beach renourishment and coastal protection projects to come to the bid market. Let's call it to mid year and then come to execution during Q3 and Q4 and onwards into 24.
spk04: OK, thanks for that. Been reading a number of articles here on on offshore wind. And you know they've been quoting that some poor economics and the technology has really negatively impacted people in here. Siemens stating that really need a lot more government action and subsidies to start or to continue some of these projects. GE supposedly reporting a big loss on its wind turbine business. Supposedly, you know, somebody looking to try and get out of a project in New Hampshire. So just try to get a, you know, better feel of, you know, what you see is the, you know, kind of the status right now in the offshore wind, you know, and are we starting to see maybe some obstacles come up that had not been anticipated previously?
spk07: Yeah, I don't want to comment on our clients' plans for their project, but I can comment on the activity that we see in the market. And as you know, we already have one firm contract with Equinor and BP. We have not seen any diminishing activity in the request for estimates and bidding and also requirements for reservation agreements for our vessel. So the activity in the market does not really, I don't see the, let's say, any delay impacting what we do with our vessel and the bits that we are involved in. Yes, you are correct. The turbine manufacturers are suffering from low margins and also there are some supply chain issues which leads to delays but the projects that we have been addressing seems to be moving forward okay great that's some good news thank you for that and then just given the drawdown or what you're expecting to draw down on the credit line scott any
spk04: Can you give us any kind of indication of where you see interest expense, kind of how that's going to play out for this year?
spk05: Yeah, I mean, Joe, that would give you the over the draw. But I'll tell you, this beginning part, the first half of the year will be higher draw in the first quarter in particular because of the way that the CAPEX is weighted and that it will trickle down. So I mentioned the draw that we have. You know, don't extrapolate or straight line that for the rest of the year. That's not how we're seeing it. It was going to be very heavy in Q1 and then definitely diminishing down. You know, as you recall, we did upsize the revolver last year, so there is, you know, ample availability on there right now. We also did it at a time we were able to get very favorable terms. you know, we're still borrowing today at sub 6%. So, you know, it's very manageable the way we kind of see the cadence of the draw this year and the interest burden that will come from it.
spk04: Okay, great. Thanks for taking my questions.
spk09: One moment for our next question.
spk02: Our next question will come from the line of DeForest Hinman. Your line is open.
spk06: Hi, thanks for taking the questions. Can you just help us understand where we stand with our lenders as it relates to the covenants? Just give us an update there in terms of what covenants we're dealing with. And, you know, based on the commentary you gave us, it seems like we're going to need some help to kind of bridge us through some lower levels of profitability over the course of 2023. And have some follow ups.
spk05: Yeah, so on the, on the notes that are due in 2029, there are no, there are no companies that it's a unsecured. 5 and a quarter percent, so that was, but the revolver also has, it has no hard covenant. It does have a bringing covenant. That springs when availability on the revolver is less than 12 and a half percent. It's a fixed charge coverage ratio that with the new bill program, we likely won't meet for the next couple of years. Once, if availability becomes less than 12.5%, we do that test. If we don't pass the test, it caps the availability at the 87.5%. That's the only covenants we have in either one of them.
spk06: Okay. And then can you give us a little bit more color on the DOT financing? I think this was something that was discussed previously, maybe a couple quarters ago. What type of rate we'll be looking at on that type of financing? What kind of term would we be thinking about?
spk05: Yeah. And what we had talked about last year was actually a different program. It was through the DOE. This is different through MIRAC. Earlier in the year, June, July or so of last year, is when they deemed the offshore wind industry and the vessel like ours as a vessel of national interest. So it really then became very attractive. If you go out to their website and play around, it does show that they are quoting rates at 10-year treasury plus 37.5 basis points. It is 10 or up to 25 years. That is what our application had asked for. And it's very low to no amortization. So, again, very attractive, backed by the government, and as they're trying to really encourage investment in this. The application was submitted a few weeks ago. As I said, this will take some time. You know, it's a Q3, Q4,
spk06: uh point that you know i think we know but we are having what i would call very good dialogue with them already after we put in their application and we'll continue to uh to work on it with them and given how we've already started spending on the the rock vessel would we be able to take money that we've already spent for progress payments and put that on the that uh loan or would only work on a go-forward basis?
spk05: No, it's up to 87.5% of the full value of the vessel is the loan that you can put in for, and that's what we put in for.
spk06: Okay. And then just kind of taking a 10,000-foot view of things, just as it relates to the Army Corps and the bids, being released. I mean, it just seems kind of odd that, you know, and I've covered the stock for, for a very long time, you know, you would give, uh, lots of, and I think even the previous management team that was there would kind of give an expectation for the amount of bidding that would occur for the year. Uh, some, you know, most of it would get put out and, you know, we'd win a certain percentage of it. And, you know, and, 2022 didn't really seem to be the case saying, can you give us any more color as to why that happened? And it strikes me as odd too, because you also had a situation where the funding was there. There was, you know, you kind of said the same script last year that you said this year in terms of appropriations, budget was high and then the money never was let out. Was there, leadership transition issues there was there key people that were lost within the army corps like why did that happen and i guess what gives us confidence that it's not going to happen again this year because it's proving to be you know highly problematic and you know you're having to lay off uh workers which you've probably you know voiced that to them as a result of this yes um
spk07: As I started my commentary about was that we, at the beginning of the year, we thought that we were in a good position, good backlog, the Corps had their budgets, and we were past the pandemic issues. And unfortunately, what happened was, as I said, the first four and a half months of the year, there was very little uh work that was being bid and put out into the bid market and the work that was being put out was the majority was maintenance work which carries the margins and there's a different competitive environment around those projects compared to the larger capital projects we have had and we we always have a very good dialogue with the army coral engineers i have numerous meetings with them and one of the reasons that they are giving is that there was a continued resolution in place for the first half of the year so under a continued resolution the core is limited in funding new projects they can continue to fund ongoing projects so that is one uh reason they gave we are not under a continued resolution this year so the omnibus was passed and the core has the money for this year so that's a similar situation and then the core is short of personnel and also the federal agencies are partially back in the office as company, we have been back in our office for the last year because we saw that it's very difficult to do larger projects than not being together as a team. And we movements in that during the year and the core. So I think we have a good dialogue. I think the setup for 2023 is different from what we experienced in 2022. And that gives me that confidence to believe that the bid market will recover and also the mix will go back to more capital projects.
