Q2 2021 Orion Group Holdings Inc Earnings Call
[music].
Greetings and welcome to Orion incorporated second.
And quarter 2021 conference call and webcast at this time all participants on a listen only mode. A question and answer session will follow the formal presentation.
For anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded I would now like to turn the conference over to your host today Mr.
Fran Okoniewski Vice President of Investor Relations. Thank you Sir Please proceed.
Good morning, everyone and welcome to Orion Group Holdings second quarter, 2021 earnings conference call and webcast.
My name is Fran Okoniewski, Vice President of Investor Relations.
Joining me today are Mark Stauffer.
Orion Group Holdings, President and Chief Executive Officer and.
And Robert Tabb, our executive Vice President and Chief Financial Officer.
Regarding the format of the call we've allocated about 10 minutes for.
Prepared remarks, and which mark.
And Robert will highlight our results and update our market outlook.
We will then open the call for questions.
Through the course of this conference call, we will make projections and forward looking statements regarding among other things are and markets revenues for.
Those profits.
Gross margin EBITDA.
EBITDA margin.
Backlog.
Projects and negotiation and pending awards as well as our estimates and assumptions regarding our future growth.
Administrative expenses and capital expenditures.
These statements are predictions that are subject to risks and uncertainties, including those described in our 10-K that may cause actual results to differ materially from those statements.
Moreover, past performance is not necessarily an indicator for future results.
By providing this information we undertake no obligation to update or revise any new projections or forward looking statements, whether as a result of new developments or otherwise.
Also.
Please note that adjusted net income and.
Adjusted earnings per share.
EBITDA and.
Our margin our non-GAAP financial measures under the rules of the Securities and Exchange Commission, including regulation G.
Please refer to the reconciliations and definitions inclusive for the most comparable GAAP measures and reconciliation tables accompanying.
This earnings call within the press release.
Issued yesterday.
The press release can be found on our website at Www Orion Group Holdings, Inc. Dot com.
Also for additional discussion of risk factors that could cause actual results to.
And to defer.
Differ materially from our current expectations, please refer to our quarterly and annual filings with the SEC.
Are also available and the investors section of our website.
And with that I'd like to turn the call over to Mark Stauffer, President and Chief Executive Officer.
Mark Thank.
Thank you and <unk>.
Everyone. Thanks for joining us today.
They will discuss our second quarter results, along with our markets and outlook I'll begin with an overview of the quarter. Robert will then discuss our financial performance in more detail and then I'll come back to discuss our market outlook before we turn to Q&A.
And as always I'd like to begin by thanking all of our team members for their hard.
Good morning, and commitment to our success.
We remain deeply committed to our target zero programs and support our vision of zero damage zero harm and zero incidents.
Safety of our employees is a key priority and we want to ensure that our team members LIBOR at the same way they came in healthy and injury free.
During the second quarter, we closed.
On the sale of our Tampa property further strengthening our balance sheet and enhancing our liquidity.
The gain on the sales included in our second quarter results, which also reflected the impact of inordinately wet weather and our key operating geographies, which affected both our business segments, but predominantly our concrete business.
Our concrete segment's production.
And was hampered by what weather patterns across Texas, resulting in and under recovery of labor.
With normal weather conditions, our concrete segment will be efficiently executing on any delayed projects.
Despite the weather challenges, our marine segment delivered year over year improvement and adjusted EBITDA margins for the quarter.
During the quarter, we bid on approximately $2 billion of project opportunities a record level for the company.
Included in this number we're too long duration projects totaling approximately $500 million.
Where we saw 1 of our competitors severely undercut market pricing on both projects.
Our focus will remain on being disciplined.
And we're bidding and not filling up our backlog with cheap work.
Despite these 2 losses, our backlog was up sequentially on a book to Bill of 1.2 times.
We remain optimistic about the trends, we're seeing with respect to project opportunities across our end markets, especially and markets that are emerging from the impacts of the COVID-19.
Supply endemic particularly.
Particularly in the energy and cruise sectors.
