Great Lakes Dredge & Dock (GLDD) Q1 2020 Earnings Call Transcript

Great Lakes Dredge & Dock (GLDD -1.59%)
Q1 2020 Earnings Call
May 05, 2020, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the Q1 2020 Great Lakes Dredge & Dock Corp. earnings conference call. [Operator instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to our host, Ms.

Baginskis. You may begin.

Tina Baginskis -- Director, Investor Relations

Good morning, and welcome to our quarterly conference call. Joining me on the call this morning is our chief executive officer and president, Lasse Petterson, and our chief financial officer, Mark Marinko. Lasse will provide an update on the events of the quarter, then Mark will continue with an update on our financial results of the quarter. Lasse will conclude with an update on the outlook for the business and market for the remainder of 2020.

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 2019 Form 10-K and subsequent filings.

During this call, we also refer to certain non-GAAP financial measures, including adjusted EBITDA from continuing operations, which are explained in the net income to adjusted EBITDA from continuing operations 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 -- Chief Executive Officer and President

Thank you, Tina. First and foremost, I'd like to recognize that the COVID-19 pandemic has impacted every facet of life in this country. At Great Lakes Dredge & Dock, we've been very fortunate to be able to continue working on a federally designated critical infrastructure company, which means that we were able to keep all of our projects progressing on schedule. We're taking steps during the crisis to ensure the continuing safety of all our employees, especially those dedicated employees that continue to work on our vessel and -- vessels and on our project sites.

In our Oak Brook office, we asked staff to work remotely, and they have effectively transitioned and have continued to work seamlessly in this situation. Further, as it relates to our job sites and vessel crews, we have reviewed and strengthened our safety procedures and adhere to CDC guidelines. I will expand on this in the latter part of the call. Turning to our financial results.

The first quarter of 2020 was an exceptional quarter, driven by strong project performance and the continuous employment of all our vessels on ongoing projects. As stated in our earnings release, net income from continuing operations year to date was 34 million and year-to-date adjusted EBITDA from continuing operations of 61.4 million, which reflects a 40% increase over the prior-year EBITDA from continuing operations. In addition, our net debt decreased by 20.3 million from year-end 2019 to 115.6 million, resulting in a healthy net debt to adjusted EBITDA from continuing operations ratio of 0.75. During the quarter, the strength and resiliency of our business was evident as we had solid revenues not just from our capital projects, but also from coastal protection and maintenance projects.

Our performance resulted in better-than-expected productivity on the Hunting Island Beach and the Delray and Ocean Ridge Beach renourishment projects. We also performed additional work from the Delaware River ridge deepening projects, completed Phase 1 of the deepening of the Corpus Christi port entrance channel and performed well on the Jacksonville B port deepening project. While the first quarter of 2020 was operationally very strong. Our planned dry dockings for certain vessels will start to have an impact on results, particularly in the second quarter and continuing into the third quarter.

Consequently, we expect the first quarter of 2020 to be our best quarter, similar to what we had in 2019. As expected, during the first quarter of 2020, the domestic bid market was lower than the prior year with 260 million in total projects bid, of which Great Lakes won 72 million. That was comprised of capital dredging and coastal protection projects. Please remember that variability in contract wins from quarter to quarter or from year to year is not unusual, and the win rate is not indicative of the win rate the company is likely to achieve this year.

With those updates, I'll turn the call over to Mark to discuss the results for the quarter, and for an update on backlog development.

Mark Marinko -- Chief Financial Officer

OK. Thank you, Lasse. I will start with the quarterly results and then discuss some specifics related to our dredging business. Please remember that all results from our E&I segment were placed in the discontinued operations and, therefore, not included in the results that I will discuss.

For the first quarter of 2020, revenues were 217.7 million. Net income from continuing operations was 34 million and adjusted EBITDA from continuing operations was 61.4 million. The total company revenues for the first quarter of 2020 represented a $25.1 million or a 13% increase compared to the first quarter of 2019. The revenue increase was a result of strong project performance in the fleet, including a contract modification to increase the scope of work on a project in Delaware.