spk06: Okay, thank you. And then just the last question, a couple announcements over the last month or so, Qatar doing some pretty seemingly sizable long-term LNG contracts with China. We haven't really been too involved in international dredging for a while now. Is that something that there's a revenue opportunity there, potentially redeploying some assets to the Middle East, or is that not an opportunity?
spk07: The short answer is over the next couple of years, there's not an opportunity. I do see the domestic bid market here to recover. I do see the need for our capacity here in the U.S., So we are not actively addressing and bidding international work. We are following the development, but that international dredging market is competitive. And in order to address that market, we would have to have competitive and modern equipment to go to that market with. And at this moment, our investments are going into the U.S. dredging offshore wind. That's where we see the best opportunities.
spk06: Okay, and then just, I guess this will be my last question. How do you guys define cold stack? How long does it take to get a vessel out of cold stack, and how long does it take to re-crew that vessel?
spk07: Well, it's difficult to give an answer. exact estimates, but once you have the coal-stacked vessel, what you need to do is to get it back up and running again, and depending on the type of dredge, this will be different, and then you need to find the crews. From we did the work until we actually have to mobilize out on the field, we have a couple of months, and that should be sufficient to get the dredge up and running and get the crew back on board.
spk09: Okay, thank you. One moment for our next question.
spk02: Next, we have a follow-up from the line of John Tanawentin from CJS Securities. Your line is open.
spk08: Hi, guys. Thanks for taking my follow-up. Just a question on the bidding environment. I would have to assume that your competitors are hurting as well, just given the the amount of bids and the work that's out there. Is there any change to competitiveness of how you're bidding? Obviously, everyone has to deal with inflation and other prices and things like that. But obviously, while there has been an issue, are you seeing pressure on pricing or are you seeing a little bit more rationality just in terms of being able to price these things in that have affected the entire market?
spk07: Yeah, I think you can, from a bid market that is changing, you can assume that there is pressure in the bid market currently. But the target market that we have is these larger capital projects where we are the leading Australian contractor and I think best suited to execute those projects. So there have been some additional capacity added by competitors. We addressed that on earlier calls. We have seen a couple of hopper dredges come to the market and some new cutter dredges. Our fleet, as we have it at this point in time, we will have a very modern and efficient hopper dredge fleet. Our cutter dredge fleet has been rationalized and also upgraded for productivity over the last years. So we have a solid cutter fleet, and the mechanical fleet is really a complementary equipment to be used on larger projects in combination with cutters or hoppers. And we have two of the most efficient mechanical dredges in the U.S. So I think our competitive situation is strong and good going forward.
spk08: Okay, great. Is the Galveston capacity spoken for when it comes to work for the rest of the year, or do you still have a schedule to fill on that particular strategy? And maybe the same question for the Ellis as well, just given those will be the two biggest sources of earnings for you this year.
spk07: Yeah, the answer is yes. We have backlogged to put her on to when she comes out. Okay, great. And the Ellis? The Ellis is going straight to work.
spk05: Yeah, the Ellis came out and started. It's working right now, and we have backlog on her already for the majority of the year. Still some to fill in on the tail end, but Ellis is in a good position right now with backlog.
spk08: Okay, great. Just a question on the wind market, a follow-up. Do you have any expected timing for when the next couple of major projects will be released there and then go to bed and award? Can you repeat that? Do you have any sense of timing for when you will be able to announce the next wind project awards?
spk07: Well, I'm very hopeful we can do that during the year.
spk08: Any sense of whether it be earlier or later in the year?
spk07: Well, mid-year to third quarter. But the way that these projects are being developed, the developer is going to sell the power and secure the power sales agreements. And that determines the timing of when we are being awarded our contracts. But the way it looks currently, I'm very hopeful that we can secure one additional contract here, quality bids, mid-year of 2023.
spk05: And, John, the bids have come out. We have submitted bids. Now we're at their timing on when they're going to do the award. So it's not when are the bids going to come out. It's when are they going to award based on the bids that are already outstanding.
spk08: Understood. Thank you. Scott, the G&A run rate you had in Q4, should we expect that to keep coming down with the cost savings that you're planning, or is that the right run rate to be using?
spk05: Yeah, I mean, you know, it's normalized for incentive. I think that is comparable to the run rate. You know, there's always some, you know, Q4 adjustments, as you're aware. So, it's not quite, but, you know, I think if you kind of look at maybe Q3 and Q4 together, that's kind of how we're trending.
spk08: Okay, great. And then last one for Lasso. When you return those shifts from cold storage, are there any costs associated with getting them back up that would be unusual?
spk07: Yes, there will be some costs to start off the vessel again. I don't see that as a major outlay for us. And any additional costs that we need to put into the vessels to get them out of cold stack will be included for in the bids that we are putting in. If not, we will not take them out of cold stacking.
spk02: Got it. That makes sense. Thank you. Thank you. I'm not showing any further questions in the queue. I'd like to turn the call back over to Tina for any closing remarks.
spk01: 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.
spk02: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone have a great day.
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