Great Lakes Dredge & Dock Corporation (GLDD) Earnings Call Transcript & Summary

Welcome to the C-Suite series presented by Channelcheck and Noble Capital Markets, Noble's an SEC registered, FINRA license broker-dealer and the source of the equity research available on Channelcheck. Today's interview features Great Lakes Dredge & Dock company, NASDAQ ticker symbol GLDD. This fireside chat features Great Lakes' President and CEO, Lasse Petterson; SVP and CFO, Scott Kornblau, and SVP of Offshore Wind, Eleni Beyko, they're interviewed by NOBLE Senior Analyst, Joe Gomes, visit channelcheck.com or click the link on the description access equity research, news and advanced market data on Great Lakes Dredge & Dock, all at no cost. And now here's Joe, Lasse, Scott and Eleni.

Good afternoon. With us today is Lasse Petterson, President and CEO of Great Lakes Dredge & Dock Corporation; Scott Kornblau, CFO; and Eleni Beyko, Senior Vice President of the Offshore Wind division. Good afternoon, Lasse, Scott and Eleni, and thanks for taking the time to sit down with us.

Good afternoon. Looking forward to.

For today's fireside chat, I thought we would focus on the offshore wind opportunity for the company. And let's start with the Acadia vessel the company is currently having built. Can you describe what type of vessel it is? How much is the total cost? How much is left to be invested? And when do you expect to take delivery of the vessel?

Yes. I would like to answer that. But I think the best qualified person is Eleni, who lives with the vessel and fines and on developing this market for us. So Eleni, could you please take this?

Gladly. So you can see the vessel in the background behind me. It will work within the offshore wind farm sites to install rock. It's a rock installation subsea, rock installation vessel, and the rock is used for stabilizing and protecting all of the structures and cables that are laid on the seabed at the offshore wind farm sites. So this vessel that you see behind me will be installing rock through the fall pipe on the side of the vessel. We'll be installing rock at the foundations of offshore wind turbines and also on top of the all of the cables and any other structure that's on the seabed. It is a state-of-the-art vessel. It has the most advanced technology in low emissions. So the vessel has a hybrid propulsion system. It has a battery storage system on board. It is a 20,000 metric ton vessel, so it can carry rocks up to 20,000 metric tons, so high capacity. It is a large vessel. As you can see behind me, it's about 140 meters long and about 35 meters wide. So it also can be positioned with the highest level of technology, very close to the structures, as you can see, very close to the foundations of the offshore wind turbines. So we can do the installation with a lot of accuracy and precision. So it has dynamic positioning systems to keep us in station while we're doing that and keep us from damaging the actual structures. It is -- we'll talk about it, but it is the first one of a kind of this kind, built in the United States with equipment and technology that we're building some of it in Europe and bringing to the U.S. So this is a new technology that's coming to our waters here, and it is a new kind of vessel for U.S. waters. The first Jones Act vessel of its kind. So I can talk at length about this vessel, but I think these are the key features of it, and we'll stop here for a moment.

Great. Maybe you could just touch, Scott, on what the total cost of the vessel is and how much is left to be invested and when do you expect to take delivery of the vessel?

Yes, Joe. So all in, the Acadia will cost between $245 million and $250 million. We have roughly $110 million left to spend between this year and next year, and we will take delivery of the vessel in the third quarter of next year prior to our first contract on Empire Wind with Equinor.

So Eleni, you talked about a lot of the advantages already of this vessel versus other vessels in the domestic market. Maybe you could talk a little bit about the type of competition if there are any really in the domestic market for the vessel when it comes -- when you guys take delivery of it?

No, there is no competing vessel of this kind in United States. There is no rock installation vessels, state-of-the-art rock installation vessel in the U.S. So we are competing with the international competitors. There is 4 competitors, 2 of them are Dutch and 2 of them are Belgium, who own about a dozen vessels total internationally. And then there is some smaller rock dumping barges that are not direct competition for a vessel of this size. So competition in the U.S. waters, the forwarders, the international vessels that come to our waters for installation. Or if we go internationally or we go to Europe, we're competing directly in the international waters with these dozen vessels. And pretty much 4 major competitors that we have. Those were actually prior pure dredging companies as GLDD has been. And now they're specializing both dredging and offshore wind, they are pretty much -- have a big offshore wind division as we're developing here at GLDD.

