Great Lakes Dredge & Dock Corporation (GLDD) on Q4 2022 Results - Earnings Call Transcript
Operator: Good day, and thank you for standing by. Welcome to the Fourth Quarter 2022 Great Lakes Dregde & Dock Corporation Conference Call. At this time all participants are in a listen-only mode. After the speaker presentation there will be a question-and-answer session. . Please be advised that today's conference is being recorded. I will now like to hand the conference over to your speaker today, Tina Baginskis, Director, Investor Relations. Please go ahead.
Tina Baginskis: 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, Lasse Petterson; and our Chief Financial Officer, Scott Kornblau. Lasse 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. Lasse 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 Lasse.
Lasse Petterson: Thanks, Tina. As seen in our financial results 2022 turned out to be challenging. We enter the year with a good backlog, solid cash position and a record U.S. 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 40 bidding projects were delayed, with bid days now moved into 2023. According to audit records, the overall dredging bid markets in the first 4.5 months of 2022 was less than 50% of previous yearsâ averages, which severely impacted our fleet utilization in the second half of 2022. As a portion of our annual revenues rely on projects bid and executed within the year, which we call booking burn. And typically, the majority of these projects are beach re-nourishment projects, or and coastal restoration projects, which carry higher margins. And overall for 2022 the bid market for beach re-nourishment projects are about only 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 being picked up in the second half of the year, we won 47% of the big volumes, and ended the year with $375.5 million of dredging backlog, and $594.7 million in open auctions and projects pending award. The U.S. Army Corps of Engineers is a largest client and during the year we held numerous and constructive discussions with the core 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 inflation impacted projects and dried up in cost and supply chain issues delay dried up incompletions. 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 have significant further impacts on the some storms in the Northeast. An earlier than planned offer dredge requirements of the Terrapin Island dress, and both the Ellis Island and Padre Island has lengthy stays in drydock, 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 called stack to dredges unrelated support equipment, which will reduce operating costs. Because sector edges can easily be reactivated when we see the bid market improve. In our fleet renewal and improvement program, the 20 -- the 42-year-old hopper dredge and Terrapin 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 in market led to our 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 win 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 treasures in 2020 and 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 d Jones Act-compliant in claim for both vessels for subsea Sea rock installation is on budget and expect it to be ready for operations the first half of 2025 to start working on the empire with one and two 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.
Scott Kornblau: Thank you Lasse. And good morning everyone. Let me start by walking through our fourth quarter results, which include a non-cash $8.1 million writedown for the retirement of the Terrapin Island. 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 Island, 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 margin 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 drydocking scope increases which resulted in additional costs and delays for the dredges the Ellis Island and the Padre Island. So Earlier than expected retirement of the Terrapin Island and production issues on a few projects. The mix of projects also negatively impacted gross margin, 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 decrease from prior year quarter's 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 Administration is straight of expenses compared to the prior year fourth quarter. Fourth quarter 2022 G&A 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 of 2022. Payment 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 project, significant weather delays, production issues, unplanned maintenance and a high number of differing site conditions on projects. In addition to the slow bid market with left us with more than expected idle time during the year. During 2022 we also had a regulatory drydocking on five dredges including the Liberty Island and the Ellis Island, 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 scouts 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 past 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 Lawson mentioned earlier, we currently have two vessels cold stack 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 call 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 reductions, further rationalization of support equipment, and a greatly reduced operating expense budget. 2023 will be a lighter dry docking years in 2022. Currently, the Ohio is in the shipyard for her regulatory drydock. The two other dredges are scheduled to go into drydock this year, one in the second quarter and one in the third quarter. Timing of drydock are estimates and can move to the left or right depending on scheduling. Turning to capital expenditures, we expect $20.3 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 bills $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 in plant 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 11 financing, which typically comes with very attractive terms. MARAD announced in 2022, that they want to facilitate more offshore wind construction, and have designated vessels like our subsea rock installation ship, as vessels of national interest, which will prioritize our application for review and funding through title 11. While we work with MARAD 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 drydock. In Ohio to complete her regulatory dry docking towards the end of the first quarter and will go straight from the yard to a job. So utilization is strong, the first quarter will be negatively impacted by some remaining drag on prior year projects that are still ongoing. In addition, weather continues to be a problem on multiple projects in the Northeast. Finally, the projects we are working in Q1 consists of a high volume of lower margin maintenance work. With that I will turn the call back over to Lasse for his remarks on the outlook moving forward.