Gross profit from continuing operations was 68.5 million compared to 49.9 million in the first quarter of 2019. Gross profit margin was 31.5% compared to 25.9% in the prior-year quarter. During the first quarter, the company did have some additional expenses related to the COVID-19 pandemic related to additional equipment and procedural changes to keep our employees safe, but it did not have a material impact on our results. Total company operating income was 53 million, which is an increase of 18.2 million over the prior-year quarter.

This increase is driven by the additional revenue and strong project performance resulting from enhanced project planning, preparation and execution. Net income from continuing operations for the first quarter of 2020 was 34 million compared to 20.5 million in the prior-year quarter. The current quarter net income includes net interest expense of 6.6 million and an income tax expense of 11.3 million. Net income for the first quarter of 2019 included 7.6 million in net interest expense and 6.8 million income tax expense.

The reduction in net interest expense is driven by the complete pay down on our revolver and higher interest income. Adjusted EBITDA from continuing operations for the first quarter of 2020 was 61.4 million compared to adjusted EBITDA continuing operations of 43.9 million in the first quarter of 2019. Next, let's turn to our balance sheet, where, at March 31, 2020, we had 207.5 million in cash. During the quarter, we continued to maintain a zero cash balance on a revolver.

Our net debt at March 31, 2020, was 115.6 million. Our total capital expenditures for the quarter were $7.1 million. This compares to 7.7 million in capital expenditures during the first quarter of 2019. The company continues to expect total capital expenditures to be 40 million for 2020.

Contracted backlog at March 31, 2020, totaled 474.9 million compared to backlog at December 31, 2019, of 589.4 million. The high revenues and project performance of the first quarter, combined with the low domestic bid market, caused this anticipated drop in backlog. With that, I will turn the call back over to Lasse for his remarks on the outlook moving forward.

Lasse Petterson -- Chief Executive Officer and President

Thanks, Mark. During this unprecedented COVID-19 pandemic that now faces our country, the dredging industry has been listed as an essential critical infrastructure service and continues to operate. The US Army Corp of Engineers oversee the majority of these infrastructure projects, and in this capacity, and at this time, I continue to follow their bid schedule with minimal delays and have continued to advertise new projects. Turning to safety and our COVID-19 response.

Great Lakes is committed to maintaining the health and safety of our team members with an incident and injury-free safety management program. To further expand on our safety measures as it relates to our vessel crew, the company has implemented a COVID-19 response plan involving temperature and health screening of all crews and staff; personal collective equipment and supplies; extended orientations and restricted access to project sites and vessels, and we have modified work practices to adhere to appropriate physical distancing guidelines, where possible. We're taking the necessary step as it relates to improved safety and have kept projects on schedule with no reported COVID-19 cases that we're aware of to date. Experts are predicting a potential new COVID-19 wave in the second half of 2020, and we continue to be proactive in preparing and addressing contingency planning should this occur.

Throughout this crisis, we remain focused on the successful execution and completion of projects that are critical to maintaining and deepening the nation's maritime infrastructure and protecting our coastlines. However, due to the pandemic, we cannot be certain that we'll be able to continue normal operations in the short or long term. Whilst to date the pandemic has not had a material impact on our operations, any future impact from the pandemic to our employees, clients, supply chain or shipyards, which would -- whom we contract prolonged may lead to delays or cancellations in projects. With that said, moving to the bid market.

We expect the 2020 bid market to be similar to 2019. This expectation assumes no changes from the current bid environment. To support the domestic market demand, we continue to responsibly upgrade our existing US domestic fleet with new equipment and technology to increase productivity. In these days, our most powerful cutter dredge, the Ohio, is on her way back to the US market.

She has been upgraded with new engines and with new pumps, and will go straight to work on beach nourishment projects on the East Coast. As stated in our last earnings call, we are in active discussions with US yards for construction of a new midsized hopper dredge with planned delivery in 2022, and we expect to enter into a building contract in the second quarter. We do expect the remainder of the year's bid activity to be more active than the first quarter and will in -- and this will include additional phases of Charleston, Jacksonville and Corpus Christi port deepenings, as well as new deepenings for ports in Mobile, Alabama and Port Everglades in Florida. In addition, the Corp of Engineers recently signed the Chief's Report, which include the Houston ship channel widening project.