Our current level of quoted work stands at roughly 2 billion up 50 per cent from this time last year and remaining at elevated levels sequentially.
We view. This continued trend is a positive leading indicator of sustainable improvement and project letting active.
For the current level of bids outstanding and improved macroeconomic environment and a potential infrastructure Bill gives us confidence that as 'twenty..1 'twenty 'twenty..1 progresses, we will continue to see a robust project pipeline with bid opportunities available to grow our backlog positioning us for a strong 2022.
Now I'll turn the call.
Call over to Robert to discuss on financial results for Q2 Robert.
Thank you Mark and thanks, everyone for joining us today I'll review the financial results for the second quarter 2021 and provide an update on the company's liquidity position and balance sheet.
Starting with the financials revenues for the.
<unk> quarter 2021.
$145.9 million compared to $183.7 million and the second quarter of 2020. The decrease was driven by a combination of weather supply chain disruptions and the timing and mix of certain projects second.
Second quarter gross profit was $12.3 million compared for 'twenty.
<unk> 7 million and the prior year period.
The year over year decline was driven by a decrease and construction activity leading to increased unrecoverable costs.
Project execution continued to improve as we saw over 100 basis point improvement to project level margins year over year.
As a percentage of revenues.
Gross profit margin was 8.4% and the second quarter of 2021 compared to 11, 3% and the prior year period.
Turning to our segments.
And the second quarter of 2021 on Marine segment had revenues of $63.9 million adjusted EBITDA was $7.8 million equating to an adjusted EBITDA margin.
Of 12, 2% and the prior year period, we generated revenues of $91.7 million and adjusted EBITDA of 9.9 million with and adjusted EBITDA margin of pinpoint 8%.
Marines revenues and EBITDA declined due in part to a difficult comparison to a strong second quarter of 2012.
Which included progression on some large projects that as they get closer to completion and larger contributions and the prior year period. Despite the decrease in revenues, we were able to expand EBITDA margins by nearly 150 basis points.
Our concrete segment had second quarter revenues of $81.9 million.
Compared to $92 million and the second quarter of 2020 and.
Adjusted EBITDA for the concrete segment was a loss of 433000 compared to $2.8 million and the prior year period.
Our concrete segment's year over year declines were due to weather impacts, which affected our ability to pour concrete and.
And progressed projects.
SG&A expenses for the second quarter were $13.7 million or $9.4 per cent of revenue as compared to $16.5 million or 9% of revenues and the prior year period the year over year decrease in SG&A dollars were driven primarily by a decrease and bonus expense as compared.
To the prior year period.
Net income for the second quarter, 2021 was $3.5 million or 11 cents diluted earnings per share.
This includes a net 1 time gain of 3 million primarily related to the sale of our print Tampa property offset by $1.1 million of tax valuation.
Allowances.
Given these factors adjusted net income was $1.7 million or <unk> <unk> per share.
Second quarter, adjusted EBITDA was $7.4 million, representing an adjusted EBITDA margin of 5.1%. This compares to $12.6 million for and adjusted EBITDA margin of 6.9% and.
And the prior year period now.
Now to bidding metrics and win rates.
For the second quarter 2021 we bid on approximately 2 billion worth of opportunities and were successful on $175 million. This resulted in a book to bill ratio of 1.2 times and a win rate of 8.8 per cent for the quarter as.
As of June.
30 of 2021 and our backlog was $394.4 million of which $170.2 million was associated with our marine segment and.
And $224.2 million for the concrete segment.
Additionally, we are the apparent low bidder or have been awarded subsequent to the end of the second.
Quarter $30 million worth of opportunities and total currently we have over $2 billion worth of projects and bids outstanding.
Which is up 51% from last year.
And that perhaps what I'm most excited to talk about our balance sheet.
As of June 30, 2021 we had approximately $2.4 million of cash.
And $42.3 million of availability under our revolving credit facility.
We ended the quarter with 6 million on outstanding debt, all of which was related to the revolver as we used proceeds from the sale of our Tampa property to pay off the balance of our term loan.