Lasse Petterson : Thank you, Scott. We continue to see strong support from the Biden administration and Congress for the judging industry. And 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 U.S. Army Corps of Engineers Civil Works program, for which 2.3 billion is provided for the Harbor maintenance Trust Fund to maintain and modernize our nation's waterways. In addition, disaster relief supplemental appropriations for fiscal year 2023 was approved, which include 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, to be bid in the first half of 2023. Expected core deepening bids include the ports of Sabine, Freeport, Mobile, and one Huston Corpus Christi and additional phases were north of it. Included in a low bid spending. Our two liquid natural gas project that has been awaiting 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. Oresteia while 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 LNG projects support our expectation for a strong 2023 bid market. At the end of the year, the Water Resources Development Act 2022, or WRDA 2022, was approved by Congress and signed into law by the President. WRDA 2022 is on a two-year renewal cycle and includes legislation that authorizes the financing of Corpsâ projects for flood and hurricane protection, dredging, ecosystem restoration and other construction projects over the next five years. WRDA 2022 featured among many other things authorization for New York and New Jersey shipping channels 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 GW of offshore wind by 2030 and provided $3.0 billion in federal loan guarantees for offshore wind projects. As stated previously Equinor and BP have already awarded Great Lakes the rock installation contracts for the Empire Wind I and II Projects. They have tender and our in discussions with several other offshore wind farm developers. But projects commencing rock baseness in 2025 and beyond, which supports our plan to have a full work scheduled for the SRI vessels as you start 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 improve in markets and dredging work volumes in the second half of the year and onwards. Combined with delivery of the Galveston Island, and the cost reduction and operational improvements initiatives we have in place, we are confident to manage the current difficult market situation and deliver improved results in 2023 and beyond. And with that, I'll turn the call for questions.
Operator: Our first question comes from Adam Thalhimer from Thompson Davis. Your line is open.
Adam Thalhimer : Thanks. Good morning, guys. Can you give us a little bit more details on what you're currently seeing from the core in terms of bidding? And then what's your confidence that the bidding will improve as you move through this year?
Lasse Petterson: I can comment on that the last year activity in the bid market was really the change of mix from capital works to maintenance, the dredging works. And we see this -- the projects that were delayed from 2022 to â23 has fairly. That's a defined bid mix. So we are optimistic to see these capital projects and now being bid and executed through 2023. The LNG projects will take some time before the dredging work picks up in large volumes, but that will receive that stuff happening towards the end of the year.
Adam Thalhimer: Okay, but you're on the larger capital projects Lasse, your teams are working on those now or you're still waiting for more notifications from the court?
Lasse Petterson: No, look we are waiting for on the port deepening projects is for the bids to be issued to the markets and these bids for the ports that I mentioned the port deepeningâs that I mentioned seems to have firm bid dates. And then from the time that we issued until dredging had started as we have said before, it's typically some six to eight weeks.
Adam Thalhimer: Perfect. Okay, very helpful. And then Scott, are you willing to kind of help level set? 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 of positive results.
Scott Kornblau: Yes. So, Adam, I'm not going to give that kind of granularity, we'll kind of this quarter like I did, will continue, give updates, how we see the fleet in terms of which vessels will be working, has utilization shaping up dry docking, if there's any challenges we're facing, like we are, the weather this year, and on the on the bid market, utilization is strong this this quarter. The vessels that are not cold stacker and dry dock have been working the majority are all of the quarter, but we do have the drag that I've talked about this with all the macro drivers that do influence results quarter to quarter, I'm not shy while giving guidance. I want to I will give commentary on how we see it shaping up. To answer your question, do I expect to see margin is higher than Q4? The obvious answer is yes. But that's not saying like we have Q4 with but so far, Q1 is shaping up as expected? We have not seen any surprises except for the weather.
Adam Thalhimer: Good. Okay. Last one, then I'll turn it over the differing site conditions, are you still in discussions with customers on potential compensation on those?
Lasse Petterson: Yes, 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 ones, that job is wrapping up and should be done this quarter. The reason we've pointed these out last year is 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 major and different site conditions, we have said it was an anomaly. And it's proven out to be, as I previously mentioned, two of these claims are with clients that we have a very long standing relationship with and we are may have good conversations going on and expect those to settle in the next quarter or so. The third one is a smaller, different government entity that we set all 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.