Now you mentioned it's a Jones Act vessel. What does that mean? And how does that give you a competitive advantage in the domestic market?

Yes.

Yes. Jones Act vessel means that it is U.S. built. So we are building the vessel like to fill a shipyard. It is U.S. crude. So the citizen, the crew on the board has to be U.S. citizens. And the vessel has to be U.S. owned. So the ownership of the vessel has to be by U.S. capital and the company managing the vessel has to also be U.S. citizens. So that means that we have an advantage in the United States where we can go to the shores in the U.S. and collect the rock to be installed offshore whilst the national competition will have to go to Canada outside the U.S. with a much longer selling route to do the same work.

In addition to that, if I may add, we have the advantage of local content. So because of the Jones Act, this will be the only vessel who can go into U.S. quarries, U.S. points and pick up the supply of rock required for the offshore wind farms and deposited at the far. So that's really an advantage creating U.S. jobs and providing local content to our clients and to the states that develop these wind farms. And it is an important advantage. In addition to what Lasse mentioned, where our sail distance is much shorter to go into a U.S. port and pick up the rock instead of going sailing all the way to Canada, 400 nautical miles plus to pick up rock from a Canadian hording. So that's -- those are key advantages that this vessel has versus the international competition when it operates in U.S. waters.

Okay. Let's switch gears for a second, and we'll start with the domestic offshore wind market. What is driving growth here? How big is the opportunity?

Yes. So initially, in the beginning of the current administration, there was a federal target set for 30 gigawatts of offshore wind by 2030 to reach clean energy targets in the U.S. and all of -- subsequently, all of the states, each state in the East Coast, mostly and some in the West Coast as well have set their own targets for developing offshore wind for their state. New York, New Jersey, Massachusetts are leading the pack in terms of their stated target for offshore wind in the East Coast. Now in the last 3 years, we've seen some delays. We've seen a couple of projects canceled. We've seen some resetting in the offshore wind market, but the targets are still strong from the states. The states are fully behind offshore wind. And so if you look, for example, at one of the market research reports published by Bloomberg just a couple of months ago this year, they're still predicting 67 gigawatts of offshore wind in the U.S. by 2040, there's been a little bit of a slower start than everybody was expecting, but it's still -- the market is still very strong. So the expectation is very, very high for the next decade in the U.S.

You answered some of my next question, but we talked about some of the near-term challenges in the market including cancellations of some certain projects. And I'm just kind of give me -- what gives you that real confidence in the long-term prospects in the domestic offshore wind market?

Yes. So by the end of this year, they will be upwards of 15 gigawatts of offshore wind energy that will be fully permitted from the state and federal level here in the U.S. So those are projects that are either installing or are in the process of starting installation in the U.S. I do get a lot of confidence from our clients. We are very well engaged with all of the offshore wind developers and they're full speed ahead for their projects. And even the ones that were canceled, which was only less than a handful of projects that were canceled. We're working, for example, with our client, Ørsted, one of the major offshore wind developers, although they have canceled a couple of projects because of the economics at the time that we're not working out well. They're going full speed ahead with our other projects. We already have a contract with them on Sunrise Wind, they're starting to construction on Revolution Wind. So there's a lot of momentum in the U.S. with currently. And it's going to -- the momentum will accelerate towards the end of the year from a federal permitting level as well.

Yes. And if I may add on that, a lot of the cancellations and uncertainty that happened in the market last year was due to these power purchase agreements. So we entered into in 2018 and '19, which was before COVID and before inflation set in. So the sales agreements had our purchase pricing that didn't make the projects economically after the inflation that's set in after COVID and that has now been corrected. So the new power purchase agreement have both a higher starting rate and also then inflation adjustments going forward.

Okay.

And we have to add that this is an emerging market. It's one of the biggest emerging markets in this country that we've seen in a generation. So for this market and this industry to emerge needs to be the supply chains, the economics, all of it needs to come together other than the willingness at the state and federal level. There's a lot of good challenges that an emerging market has to deal with.