This translates into a 3.6 times.
Michelle and a fixed charge ratio of 352 times.
Both well within the covenant requirements.
Our current credit our current liquidity position after the sale of the Tampa property Goodbye and without other noncore asset sales, we expect to take place before year and leaves us with 1 of the strongest balance sheets.
<unk> we've had in years.
It gives us ample flexibility to execute on our strategy for.
New awards perform work and backlog and explore both organic and inorganic growth opportunities, including accretive M&A activity.
Overall, our second quarter was hampered by weather we remain.
Confident and the end markets, we serve our long range plan and our team's ability to execute our overall strategy now I'll turn the call back over to Mark.
Thanks, Robert turning to our markets as I noted earlier, we have seen improvement and our end markets that were impacted by the COVID-19 pandemic and we continue.
See an upward trend and project Lettings and these end markets.
Well, winning new awards and replenishing our backlog as a key focus our primary focus continues to be bidding on the most attractive jobs, where we have a strong likelihood of executing at or above our targeted profitability goals, we will remain disciplined and our bidding approach.
And just to the extent and we see competitors to undercut the market such as on the 2 large projects I mentioned earlier those competitors will be tying up their equipment and work force, which will position us well for the bid the project opportunities. We see ahead of us.
We are also reaching beyond our traditional project targets and geographic.
And so to secure quality backlog and we continue to target select larger longer duration projects, which provides us with greater operational long term visibility.
Our diverse skill sets and end markets and our ability to easily flex from 1 type of project to another is 1 of our competitive advantages.
Great and on Marine segment, we continue to pursue opportunities and the public sector at the federal state and local levels, including port expansion projects.
Work involving bridges over water Navy facilities, and environmental and flood control projects.
We've recently book, New dredging work with the U S Army Corps of engineers, which is highly beneficial.
Well to a project mix.
We expect to see an uptick and bidding on core dredging projects as we near the end of the federal government's fiscal year on September 30th and we are well positioned to capitalize on these upcoming lettings.
We accept we expect projects and the energy space and the Caribbean market will.
We will continue to materialize.
And a fish numbers and as economic activity continues to increase.
As energy markets adjusted global economic activity and cruise lines resumed sailings and we expect projects that pushed to the right due to the pandemic to reenter the bidding pipeline.
And our concrete segment, we continue to pursue new projects and attractive end markets.
And which is the tech e-commerce and large retail distribution centers.
We also continue to bid on larger structural projects involving high rise residential or mixed use towers.
Texas is home to for out of the 10 fastest growing population markets and the country and we are confident about.
And you and market growth for these types of projects excuse me driven by population growth.
We also continue to pursue projects outside our traditional markets, particularly in Florida, which is a key market we have targeted for expansion of our concrete business.
In addition to the Florida pursuits, we have recently proceed projects.
The continued Texas, and the Texas, Panhandle, and and northern Louisiana.
We continue to make progress and our New York, New ERP system implementation, which we believe will be transformative and providing our managers with real time quality information to drive better faster decisions.
We've also improved our balance sheet.
Due to consistent operating cash flow generation and real estate sales, we expect to continue to improve our liquidity position over the course of this year positioning us well to invest both in both organic growth and potential accretive M&A opportunities and as we execute our strategic plan.
With that I'll turn back the call to the operator for Q&A.
Q&A.
Thank you at this time, we will conduct a question and answer session and see what.
And I to ask a question. Please press star 1 on your telephone keypad income.
Formation total indicate your line is any question queue. You May press Star 2 if you would like to remove your question and from the queue for participants using.
Speak for equipment and it may be necessary to pick up your handset before pressing on this darkies once again Thats star 1 at this time, 1 moment, while we poll for our first question.
Our first question comes from Alex Rygiel with B Riley FBR. Please proceed.
Thank you and good morning, gentlemen, good morning, Alex for Alex.
As it relates to some of the early indications of the federal transportation Bill. It appears that there's a fair amount of money being.