Adam Thalhimer: Okay, good color. Thanks, guys. Good luck in Q1.
Operator: One moment for our next question. Our next question comes from Jon Tanwanteng from CJS Securities, your line is open.
Jon Tanwanteng : Hey, good morning. Thank you for taking my questions. Scott, I was wondering if you could break out the headwinds that you faced in Q4, between whether sight issues, unexpected replace in the dry docks and retirements. Could you just tell us what's the relative size of those were in the buckets and kind of how much you budgeted for each of those leaking into Q1, whether it's whether inflation or other stuff?
Scott Kornblau: Yes, I'm not going to quantify I will, however, talk in center degree of severity on what impacted us, I mean, obviously, the $8 million write-off of the tariff, and we can kind of normalize it from that. We did, though, lose about half the quarter of projected tariff and margin as well, in addition to the write offs. So, that was just last work. The drydocking scope increases, again, thatâs the double whammy, there were some increased costs. But I think more relevant, especially for the LS 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 vessels. So that was, that was pretty impactful. The weather, I talked about that, having three major jobs with 40% downtime, and only 40% of the time, it was not working. And even when it is working in in higher seats, it does impact production, we're able to work that 40% was actually zero down days. That -- 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 bid 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 whether production the drydocking and then the Terrapin missed opportunity and writedown.
Jon Tanwanteng: Okay, great. How much of an impact was weather it's been in Q1 so far?
Lasse Petterson: So it's been, Q1, I mean, January particular, it did just kind of follow on through December, when we made our adjustments at the end of the year, when you kind of estimate from a 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 they had in Q4.
Jon Tanwanteng: Okay. Do you have a scheduled liquidation of backlogs for the quarter? And is that adjusted for weather?
Lasse Petterson: I'm sorry, can you repeat that?
Jon Tanwanteng: Do you have a backlog liquidation schedule for this quarter? And is weather factoring into that?
Lasse Petterson: It is, it is. It's all been adjusted based on our best estimate after we saw the December, weather issues that we had.
Jon Tanwanteng: Okay, you frequently provided that number to investors. Would you care to do that today?
Lasse Petterson: I gave the quantity as far as how many days worked 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.
Jon Tanwanteng: I'm sorry, I meant that the revenue you expect to generate in the quarter from backlog. That's the number weâre looking for.
Lasse Petterson: So all, 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.
Jon Tanwanteng: Okay. Understood. Second, I was just wondering if you could 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 their release schedule? How much -- can we expect to see just in terms of drawdown at the worst as you start finding these shifts? And is there a schedule for CapEx that makes any one quarter worse than any other?
Lasse Petterson: Yes, 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 million 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.
Jon Tanwanteng: Okay, great. Thank you. Lasse, do you have a expected bid market for this year? Last year was obviously a lot lower than expected. What once you do have a forecast for that intuitive, what's your confidence level being there?
Lasse Petterson: Yes, the overall bid market for last year came out somewhat less than what we had in â21. What really was the impact on us was the lateness of the bidding. There was very little bids issued for 4.5 months in addition to the two last one, so 2021, where there was no bid issued. So that delayed or let's say revenue stream for us on booking 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 deepeningâs that we thought was already 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 appropriation. So as that was done, which will fund beach restoration in the southeast. 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 we're going to have a good bid market capital projects. I think the LNG projects, one or two of those would go to fit. So I'm optimistic.
Scott Kornblau: And Jonathan, let me just put a little more color on that. We talked about -- the slowness at the beginning losses, right, it was really this mix. If you look at the course capital budget, in 2022, or I'm sorry, the bids in 2022, on capital projects of the Corps, compared to 2021 â 2022, 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 project from what we were expecting.
Jon Tanwanteng: Okay, great. I'll jump back in queue. Thank you.
Operator: Our next question comes line of Joe Gomez from Noble Capital, your line is open.
Joe Gomez : Thank you. Good morning. And thanks for taking my questions. So just, one of the things we had talked about previously, and I think you touched on it a little bit, maybe you get some more color, with Hurricane Ian and the impact. And you had talked about, 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?