This is a major project, which will be included for in the Verde 2020 legislation, which, when passed, will allow the project to proceed to construction. As stated at the end of last year, several liquefied natural gas, petrochemical and crude oil export projects are being developed in the Gulf of Mexico, creating the need for port developments and navigation channels deepening and widening to accommodate the larger vessels involved in this trade. In 2019, we submitted several bids to the energy companies for projects that were moving toward notice to proceed. With the current economic environment in the oil and gas markets, some of these privately funded projects has been delayed, and we expect others to be impacted and delayed as well.

In conclusion, the Great Lakes Dredge & Dock company ended the first quarter with a strong net cash position, balance sheet and substantial liquidity, which has positioned the company well for the current economic environment. And with that, I'll turn the call over for questions.

Questions & Answers:

Operator

[Operator instructions] Your first question comes from the line of Jon Tanwanteng of CJS Securities.

Jon Tanwanteng -- CJS Securities -- Analyst

Good morning, guys. Can you hear me?

Lasse Petterson -- Chief Executive Officer and President

Yes. We can hear you.

Mark Marinko -- Chief Financial Officer

Yeah. Hi, Jon.

Jon Tanwanteng -- CJS Securities -- Analyst

Congratulations on a fantastic quarter. Can you talk about the expected utilization for the rest of the year relative to what's already in your backlog and your dry docking schedule? It looks like the Ellis is scheduled for dry dock in Q2, and I know that's a pretty big profit center for you.

Lasse Petterson -- Chief Executive Officer and President

Yeah. So, we do expect to increase dry docking and particularly in quarter two and in quarter three. I'll let Mark expound on that.

Mark Marinko -- Chief Financial Officer

Yeah. Sure, Jon. You're right. We have -- as we go forward into Q2, three and four, Q2 will be the most impacted.

For the year, we have four vessels in dry dock. And the Ellis is one of them. They'll also be in for regulatory dry dock, as well as some -- while she's out at the shipyard do some repairs as well. She's been working a lot for a long time.

So, we'll see the most impact in Q2. So, we expect Q2 actually to be our lowest quarter of the year. And then we have two additional vessels that will go in, in Q3. And then those same two will finish in Q4 a little bit.

So, yes, Q2 will be the largest dry dock by far and then Q3 and then a little bit left in Q4 as we finish up those final two.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. Got it. And then Lasse, you mentioned a couple of LNG projects being delayed. Can you talk about the overall impact to your expectations of the bid market for the year? And kind of how that has been impacted by what you're seeing delayed? And maybe you could comment on a couple of specific ones.

I know that funding for the large Brownsville project, some of it had moved forward, although maybe there's some delays from other parties in there. Any specific color would be helpful.

Lasse Petterson -- Chief Executive Officer and President

Yeah. The oil and gas market has been hit by a pricing challenge. And at the same time, we had the COVID. So, the uncertainty is definitely there.

The -- I don't -- the impact on our year will not be that large, and I'll let Mark expand on that. And also, it's very difficult for me to have an opinion on which of the LNG projects that will go forward this year or be delayed until next year. We do know the -- there was a very aggressive, let's say, development ongoing for several of these LNG projects that has received approvals, and we just have to monitor that market for this year. Mark, can you give some specifics there on the impact on our results?

Mark Marinko -- Chief Financial Officer

Yeah. Yeah. Jon, we had -- as we mentioned on the call, the end of -- for Q4 last year, we had two projects for private clients that were in our low bid pending award, not in our backlog. And if those projects were delayed out of 2020, they would have about a $20 million impact on our EBITDA this year.

So, we don't -- yes, it's just too early to tell whether these projects will move forward or get delayed at this point in time.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. Understood. And then the larger projects going forward?

Mark Marinko -- Chief Financial Officer

Yeah. So, as Lasse was saying, yes, you still have the -- you mentioned Brownsville, and these conversations are still happening on all these projects. But at this point in time, we just can't -- it's too hard to speculate when they're -- whether they're going to go be delayed or be bid at this point.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. Fair enough. You mentioned in the press release that there is a cap lift in the CARES Act that would be beneficial to you. I was wondering how that directly impacts you funding out of the HMT.

And more speculative, how might a broad infrastructure bill benefit you? Do you have any info as to what's being discussed on the Hill?