Allocated towards ports can you talk a little bit about your positioning on some of that and.
Historically, when the federal government does.
Past.
Bill's like this what does the timeline look like for Lettings, and and and revenue coming through the system.
Well first off yes, I mean, the ports are definitely you know queued up and the infrastructure Bill.
And it looks like progress is being.
And made on that though.
They're a great additional catalyst and all the work and we're already seeing out in front of us with respect to the timing of it and it's going to vary again, a lot of the port authorities and our market areas have long range plans in place and.
And expansion plans and things like that so.
So to the extent the funding moves and that they can they can react relatively quickly.
And the past we've seen for example, with the Corps of engineers for some of the waterways and port work that they may be teed up on that moves through fairly quickly again they've got.
A lot of work that they can.
Once they get funding for they can they can get out fairly rapidly. So we saw that.
Time, we saw.
And of our infrastructure slash stimulus bill after the great recession, So we're confident that the.
Enough of that moves quickly.
It's a it's a great positive.
On top of all of the work that we're already seeing.
Our end markets, so it'd be a great additional catalyst and I think there is enough work that would come out relatively quickly but also <unk>.
<unk> It would go on for quite some period of time there. So that's a lot of money that we're talking about so we could see some quick things, where we also will see.
And some things that go out over time, so it'd be a good catalyst for years to come.
And this is the second quarter and a row where your.
Bids during the quarter were pretty significant.
So obviously going to have a lot of bids outstanding and right now what does the timeline look like for for those.
<unk> awards to be made.
Well, it's a little.
Varied I mean, we've got some stuff that we'll expect to be seeing a relatively soon and we've got other work that were out there for us out like and RFP type work for the government where.
There isn't a it's and the evaluation period, so it may be.
A few months before we on that.
And it's across the board I mean every day we are.
And every week I should say we go through we.
We found out some information on some things that it's short term it's long term.
So it varies.
And.
The key thing and we're focused on is.
Is that just we want to bid and.
Secure quality backlog profitable backlog.
That's our key focus on project execution Robert touched on this.
We're executing well on the projects but.
You know again, it's there's just a broad range of time.
Timing of <unk>.
Projects and.
We're trying to get stuff and that we can we can turn quickly on as well.
Oh.
Thank you good luck.
Our next question comes from Julio Romero with Sidoti and company. Please proceed.
Hey, good morning.
Morning, everyone.
Hey, So I wanted to follow up on Alex's question about it.
The amount of money allotted to ports and waterways and the bi partisan framework.
When I checked on the White house's website that number was about $16 billion.
And I know that that's a moving number but I guess my question is.
How much was allotted for the U S Army Corps of engineers back and the great recession and that stimulus Bill would you happen to know what that number was that was about 5.5 billion, which doesn't sound like a lot, but keep in mind that the operating and maintenance budget typically for the corps of engineers is about 5 billion, so back and back end.
After the great recession it was essentially.
A doubling of their budget and that period.
For operation perfect.
And do you know what their budget and now it's.
It's about the same it's it's about 5.6 billion for operations and maintenance and similar amount for capital capital projects.
And the.
So.
So how are we thinking about that go ahead.
Go for it.
And because they are so are we thinking about that and that $16 billion.
The number that it's most pertinent to.
For the impact on the on Orion No I think it's multiple.
That's.
And there our expectation is that.
And when Theyre talking about ports and waterways and things like that some of it is going to be our anticipation doesn't mean, we'll have to see the details. Our anticipation is that it would go directly to ports as well for port authorities to execute.
Their expansion plans so that's things.
And that expansion hard infrastructure things like that our expectation to is at the core of engineers would get some for traditional dredging projects. So both of those things are things that we could get the other thing is and again this is probably going to involve.
And elements of the transportation Bill so.
Bridges, the Dot's, we would expect to get a significant funding as part of this and that again is going to be providing project for us.
And then we'll have to see and the other theres a lot of.
A lot of other elements of hard infrastructure construction type activities airports things like that.
So.