Lasse Petterson: Yes, I think on the last call, we'd commented that would be a flurry of projects for the South East, coming to bid here and mid this year, mid-2023. And that is then funded by the additional billion that was put through Congress. So I expect these beach renourishment and coastal protection projects to come to the bid market to let's call it to mid-year and then come to execution during Q3 and Q4 and I donât want to say into 2022.
Joe Gomez: Okay, thanks for that. I've been reading a number of articles here on offshore wind. And, 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 to continue some of these projects, GE supposedly reporting a big loss, in its wind turbine business. Supposedly, somebody's looking to try and get out of a project in New Hampshire. So just trying to get a better feel of what you see is the kind of the status, the status right now, in the offshore wind, now we are starting to see maybe some obstacles come up, that had not been anticipated previously.
Lasse Petterson: Yes, I don't want to comment on our clients plans for their projects. But I can comment on the activity that we see in the market. And we as you know, we already have one firm contract with Equinor MVP. We do 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 doesn't match. Really, I don't see the say, any delay impacting what we do with our vessel and the bids 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.
Joe Gomez: 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, 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?
Lasse Petterson: Yes, Joe, that no, no, I don't give you the over the draw. But I'll tell you that the beginning part, the half, first half of the year will be hired drawn the first quarter particular, because of the way that the CapEx is weighted, and that it will, it will trickle down, so I mentioned the draw that we have, don't extrapolate or straight line that for the rest of the year, that's not how we're seeing it was going to be very heavy in Q1, and then definitely the diminishing down. As you recall, we did upsize the revolver last year. So there is ample availability on there right now. We also did it at a time we're able to get very favorable terms. We're still borrowing today at 6%. So, it's very manageable, the way we kind of see the cadence of the drive this year and the interest burden that will come from it.
Joe Gomez: Okay, great. Thanks for taking my questions.
Operator: Our next question comes line of . Your line is open.
Unidentified Analyst : 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 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 then I have some follow ups.
Lasse Petterson: Yes, so on the notes that are due in 2029, there are no covenants, it's unsecured 5.25%. So that was the revolver. Also. It has no hard covenants it does have a springing covenant that springs when availability on the revolver is less than 12.5%. It's a fixed charge coverage ratio, that with the new build 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 and neither one of them.
Unidentified Analyst : 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, a couple quarters ago. What type of rate we'll be looking at on that type of financing or kind of term would you be thinking about?
Lasse Petterson: Yes, and what we had talked about last year was actually a different program. It was through the DOE. This is different through . Earlier in the year, June, July or so last year is when they deemed the offshore wind free 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, that 10-year Treasury plus 37.5 basis points is tenors, 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 again, as they're trying to really encourage investment in this. The application was submitted a few weeks ago, as I said this, this will take some time. It's a Q3, Q4 points that I think we know but we are having what I would call a very good dialogue with them already after we put in their application and we'll continue to work on it with them.
Unidentified Analyst : And given how we've already started spending on the rock vessel, will we be able to take money that we've already spent for progress payments and put that on that loan, or would only work on a go forward basis? No it's up to 87.5% of those full value of the vessel is the loan that you can play for. And that's what we put in for.
Unidentified Analyst : Okay, and then just kind of taken 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 -- and I've covered the stock for a very long time, you would give 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. Some -- most of it will get put out, and we went up certain percentage of it. And 2022, it didn't really seem to be the case. And can you give us any more color as to why that happened. And it strikes me that too, because you also had a situation where the funding was there, there was -- you kind of said the same script last year that you said this year in terms of appropriations, budget was higher than money never was left out. Were 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 highly problematic. And you're having to layoff workers, which you've probably voiced that to them, as a result of this.
Lasse Petterson: Yes. 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 will pass the pandemic issues. And, unfortunately, what happened was certainly the first 4.5 of the year there was very little work that was being bid and put out into the bid market. And the work that was being put out was majority was maintenance work, which carries the low margins. And there's a different competitive environment around those projects compared to the larger capital projects. We have had, and we always have a very good dialogue with the Army Corps of Engineers. And 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 our continued resolution, the Corps is limited in funding new projects. They can continue to fund ongoing projects. So that was one reason they gave, we are not under a continuing resolution this year. So the omniverse was fast. And the Corps has the money for this year. So thatâs similar situation. And then the Corps is short on personnel, and also the federal agencies or partially back in the office. As a company, we have been back in office for the last year, because we saw that it's very difficult to do larger projects and not being together as a team. We -- movements in that during the year in the core. So I think we, we have a good dialogue, I think the setup for 2023 in different variants in 2022. And that gives me that confidence to believe that the bid market will recover, and also the mix will back to more capital projects.