Lasse Petterson -- Chief Executive Officer and President

Well, on the Harbor Maintenance Trust Fund, it was taken off budget, and that means that 100% of the revenues that comes into that trust fund will be spent on maintenance dredging, which is the majority of the activity under the fund. There is a $9 billion balance on the fund that is being discussed, how that is being -- could be spent. But the really good news is that the revenues that are coming in every year will be spent on maintenance dredging. Mark, would you want to comment on the CARES Act further?

Mark Marinko -- Chief Financial Officer

Yeah. So, on that specific piece, Jon, we've been working -- not just Great Lakes but the industry on getting that approved and it did get approved now in the CARES Act. So, we were working on that for a number of years so it's definitely a positive development for us and for the industry. The overall CARES Act I just want to talk about for a second.

Because we are an essential industry and continuing to work, we couldn't take advantage of many of those items, but we did take advantage of the deferral of the social security employer tax, and from a cash perspective, that allows us to defer those payments into of '21 and '22. So, we've done that. But we're pretty limited on the opportunities there because we are an essential business and continue to work.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. Great. And then just a final quick one for me. Have you seen competition increasing at all in this environment, whether it's in pricing or bidding or number of bids that are -- number of people who are bidding on projects?

Lasse Petterson -- Chief Executive Officer and President

Well, what we have seen is that there are new equipment coming to the market, and we have new competitors that are coming into the coastal dredging market. As you probably have seen, the Corpus Christi 2 was awarded some weeks ago. And that was to a new competitor that is coming into the coastal dredging market. They bid very aggressively.

The dredge is ready to be deployed. And they are new to the market and decided to bid aggressively for this large project. So, we see that happening. We are responding to the challenge -- or to this new competition as well.

It's not unusual when new equipment is being introduced to the market, that the owner is anxious to get that equipment employed immediately. But as you know, we have -- we are bringing back the Ohio to the US market, and that is from a strong belief in a very solid dredging market going forward. And we are in the, let's say, closing phases of making decisions on building a new hopper dredge. So, we believe the market is strong, and others are also seeing the same thing.

Jon Tanwanteng -- CJS Securities -- Analyst

OK. Maybe one follow-up to that. Do you need the LNG projects to come back and to justify the build for new capacity?

Lasse Petterson -- Chief Executive Officer and President

No. The new hopper dredge is targeting a different market. It is targeting the coastal protection and the beach renourishment market, in particular.

Jon Tanwanteng -- CJS Securities -- Analyst

OK, great. Thanks a lot and great quarter again.

Lasse Petterson -- Chief Executive Officer and President

Thanks, Jon.

Operator

Your next question comes from the line of Poe Fratt of NOBLE Capital Markets.

Poe Fratt -- NOBLE Capital Markets -- Analyst

Morning, Lasse. Good morning, Mark. Mark, if you could expand on your comment about leveling off, as I think I'm not sure whether you're referring to gross margin or revenue, but -- and you also mentioned that the second quarter would be your low point of the quarter. And I guess, when -- I'm just looking for a little additional color on sort of how the rest of the year progresses and maybe even if you'd compare it to how last year progressed.

Mark Marinko -- Chief Financial Officer

Yes. Yes. So, in a -- yes, similar to 2019, as Lasse has stated, last year, Q1 was our strongest quarter. It's the same thing here.

It's just even a better first quarter this year. Yes. So, Q2 will be, as I said, our -- we think the lowest of the quarter driven by dry dock, the number of dry docks, vessels, and project mix is part of that as well. But as you look forward out through the whole year, as I mentioned kind of last year, we expect 2020 revenues to be higher than last year.

For the full year, we expect gross margin to be -- gross profit margin to be similar to last year. And I'm saying that -- and that assumption includes that we do not have these private client jobs. If we had the private client job, it would be better. And then G&A, as we look forward is pretty even throughout the year in the 60 million range.

It's a little bit higher this quarter as due to incentive pay as we have to -- we book that as you achieve it, the milestones during the year. You book that percentage, and this is the highest percentage of the year. So, hopefully, that helps you kind of lay out what's kind of going through for the rest of the year, our expectations at this point.

Poe Fratt -- NOBLE Capital Markets -- Analyst

That helps a little bit. Were you speaking about gross margin on an absolute basis, a dollar number or a percent?