And we essentially see opportunities across across our segments and both the marine and concrete segments coming out of this out.
And out of this bill and in any of that.
It adds to the already our view of the robust pipeline that we see in front of US number 1 and number 2.
It will.
Also used capacity and the and the <unk>.
Industry's capacity so all of these things are positive.
Great. Thank you for the color on there.
And I guess, maybe switching gears to to another kind.
Kind of topics here I just wanted to release there was some segment reclassifications of corporate costs.
I think it takes about.
3% to 4% off of the <unk>.
Margins fell off the concrete segment, and maybe add 1 and 2% to the marine can you maybe just touch on the Reclassifications and and then secondly does that change your expectation of.
And your long term expectation of high single digit targets and income and concrete and the low double digits and marine.
Yes.
The reclassification wasn't a change what it was when we were splitting out.
The operating income we were breaking out certain cost. So what we've done is we've combined them to get to a true GAAP operating income measure and so those those numbers on a same I'll, let mark talk about the outlook and expectations.
And for the segments, Yeah. So he'll answer for your question on concrete no. It does not change our expectation our expectation is to drive to high single digits.
And we've made progress in that regard on.
High single digits EBITDA margin for concrete.
We've made progress on that obviously you know the first half for years.
Spectacular challenging with weather.
But FERC for particularly for concrete I mean, Texas and kind of hit in the first half of the year that being said.
We are confident and our team we've got good prospects get backlog, we're bidding on a lot of work.
We were.
We're expanding.
Handing our addressable market, we are moving into Florida.
So a lot of big positives our backlog is.
Close to pre pandemic levels and our concrete business.
And this or elevated levels.
A lot of positives there and we just got to keep grinding away on it and we'll get there.
Our next question comes from Marco Rodriguez with Stonegate capital markets. Please proceed.
Hi, Good morning, everybody. Thank you for taking my questions. Good morning, Mark.
Yes.
And I was wondering if maybe if you if you're able to.
Is there a way that you can kind of give us a sense as far as what the revenue impact was from that.
Weather in Texas.
Well the revenue impact and.
Is it a kind of a combination of impacts for them.
For the revenue.
Year over year revenue.
Weather was a big part of it I mean.
Concrete business, we probably for about 80.
85 per cent of what we expected yeah were just inefficient and in terms of the weather patterns and things like that for us and the quarter.
You have a supply chain disruptions also kind of impact on that just in terms of timing of projects. So it's really kind of a combination of the weather and the timing of work.
And.
And getting stuff executed.
I mean, just just from a.
Weather days.
And we saw about 50% uptick quarter over quarter. So we have winter weather and.
February and Q1, but.
It's not apples to apples because.
Just depending on what those risk.
Reschedule for Paul, but we had we had about 50% increase and and whether there is quarter over quarter.
Okay, Yeah, I guess, what I would try and ask and I apologize if it was a way to quantify the dollars that were <unk>.
Net in the quarter due to the weather.
And probably.
Even the concrete business would've been closer to.
And last year or above and we not had the weather.
So that was at 10 and $12 million impact at the top line.
Understood and helpful. Thanks, and.
And then given that obviously the shifts that you've had here.
Uncontrollable and the weather.
Is there any update on your guidance of mid to high $40 million adjusted EBITDA for fiscal 'twenty 1.
Well, we're not updating we're still we're still driving towards that I will say, though that as.
Depending on timing of projects and.
Life chain issues sorting themselves out, which we believe they are and they will.
Some of the some of the performance that we're targeting for 'twenty, 1 may may shift into 'twenty 2.
But we're still grinding away at it and we're still trying to secure quality quality backlog, we're executing on projects and we're just we're.
So we're keeping after it.
Got it and then maybe if you could just address them and the balance sheet shifts specifically kind of the debt levels right here on the ratios are there any particular levels of debt or debt ratios that you.
You'd be targeting I guess kind of short term or longer term.
Well, if you think about it historically.
And we've levered up for M&A as an example, we've.
We've gone above 3 and we've done 3 and a half and.
