Great Lakes Dredge & Dock CORP [GLDD] Filings

10-Q 1 gldd-10q_20220331.htm 10-Q gldd-10q_20220331.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 001-33225

Great Lakes Dredge & Dock Corporation

(Exact name of registrant as specified in its charter)

Delaware		20-5336063
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

9811 Katy Freeway, Suite 1200, Houston, TX		77024
(Address of principal executive offices)		(Zip Code)

(346) 359-1010

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock (Par Value $0.0001)		GLDD		Nasdaq Stock Market, LLC

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of April 29, 2022, 66,065,420 shares of the Registrant’s Common Stock, par value $.0001 per share, were outstanding.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Quarterly Report Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

For the Quarterly Period ended March 31, 2022

INDEX

		Page

	Part I Financial Information (Unaudited)	3

Item 1	Financial Statements	3

	Condensed Consolidated Balance Sheets at March 31, 2022 and December 31, 2021	3

	Condensed Consolidated Statements of Operations for the Three Months ended March 31, 2022 and 2021	4

	Condensed Consolidated Statements of Comprehensive Income for the Three Months ended March 31, 2022 and 2021	5

	Condensed Consolidated Statements of Equity for the Three Months ended March 31, 2022 and 2021	6

	Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	7

	Notes to Condensed Consolidated Financial Statements	8

Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15

Item 3	Quantitative and Qualitative Disclosures About Market Risk	22

Item 4	Controls and Procedures	22

	Part II Other Information	23

Item 1	Legal Proceedings	23

Item 1A	Risk Factors	23

Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	23

Item 3	Defaults Upon Senior Securities	23

Item 4	Mine Safety Disclosures	23

Item 5	Other Information	23

Item 6	Exhibits	24

	Signature	25

PART I — Financial Information

Item 1.

Financial Statements.

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(Unaudited)

(in thousands, except per share amounts)

	March 31,		December 31,
	2022		2021
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	142,583	$	145,459
Accounts receivable—net		37,162		82,953
Contract revenues in excess of billings		74,535		39,844
Inventories		30,394		30,760
Prepaid expenses and other current assets		43,368		28,416
Total current assets		328,042		327,432

PROPERTY AND EQUIPMENT—Net		468,555		455,102
OPERATING LEASE ASSETS		63,345		62,233
GOODWILL		76,576		76,576
INVENTORIES—Noncurrent		71,117		65,049
OTHER		11,204		11,278
TOTAL	$	1,018,839	$	997,670

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable	$	98,182	$	85,566
Accrued expenses		33,949		37,626
Operating lease liabilities		16,036		16,729
Billings in excess of contract revenues		3,687		14,814
Total current liabilities		151,854		154,735

LONG-TERM DEBT		321,108		320,971
OPERATING LEASE LIABILITIES—Noncurrent		47,839		45,986
DEFERRED INCOME TAXES		73,888		68,497
OTHER		8,746		8,484
Total liabilities		603,435		598,673

COMMITMENTS AND CONTINGENCIES (Note 8)
EQUITY:
Common stock—$.0001 par value; 90,000 authorized, 66,046 and 65,746 shares issued and outstanding at March 31, 2022 and December 31, 2021, respectively.		6		6
Additional paid-in capital		307,597		308,482
Retained earnings		101,426		90,369
Accumulated other comprehensive income		6,375		140
Total equity		415,404		398,997
TOTAL	$	1,018,839	$	997,670

See notes to unaudited condensed consolidated financial statements.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Operations

(Unaudited)

(in thousands, except per share amounts)

	Three Months Ended
	March 31,
	2022			2021

Contract revenues	$	194,349		$	177,633
Costs of contract revenues		161,294			144,557
Gross profit		33,055			33,076
General and administrative expenses		14,604			16,322
(Gain) loss on sale of assets—net		(321	)		106
Operating income		18,772			16,648
Interest expense—net		(4,025	)		(6,586	)
Other income (expense)		(405	)		141
Income before income taxes		14,342			10,203
Income tax provision		(3,285	)		(1,389	)
Net income	$	11,057		$	8,814

Basic earnings per share	$	0.17		$	0.14
Basic weighted average shares		65,847			65,269

Diluted earnings per share	$	0.17		$	0.13
Diluted weighted average shares		66,436			66,159

See notes to unaudited condensed consolidated financial statements.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income

(Unaudited)

(in thousands)

	Three Months Ended
	March 31,
	2022		2021

Net income	$	11,057	$	8,814
Net change in cash flow derivative hedges—net of tax (1)		6,235		1,886
Comprehensive income	$	17,292	$	10,700

(1)	Net of income tax (provision) benefit of $(2,106) and $637 for the three months ended March 31, 2022 and 2021, respectively.