Mark Marinko -- Chief Financial Officer

Percentage, yes. Percentage.

Poe Fratt -- NOBLE Capital Markets -- Analyst

OK. Yeah. Great. And Lasse, maybe if you could expand on the new build program.

I know that you still haven't signed a contract yet. But could you help frame the potential capital spending for this year and next? I think you mentioned a delivery in early 2020, '22. Anything that you could help -- help us understand how your capex is going to look if you move forward with that project? And then on top of that, would you structure the deal with a potential to build a second one along with the initial one?

Lasse Petterson -- Chief Executive Officer and President

Yeah. I'm hopeful that we can enter into a build contract here in second quarter, and this is for a midsized hopper. I think on previous earnings calls, when we mentioned the size of the investment, we said that it would be more like half of the Ellis, but I can't comment more on that as we are in negotiations with the yards at this point in time. This hopper will take a little less than three years to build.

We are looking at a second hopper as a copy. We have seen smaller hoppers, the Dodge and the Potter work -- were very well together as a pair, and it would be nice to have two identical vessels out in the market in, let's say, three to four years' time. We have upgraded our cutter fleet which, now includes the Ohio that is coming back to the US market. She is the most powerful cutter dredge in the US market once she arrives as she has new engines, new pumps, new technology on board.

So, she will be very competitive in that market. Other than that, we will invest in technology to improve our productivity. But that -- the main part of our capital spend will be on the first hopper and potentially the second hopper for the next couple of years.

Poe Fratt -- NOBLE Capital Markets -- Analyst

Great. That's helpful Lasse. And you mentioned several projects coming down the pike, whether it's the non-LNG or the non-private ones. You look at Charleston, Jacksonville, Corpus, Everglades and Mobile.

Could you frame the potential of those projects maybe in an aggregate dollar amount? Or maybe just give us a little bit of color on each one, if possible?

Lasse Petterson -- Chief Executive Officer and President

Well there's a list of projects that are being announced by the Corp of Engineers, and they give a range on these projects, and that is available to the public. And the range that is being indicated on these projects that we have mentioned, it's anywhere from 25 million to 400 million. So, it's a wide range depending on which project we are looking at. The Houston widening project, for instance, would probably be more than 500 million, while some of the next phases on Charleston is probably more in the 25 to 50 million range.

Poe Fratt -- NOBLE Capital Markets -- Analyst

Great. That's helpful. And Mark, can you just clarify your comment? I was a little surprised that you mentioned a $20 million EBITDA impact on the private client LNG-related work. And is that potentially -- if you could just give us a little context on that that would be helpful.

Mark Marinko -- Chief Financial Officer

Yeah. So, we had -- again, we had two projects that were -- private client projects that we mentioned at year-end that were low bid pending award not in backlog. But yes, we expected some of that work to be potentially this year. And if that -- if those were delayed, that would be the impact -- 20 million of EBITDA would be the impact to the 2020 numbers.

And the number -- yes, the number I quoted to you on that gross profit margin assumes those projects are not happening in 2020.

Poe Fratt -- NOBLE Capital Markets -- Analyst

Yes. To not go forward. That's great. And then when you look at potentially your balance sheet strengthening net debt, cash is up.

Continued -- net debt continues to fall. Can you talk about your refinancing plans and whether anything has changed over the last couple of months on refinancing the $325 million bonds that are due, what, in two years?

Mark Marinko -- Chief Financial Officer

Yeah. So, yes, from -- we're -- in February, yes, the market was very attractive. We were looking closely at whether to refinance them early, even at the one o four premium. Because you could call them -- couldn't -- they were no-call until May 15.

So, in a couple of weeks, May 15 this month. The market in -- obviously, in March and just stopped for these high-yield notes. Many places, the only things that were happening were people that were really, really, I'll call it, in need or in critical situations. Over the last few weeks, the market is beginning to open up.

The rates are still not attractive enough, but we are monitoring it every day. And we are getting ready in case that opportunity is there for us to do this. The good news is, they're not due for another two years, so we still have this flexibility, and as I've mentioned before, next year, in May, we can refinance those notes at par. So, we're monitoring it closely.