Okay. Let's turn to the international offshore wind market for a moment. What's the market opportunity there? What's the kind of the growth rate? Maybe you can compare and contrast the international versus the domestic markets? What are kind of the differences there?

Yes. So according, I will say it again, this Bloomberg report, the latest report that was published this summer. So other than the China market, which is the biggest in the world for offshore wind, the next 2 big markets are the U.S. and the U.K. Each one of them is projected at about 67 gigawatts of offshore wind between now and 2040. So global capacity, excluding China, is expected to reach 500 gigawatts of offshore wind by 2040. So there is expected to be a huge acceleration in offshore wind. And the U.S. and the U.K. are expected to lead the pack internationally other than China, which is there's a lot of offshore wind in the Chinese market.

Okay. You mentioned in some of your conference calls that you could repurpose the Acadia over to the international market. If the domestic didn't grow as fast as you were expecting? How competitive would that vessel be against the other similar rock installation vessels in the international market?

Yes. And that's a good question. So from a technology point of view, the vessel is, as I mentioned, state-of-the-art and low emissions. So it can compete very well from a technology standpoint. The economics as well will work with healthy profit margins in the European market as well. And the reason I know that is because we are working on business development in the European market right now and looking into Taiwan and the Asia Pacific markets. And we are engaging with the clients that are pretty much the same clients that we deal with here in the U.S. So we're engaging with their European counterparts. So we're dipping our toes in the water to see what's available in the European market for '26, '27 installation if we have a need to top up our utilization for the 2 years. As we mentioned before, so when we go to Europe with this particular vessel, we lose the local content advantage. So we would probably have to supply rock in the European market, for example, Norwegian quarries or quarries in the U.S. So that would be the way we would supply the rock in that market, it would be a little different. And then our sail distance, we would have to sail from the U.S. to Europe to do execute these projects. So we need to plan and manage for potential larger periods of utilization on one side or the other, depending on how the markets shape up. But right now, we feel pretty confident that we can be competitive in the European market as well. And I invite Scott or Lasse to make any other comments.

Yes. I would just add, as Eleni said, we have boots on the ground there. We're having a lot of conversation and the feedback that we're getting from the wind developers is that our pricing is competitive.

Great. Now in addition to the offshore wind market, you have recently mentioned other possible end markets for the vessel. Can you talk about them and what the opportunity is?

Yes. So as we started expanding our business development efforts into Europe and even beyond, we started getting requests to tender projects pertaining to covering cables, power and telecommunications cables with rock. So this -- that's another market that's starting to shape up for us. There is -- especially in Europe with the electrification of Europe and a lot of cables being power cables being laid down in the under subsea on the seabed between Africa and Europe or around Europe. So there is a large market for installing rock to protect those cables. So we're starting to respond to requests for tenders to cover cables in addition to the offshore wind cables that -- we're already in our radar screen. Now beyond that -- even beyond that, there is the market of covering pipelines like LNG pipelines, for example, with rock to stabilize and protect those pipelines. And we are starting to see a couple of requests for tender from -- 1 from Europe. For example, there is a carbon capture pipeline that requires protection by rock and we've seen another one internationally that requires a lot of rock for LNG pipelines. So as we expand our business development efforts, we're looking at these market segments, and they look very substantial to us. But they do require additional business development efforts from our side, which we're starting to expand in those areas. Lasse, you want to add?

No, it's been a very positive development, I would say that we looked at the offshore wind market in the United States. We started this effort some 4 years ago. And yes, there has been some bumps in the road. And as we are looking at the international market, but also the marketer in the U.S., there are other applications for the vessel, which combined with the offshore wind foundation scout protection gives good utilization opportunities for the vessel going forward. So that has been a good development for us. And I think also with regards to the international competitiveness of a vessel, this is a specialized vessel. So it's not us building a bulker. The CapEx for building the vessel in the U.S. is not all that different from what it would take if you built it elsewhere. So we are competitive in the international market, both for offshore wind and also for the cable protection and the pipeline protection.