See notes to unaudited condensed consolidated financial statements.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Equity

(Unaudited)

(in thousands)

										Accumulated
	Shares of				Additional					Other
	Common		Common		Paid-In			Retained		Comprehensive
	Stock		Stock		Capital			Earnings		Income		Total
BALANCE—January 1, 2022		65,746	$	6	$	308,482		$	90,369	$	140	$	398,997
Share-based compensation		9	—			552		—		—			552
Vesting of restricted stock units and impact of shares withheld for taxes		212	—			(1,827	)	—		—			(1,827	)
Exercise of options and purchases from employee stock plans		79	—			390		—		—			390
Net income	—		—		—				11,057	—			11,057
Other comprehensive loss—net of tax	—		—		—			—			6,235		6,235
BALANCE—March 31, 2022		66,046	$	6	$	307,597		$	101,426	$	6,375	$	415,404
										Accumulated
	Shares of				Additional					Other
	Common		Common		Paid-In			Retained		Comprehensive
	Stock		Stock		Capital			Earnings		Income		Total
BALANCE—January 1, 2021		65,023	$	6	$	304,757		$	40,937	$	968	$	346,668
Share-based compensation		63	—			1,766		—		—			1,766
Vesting of restricted stock units and impact of shares withheld for taxes		410	—			(3,784	)	—		—			(3,784	)
Exercise of options and purchases from employee stock plans		124	—			1,260		—		—			1,260
Net income	—		—		—				8,814	—			8,814
Other comprehensive income—net of tax	—		—		—			—			1,886		1,886
BALANCE—March 31, 2021		65,620	$	6	$	303,999		$	49,751	$	2,854	$	356,610

See notes to unaudited condensed consolidated financial statements.

Great Lakes Dredge & Dock Corporation and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(Unaudited)

(in thousands)

	Three Months Ended
	March 31,
	2022			2021
OPERATING ACTIVITIES:
Net income	$	11,057		$	8,814
Adjustments to reconcile net income to net cash flows provided by operating activities:
Depreciation and amortization		11,316			10,053
Deferred income taxes		3,285			1,389
(Gain) loss on sale of assets		(321	)		106
Amortization of deferred financing fees		317			403
Share-based compensation expense		552			1,766
Changes in assets and liabilities:
Accounts receivable		45,791			(26,742	)
Contract revenues in excess of billings		(34,691	)		3,188
Inventories		(5,703	)		(3,379	)
Prepaid expenses and other current assets		(6,612	)		(832	)
Accounts payable and accrued expenses		12,247			(10,303	)
Billings in excess of contract revenues		(11,126	)		6,055
Other noncurrent assets and liabilities		205			242
Cash (used in) provided by operating activities		26,317			(9,240	)
INVESTING ACTIVITIES:
Purchases of property and equipment		(28,866	)		(27,038	)
Proceeds from dispositions of property and equipment		1,110		—
Cash used in investing activities		(27,756	)		(27,038	)
FINANCING ACTIVITIES:
Taxes paid on settlement of vested share awards		(1,827	)		(3,784	)
Exercise of options and purchases from employee stock plans		390			1,260
Cash used in financing activities		(1,437	)		(2,524	)
Net (decrease) increase in cash, cash equivalents and restricted cash		(2,876	)		(38,802	)
Cash, cash equivalents and restricted cash at beginning of period		147,459			216,510
Cash, cash equivalents and restricted cash at end of period	$	144,583		$	177,708

Cash and cash equivalents	$	142,583		$	177,708
Restricted cash included in other long-term assets		2,000			—
Cash, cash equivalents and restricted cash at end of period	$	144,583		$	177,708

Supplemental Cash Flow Information
Cash paid for interest	$	100		$	106
Cash paid for income taxes	$	58		$	58

Non-cash Investing and Financing Activities
Property and equipment purchased but not yet paid	$	10,319		$	5,855

See notes to unaudited condensed consolidated financial statements.