Unidentified Analyst : Okay, thank you. And then just the last question, a couple of 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? The Middle East or is that not an opportunity?
Lasse Petterson: The short answer is versions over the next couple of years, there's not an opportunity. I do see the domestic big market to hear to recover, I do see the need for our capacity here in the U.S. So we are not activity addressing or 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. offshore wind. That's where we see the best opportunities.
Unidentified Analyst : Okay, and then just, I guess this will be my last question. How you guys define cold stack? How long does it take to get invest a lot of cold stack? And how long does it take to recruit that vessel?
Lasse Petterson: Well, it's difficult to give the exact estimates. But once you have the cold stack the vessel, what you need to do is to get it back up and running again. And depending on the type of bids, this will be different, but and then you need to find the crews from we bid the work until we actually have to mobilize out on the field. So 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.
Unidentified Analyst : Okay, thank you
Operator: Next, we have a follow up from the line of Jon Tanwantengfrom CJS securities, your line is open.
Jon Tanwanteng: 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 that, given the amount of bids and 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 weather 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 take these things in that they're the fact that the entire market?
Lasse Petterson: Yes, I think you can from a big market changing you can assume that there is pressure on the end of the market. So currently, but I the target market that we have these larger capital projects where we are the leading contractor and I think best suited to execute those projects. So, there have been some additional capacity added by competitors we have addressed that on earlier crops. We have seen a couple of property 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 current address fleet has been rationalized and also upgraded for productivity over last year's. So we have a solid color fleet and the mechanical fleet is really a complimentary military the equipment to be used on larger projects in combination with cutters or hoppers. And we have two of the most efficient mechanical dredgers in the U.S. So I think our competitive situation is strong and good going forward.
Jon Tanwanteng: Okay, great. Is the Galveston capacity spoken for when it comes to work for the rest of the year or do you still have scheduled fulfill on that particular dredge? 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?
Lasse Petterson: Yes, the answer is yes. We have backlog to put her on to when she comes out
Jon Tanwanteng: Okay, great. Okay great, and the Ellis?
Lasse Petterson: Yes, this is going straight to work.
Scott Kornblau: Yes, the Ellis came out and it's working right now and we have backlog on her already for the majority of the year. Still some fulfill and on the tail end but Ellis is in a good position right now with backlog.
Jon Tanwanteng: Okay, great. Just a question on the wind market follow-up. Do you have any expected timing for when the next couple of major projects will be released there and I'm going go to bed and work?
Lasse Petterson: Can you repeat that?
Jon Tanwanteng: Do you have any sense of timing for when you will be able to announce the next wind project awards?
Lasse Petterson: Well, I'm very hopeful that we can do that during the year.
Jon Tanwanteng: And any sense of whether the earlier or later in the year?
Lasse Petterson: Mid-year to third quarter. But, listen 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, mid-year 2023.
Scott Kornblau: And, Jon, when 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 other bids are going to come out. It's when are they going to award on based on the bids that are already outstanding.
Jon Tanwanteng: Understood. Thank you, Scott, the G&A run rate you had in Q4, so we expect that to keep coming down with the cost savings that you put your planning or is that the right one rate to be using?
Scott Kornblau: Yes, I mean, not normalized for incentive, I think that is comparable to the run rate. There's always some Q4 adjustments, as you're aware. So it's not quite but I think if you kind of look at maybe Q3 and Q4, together, that's kind of how we're trending.
Jon Tanwanteng: Okay, great. And then last one for Lasse, when you return those chips from cold storage. Are there any costs associated with getting a backup that would be unusual?
Lasse Petterson: Yes, there will be some costs to start up to this. And 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 articles that will be included for in the bids that we are putting in. If not, we will not take them out, of course.
Jon Tanwanteng: Got it. That makes sense. Thank you.
Operator: Thank you. I am not showing any further questions in the queue? I was trying to call back over to Tina for any closing remarks.
Tina Baginskis: 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.
Operator: This concludes today's conference call. Thank you for participating. You may now disconnect. Everyone has a great day.