Now how does the Acadia's bookings look today?

So the vessel is expected to come out of the build next year in 2025. We're hoping by the summer or early second half of 2025. And we already have -- well, we started with 3 solid contracts for utilization of the vessel. One was the Equinor projects, Empire Wind I and Empire Wind II. And we also have a Sunrise project for 2026, Ørsted. One of the projects Empire Wind II gets -- got delayed. So we collected termination fees on that. So for 2025, vessel comes out of the build. We have completed our utilization pipeline for 2025. For 2026, we have partly -- part utilization for 2026 with the existing contracts. And I also expect that there will be some optional scopes of work attached to the existing contracts, the Equinor contract and the Ørsted contract that we'll be able to capture. So our utilization will expand even further in '26 based on existing contracts. And then for 2027 and 2028, we're in the process of signing either a reservation agreements or preferred supplier agreements for that period of time. So these are precontract agreements that allow us to go into exclusive negotiations with developers for reaching a contract agreement in the next few months. And then for 2028 and beyond, the market is -- looks very, very booming in the U.S. And we are in engagement with the clients -- early engagement with the clients until they can get their permits in line, and they're in a position to award contracts probably starting next year. So that's the overall picture of our pipeline of projects right now.

Thank you for that. Now I'm jumping the gun big time here. But it sounds like a lot of opportunity out there and not a lot of vessels. Do you have an opportunity or have you looked at an opportunity of potentially building a second rock installation vessel? Or is that -- are we way too early for that at this point?

Yes, we are a little early on that. But the way the market looks, the opportunity here is starting in '28. There is an under capacity of rock installation vessels in the United States and internationally. So we will have to look hard at the market and see how we can put together with partners to invest into this booming offshore market in the larger.

Okay. Thank you for that. Now I'm going to switch gears here for a second because we would be remiss to not at least touch on the dredging market given the record backlog for Great Lakes and the record budgets for the Army Corps of Engineers. Can you give ambassadors a quick overview of the dredging market and the opportunities that are existing today?

So the 2023 bid market we saw was extremely strong. Without the LNG work, it was over $2.2 billion, and we ended the year with $1 billion of backlog. The 2024 bid market is shaping up to be even stronger. To date, we are at the $2.2 billion already, and there's still a great number of projects coming out over the next few months. We've just put out a press release recently announcing over $250 million of new awards in addition to over $300 million of low bid pending. Since that press release was put out a couple of days ago, we were a low bidder on an additional 2 projects of over $100 million. So there will -- we believe this bid market will end up well over $2.5 billion when it's all set and done at the end of the year. More importantly, or as important, Joe, is the makeup of the work coming out. It is the high-margin capital projects. Those are the deepening and widening of ports, in the coastal protection, which is the restoration of beaches that were damaged during the storms over the last year. So our backlog is very high, we have almost 80% made up of capital and coastal protection. That is what's driven margins for this year, and that will continue well into next year.

Great. So Lasse, everything sounding really positive here, both the offshore wind market opportunity and the dredging market. What do you see as the biggest challenges for Great Lakes going forward?

Well, looking back at the last few years, you saw our results that dipped quite substantially in 2022 as a consequence of the U.S. Army Corps of Engineers, we're delaying awards of new large capital works. That was a function of COVID and delayed permitting the core working from home. So looking forward, I don't see that happening. The core is issuing new projects on schedule. We don't see the same project delays. The core has a very substantial new record budget for 2025 fiscal year. So the future of dredging looks very strong, and we have an effect -- a very effective fleet with the fleet, hopper dredge fleet being up dated now with the Galveston and the Amelia Island coming out next year. And we are then looking at making some investments into our cargo fleet but that will be done within the cash flow that we have. So looking forward, positive cash [ those ] starting to happen in 2026 and onwards. So it looks very promising as we now look to the next years.

Great. Well, Lasse, Scott and Eleni, we covered a lot of ground today, got significant insight into the offshore wind opportunity for Great Lakes. We appreciate you taking the time to do this C-suite interview, and we wish you and the company the best in the future. Once again, thanks.

Thank you.

Thank you, Joe. [Presentation]