GREAT LAKES DREDGE & DOCK CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

(dollar amounts in thousands, except per share amounts or as otherwise noted)

1.	Basis of presentation

The unaudited condensed consolidated financial statements and notes herein should be read in conjunction with the audited consolidated financial statements of Great Lakes Dredge & Dock Corporation and Subsidiaries (the “Company” or “Great Lakes”) and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2021. The condensed consolidated financial statements included herein have been prepared by the Company without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been condensed or omitted pursuant to the SEC’s rules and regulations, although management believes that the disclosures are adequate and make the information presented not misleading. In the opinion of management, all adjustments, which are of a normal and recurring nature (except as otherwise noted), that are necessary to present fairly the Company’s financial position as of March 31, 2022 and December 31, 2021, and its results of operations for the three months ended March 31, 2022 and 2021 and cash flows for the three months ended March 31, 2022 and 2021 have been included.

The components of costs of contract revenues include labor, equipment (including depreciation, maintenance, insurance and long-term rentals), subcontracts, fuel, supplies, short-term rentals and project overhead. Hourly labor is generally hired on a project-by-project basis. Costs of contract revenues vary significantly depending on the type and location of work performed and assets utilized.

The Company has one operating segment which is also the Company’s reportable segment and reporting unit of which the Company tests goodwill for impairment. The Company performed its most recent annual test of impairment as of July 1, 2021 with no indication of impairment as of the test date. The Company will perform its next scheduled annual test of goodwill in the third quarter of 2022.

The condensed consolidated results of operations and comprehensive income for the interim periods presented herein are not necessarily indicative of the results to be expected for the full year.

2.	Earnings per share

Basic earnings per share is computed by dividing net income attributable to common stockholders by the weighted-average number of common shares outstanding during the reporting period. Diluted earnings per share is computed similar to basic earnings per share except that it reflects the potential dilution that could occur if dilutive securities or other obligations to issue common stock were exercised or converted into common stock.

The computations for basic and diluted earnings per share are as follows:

	Three Months Ended
`	March 31,
	2022		2021

Net income	$	11,057	$	8,814

Weighted-average common shares outstanding — basic		65,847		65,269
Effect of stock options and restricted stock units		589		890

Weighted-average common shares outstanding — diluted		66,436		66,159

Earnings per share — basic	$	0.17	$	0.14
Earnings per share — diluted	$	0.17	$	0.13

3.	Accrued expenses

Accrued expenses at March 31, 2022 and December 31, 2021 were as follows:

	March 31,		December 31,
	2022		2021

Insurance	$	13,355	$	12,821
Payroll and employee benefits		6,525		13,533
Interest		5,726		1,460
Other		5,220		6,427
Income and other taxes		2,903		2,941
Contract reserves		220		444
Total accrued expenses	$	33,949	$	37,626

4.	Long-term debt

Credit agreement

As of March 31, 2022 and December 31, 2021, the Company had no borrowings outstanding under our $200,000 amended and restated revolving credit and security agreement (as amended, the “Amended Credit Agreement”). There were $21,527 and $25,127 of letters of credit outstanding and $178,146 and $174,546 of availability under the Amended Credit Agreement as of March 31, 2022 and December 31, 2021, respectively. The availability under the Amended Credit Agreement is suppressed by $327 as of March 31, 2022 and December 31, 2021, as a result of certain limitations set forth in the Amended Credit Agreement.

Senior Notes and subsidiary guarantors

In May 2021, the Company sold $325,000 of unsecured 5.25% Senior Notes (the “2029 Notes”) pursuant to a private offering. The 2029 Notes were priced to investors at par and will mature on June 1, 2029. The Company used the net proceeds from the offering, together with cash on hand, to redeem all $325,000 aggregate principal amount of its outstanding 8.000% Senior Notes due 2022 (the “8% Notes”).

The Company’s obligations under these 2029 Notes are guaranteed by each of the Company’s existing and future 100% owned domestic subsidiaries that are co-borrowers or guarantors under the Amended Credit Agreement. Such guarantees are full, unconditional and joint and several. The parent company issuer has no independent assets or operations and all non-guarantor subsidiaries have been determined to be minor.