And some cases, a little bit higher than that 3 and a half turn so that.
And that kind of ranges.
And ideally where we would.
Yes.
Not 1 and we exceed and.
And that's kind of where we were after the last acquisition and so that's.
We've got a lot of we've got a lot of options with where we are on our.
Debt and our balance sheet.
Got it and last quick question, if I might.
And a lot of flexibility here and with the with.
And with the improved balance sheet.
Have a few different projects and a few different opportunities is there any way that you could perhaps sort of rank those opportunities and what might be a little bit more on the forefront.
Okay.
Well, certainly I mean, as we've talked about.
And obviously all things are on the table I mean, we'll consider all uses of capital.
Obviously, and we talked about on the last call we're reinvesting in the fleet.
For the dredge rebuild at this time, we talked about the last several quarters, where we're investing and the ERP platform, which is <unk>.
Really a big deal for us.
Before but also we are.
No.
Looking to be opportunistic on an accretive acquisition.
And.
To strengthen our strength at our service lines and potentially expand our service lines and provide.
More.
Recurring type revenue stream for.
For us to add on additional leg to the stool that we already we have with our other other business lines. So.
Those are things that we are.
And we're keying in on but obviously, we will always be looking at all options.
Great. Thank you guys very much I appreciate your time.
Yes.
Our next question comes from Poe <unk> with noble capital markets. Please proceed.
Good morning.
And it's been covered most of my questions have been answered, but I did have 2 lingering 1.1 is yeah.
And if you look at the weather you dressed for the weather issues for you.
For the concrete business, but if you look at marine Marine was down more substantially year over year and can you just address how the weather issues played out and the marine sector and then secondly, if you could talk about timing of additional active active asset sales you know.
The port Labaki sales going to close and then also could you talk about any interest that you've seen on east West Joan since the energy markets have ticked up.
Sure.
And first part on marine.
With Marina and its a little weather quantify the weather was a little a little more challenging I mean, because again and.
And whether excuse me on the marine side, when we have weather issues I mean, we're able to kind of get back to work a little bit little bit quicker. So there were there were disruptions there but.
And it wasn't the biggest driver 1 of the biggest reasons and year over year.
Delta in revenue. So it was just timing of work.
As Robert touched on on his.
Remarks.
In the second quarter of 2020.
We had some large projects that were flowing through at the time and and actually wrapping up with.
Which drove our revenue and and the GP line and again, just compared to this year just timing of work and startup.
Projects and just being a different spots on where we were I E. Not at the completion of projects. We just had a different throughput on our <unk>.
Progress on projects this quarter versus last quarter with respect to the property and I'll, let Robert touch on that book.
And so update on.
And <unk> property.
The buyers are.
<unk> completed whenever they need it with their financing partner.
We had a couple of meetings earlier this week so for.
Working with the title company and they get the scheduled to close.
Schedule I think the only thing and probably.
And between Us and closing is.
Start up and doing their customary close book doing surveys and and completing the well.
On the financing companies requirement, so I would imagine generics 30 to 45 days knock on wood. It seems like this has been a drag it out but feel very very comfortable on that.
Good day for Us and finally, making progress.
As for East West Jones.
Thanks Dory good news we've been getting.
Lot of new interest and the property.
I'd say over the last 3 or 4 weeks.
And interest has probably grown for.
40% to 45%.
From from.
Inquiries.
And so we feel very optimistic about debt I think it and energy continues to improve I think that trend will continue.
And to improve as well and we'll get more and more people looking at it.
Yeah.
Great. Thank you.
Yeah.
Thank you there are no further questions in queue at this time and I would like to turn the call back over to management for closing comments.
Okay. Thank you Latanya and thank you everyone for joining our second quarter earnings Conference call. We look forward to talking with you again in October for our Q3 earnings results.
Thank you and have a great.
Good day.
Thank you ladies and gentlemen, this does conclude today's teleconference. You may disconnect. Your lines at this time and have a great day. Thank you.
[music].
Yeah.
[music].
[music].
[music].