But yes, over the last 30, 60 days, the market has not been attractive.

Poe Fratt -- NOBLE Capital Markets -- Analyst

Great. And then I think post the Corpus Christi news that Callan had been awarded that, you mentioned a couple of projects that might help replace that backlog or that potential loss. Can you just expand on sort of the status on Cameron Meadows or Spanish Ridge that you'd mentioned?

Mark Marinko -- Chief Financial Officer

Yeah. So, Cameron Meadows, we are waiting to hear about that. That project, we bid it. Waiting for final decision on that.

And as I mentioned that's -- all right. I don't think I've mentioned the number yet, but that's in the range of $50 million. There's another project Spanish Ridge that hasn't bid yet. That's a larger one, closer to maybe 100 million-type of project.

So, those projects are still moving along, but I don't have an update yet on final status.

Poe Fratt -- NOBLE Capital Markets -- Analyst

OK. Great. And do you have a low bid pending award number that you'd be willing to offer out?

Lasse Petterson -- Chief Executive Officer and President

What?

Mark Marinko -- Chief Financial Officer

At 3/31, if you hold on one second, sorry.

Poe Fratt -- NOBLE Capital Markets -- Analyst

And then maybe lastly, if you would -- any update on the long-term potential of the wind market? I know that it's still on the horizon, but if you could just mention if anything's changed on your previous comments with the wind market development.

Lasse Petterson -- Chief Executive Officer and President

The offshore wind market?

Poe Fratt -- NOBLE Capital Markets -- Analyst

Yes.

Lasse Petterson -- Chief Executive Officer and President

Yeah. As I said on previous calls, I think this is a very exciting opportunity for Great Lakes to get involved in the development of the offshore wind energy markets. As we have seen, the COVID has impacted not just our industry, but also that part -- that industry. We are bidding actively on projects that are scheduled to go ahead for dredging services and related services, and we are hopeful that that market is continuing on schedule.

However, if you look at the publicly available information around these projects, there has been some delays. But we are actively pursuing that market, and I'm very optimistic about being involved in that as it goes ahead.

Poe Fratt -- NOBLE Capital Markets -- Analyst

Do you think you could see first revenue in 2021 from the offshore wind market? Or is it more like a 2022 event?

Lasse Petterson -- Chief Executive Officer and President

It will probably be more in the 2022 and onwards.

Mark Marinko -- Chief Financial Officer

And Poe, to follow-up on the low bid pending awards and options at the end of March, it's about $160 million. The majority of that is the private client work that we were talking about earlier.

Poe Fratt -- NOBLE Capital Markets -- Analyst

Great. Thank you so much.

Operator

Your next question comes from the line of Greg Bennett of Morgan Stanley.

Greg Bennett -- Morgan Stanley -- Analyst

Question's been asked and answered. Thank you.

Operator

And your next question comes from Richard Glass. Please state your company name, please.

Richard Glass -- Glass Capital Management -- Analyst

Glass Capital. Fantastic quarter, guys. Glad to see it.

Lasse Petterson -- Chief Executive Officer and President

Great.

Richard Glass -- Glass Capital Management -- Analyst

I guess, Poe is going to ask more than one question, in the follow-up. So, I'll ask a couple. But can you help clarify for those of us who maybe have less understanding than Jon and Poe in terms of the Harbor Trust Fund, in terms of what's been spent there? And now you're saying it's going to 100% of the funds. What is that delta? What are those numbers? What have they been or been on average? And what should that become?

Lasse Petterson -- Chief Executive Officer and President

Yeah. So, over time, the spend from the Harbor Maintenance Trust Fund has been increasing from around 50% of the revenues, so the annual revenues. And we have been able to increase that up to, I think this year is, 95% and going forward, we are certain that it's going to be 100% that's being spent. And that revenue that is being collected every year is then going back into maintaining the ports and shipping channels, and the majority of the funds are going to maintenance dredging.

And the revenues every year is in the range of $1.7 billion.

Richard Glass -- Glass Capital Management -- Analyst

And has that number, the revenue number been going up? Or is it like this -- like the gas tax, which it goes down because people get more fuel-efficient kind of thing?