5.	Fair value measurements

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. A fair value hierarchy has been established by GAAP that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The accounting guidance describes three levels of inputs that may be used to measure fair value:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company utilizes the market approach to measure fair value for its financial assets and liabilities. The market approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. At times, the Company holds certain derivative contracts that it uses to manage commodity price risk. The Company does not hold or issue derivatives for speculative or trading purposes. The fair values of these financial instruments are summarized as follows:

			Fair Value Measurements at Reporting Date Using
Description	At March 31, 2022		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Fuel hedge contracts	$	8,971	$	-	$	8,971	$	-

			Fair Value Measurements at Reporting Date Using
Description	At December 31, 2021		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)

Fuel hedge contracts	$	630	$	-	$	630	$	-

Fuel hedge contracts

The Company is exposed to certain market risks, primarily commodity price risk as it relates to diesel fuel purchase requirements, which occur in the normal course of business. The Company enters into heating oil commodity swap contracts to hedge the risk that fluctuations in diesel fuel prices could have an adverse impact on cash flows associated with its domestic dredging contracts. The Company’s typical goal is to hedge approximately 80% of the eligible fuel requirements for work in domestic backlog.

As of March 31, 2022, the Company was party to various swap arrangements to hedge a portion of the price of its diesel fuel purchase requirements for work in its backlog to be performed through March 2023. As of March 31, 2022, there were 7.1 million gallons remaining on these contracts representing forecasted domestic fuel purchases through March 2023. Under these swap agreements, the Company will pay fixed prices ranging from $1.64 to $3.50 per gallon.

At March 31, 2022 and December 31, 2021, the fair value asset of the fuel hedge contracts were estimated to be $8,971 and $630, respectively, and are recorded in prepaid expenses and other current assets. For fuel hedge contracts considered to be highly effective, the gains reclassified to earnings from changes in fair value of derivatives, net of cash settlements and taxes, for the three months ended March 31, 2022 were $2,481. The remaining gains and losses included in accumulated other comprehensive loss at March 31, 2022 will be reclassified into earnings over the next twelve months, corresponding to the period during which the hedged fuel is expected to be utilized. Changes in the fair value of fuel hedge contracts not considered highly effective are recorded as cost of contract revenues in the Statement of Operations. The fair values of fuel hedges are corroborated using inputs that are readily observable in public markets; therefore, the Company determines fair value of these fuel hedges using Level 2 inputs.

The Company is exposed to counterparty credit risk associated with non-performance of its various derivative instruments. The Company’s risk would be limited to any unrealized gains on current positions. To help mitigate this risk, the Company transacts only with counterparties that are rated as investment grade or higher. In addition, all counterparties are monitored on a continuous basis.

The fair value of the fuel hedge contracts outstanding as of March 31, 2022 and December 31, 2021 is as follows:

		Fair Value at
		March 31,		December 31,
	Balance Sheet Location	2022		2021
Asset derivatives:
Derivatives designated as hedging instruments
Fuel hedge contracts	Prepaid expenses and other current assets	$	8,971	$	630

Accumulated other comprehensive income (loss)

Changes in the components of the accumulated balances of other comprehensive income (loss) are as follows:

	Three Months Ended
	March 31,
	2022			2021
Derivatives:
Reclassification of derivative gains to earnings—net of tax		(2,481	)		(1,526	)
Change in fair value of derivatives—net of tax		8,716			3,412
Net change in cash flow derivative hedges—net of tax	$	6,235		$	1,886

Adjustments reclassified from accumulated balances of other comprehensive income (loss) to earnings are as follows:

		Three Months Ended
		March 31,
	Statement of Operations Location	2022			2021
Derivatives:
Fuel hedge contracts	Costs of contract revenues	$	(3,319	)	$	(2,041	)
	Income tax provision		(838	)		(515	)
		$	(2,481	)	$	(1,526	)

Other financial instruments

The carrying value of financial instruments included in current assets and current liabilities approximates fair value due to the short-term maturities of these instruments. Based on timing of the cash flows and comparison to current market interest rates, the carrying value of our revolving credit agreement approximates fair value. In May 2021, the Company sold $325,000 of the 2029 Notes, which were outstanding at March 31, 2022 (see Note 4, Long-term debt). The 2029 Notes are senior unsecured obligations of the Company and its subsidiaries that guarantee the 2029 Notes. The fair value of the 2029 Notes was $