Lasse Petterson -- Chief Executive Officer and President

Well, it's a function of the trade that is coming into US ports and between US ports. So, it was collected on the trade. So, if the trade is up, which it has been year over year for a number of years now, then the income goes up. If there's an impact from COVID on the trade, then there will be an impact on the revenues.

Richard Glass -- Glass Capital Management -- Analyst

Got it. OK. But it's been a growing pie, which is good anyway.

Lasse Petterson -- Chief Executive Officer and President

That's correct. And there is a balance on the fund for the funds that has been collected, and that is in the range of $9 billion and there are discussions ongoing if that balance can also be used for maintenance dredging going forward, but that is still to be decided.

Richard Glass -- Glass Capital Management -- Analyst

As long as the discussion is to keep it there and not to raid the trust fund to pay for other stuff, it would be the concern, I would think, the way our government works. The other question in terms of the new build, can you just give us some insight as to how you guys are thinking about this from an IRR perspective? Kind of what's your hurdle rate? I mean, I think there's some concern in terms of the Ohio coming back and other new equipment that you discussed. But obviously, it's been a growing market is what you just were explaining. So, how do you think about that in terms of deciding to spend the money and maybe spending on a second one? And just consequently, does any equipment come out that's older and less efficient on the back end of that over that time frame as well?

Lasse Petterson -- Chief Executive Officer and President

Yeah, I'll start out and then Mark maybe can continue on that. Three years ago, we did a rationalization of some of our fleet. We took out a number of dredges that were old, you're looking at 60-year-old equipment that were not actually contributing to our bottom line, and we invested into the most productive part of our fleet. And we took delivery of the Ellis Island hopper dredge that came into production in 2018.

Now, we are continuing with a new hopper dredge. We have some dredges that are getting a little long in the tooth and expensive to maintain. So, we're building this hopper dredge or the two hopper dredges potentially for both additional capacity in the market, but it could also be a replacement investment for the Dodge and the Padre as an example in years to come. But Mark, maybe you want to expand a little bit on that.

Mark Marinko -- Chief Financial Officer

Yeah. Sure. So, the way we looked at this opportunity was -- we look at it in two ways. So, we look at it first as a stand-alone and it's incremental to the company in terms of -- it doesn't cannibalize anything, meaning the market is still strong and the rest of our equipment really isn't impacted.

And when you run the numbers there, you get IRRs in the low 20%. When you -- the other way we look at it is, OK, maybe the market won't be as strong in the future. And we look at it as a champion challenger and say, OK, here's this new dredge. Here's its expected cash flows over a period of time.

And we look at what dredges it would replace. And in this example, there are the submarkets within all these different pieces of dredging and this mid -- this is a midsized hopper with shallow draft so it's a different type of hopper dredge than the large Ellis Island. And what it's closer to is the Dodge and the Padre, which are about a little over 40 years old. So, when we do that second analysis, we look at it as the Dodge and the Padre keep working for about five years and then they go away.

And we look at the cash flow related to the Dodge and Padre and we take the difference. And when you do that, so you're kind of looking at the cannibalization of fleet, we look at that IRR, and that's in the low double digits or mid-teens, let's call it. And that's the way we look at the -- from an IRR perspective. And that's the way we look at those types of opportunities for -- to make an investment decision.

Richard Glass -- Glass Capital Management -- Analyst

OK. Sounds good. Thanks a lot guys. Keep it up.

Lasse Petterson -- Chief Executive Officer and President

Sure. Thanks.

Operator

And at this time, there are no further questions in queue. I'll now turn the call over to our speakers for final remarks.

Tina Baginskis -- Director, Investor Relations

Thank you. We appreciate the support of our shareholders, employees and business partners, and we thank you for joining us in this discussion about the important developments and initiatives in our business. We look forward to speaking with you during our next earnings discussion. Thank you.

Operator

[Operator signoff]

Duration: 45 minutes

Call participants:

Tina Baginskis -- Director, Investor Relations

Lasse Petterson -- Chief Executive Officer and President

Mark Marinko -- Chief Financial Officer

Jon Tanwanteng -- CJS Securities -- Analyst

Poe Fratt -- NOBLE Capital Markets -- Analyst

Greg Bennett -- Morgan Stanley -- Analyst

Richard Glass -- Glass Capital Management -- Analyst

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