Q4 2021 Orion Group Holdings Inc Earnings Call
Greetings and welcome to Orion Holdings fourth quarter 2021 conference call at this time, all participants are in a listen only mode.
A question and answer session for analysts will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
Please note. This conference is being recorded I will now turn the conference over to Francis.
Pinsky, Vice President of Investor Relations. Thank you you may begin.
Everyone and welcome to Orion Group Holdings fourth quarter, 2021 earnings conference call and webcast.
My name is Fran Okoniewski, Vice President of Investor Relations and joining me today is Mark Stauffer Orion Group Holdings, President and Chief Executive Officer.
Regarding the format of the call we've allocated about 10 minutes for prepared remarks in which Mark 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 our end markets revenues gross 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.
These statements are predictions that.
They're 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 of our 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 adjusted earnings per share EBITDA and EBITDA margin are 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 conference call within the press release issued today.
The press release can be found at our website at Www Orion Group Holdings, Inc. Dot com.
Also for additional discussion of risk factors that could cause actual results to differ materially from our current expectations. Please refer to our quarterly and annual filings with the SEC, which are also available on 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 you and good morning, everyone. Thanks for joining us today.
Today, we'll discuss our fourth quarter results, our markets and our outlook.
As an update we continue to work with a search firm to diligently conduct our CFO search and we expect to have news on this thing.
Filling this key role in our organization as an opportunity to significantly improve our team as we focus on executing our strategic plan.
For today's call I will begin with an overview of the quarter, then discuss our financial performance in more detail and finally discuss our market outlook before we turn to Q&A.
As always I'd like to begin by thanking our entire team for their hard work and dedication.
We've worked through the challenges through a challenging period and I appreciate everyones efforts.
I also want to thank our team for safely performing their tasks.
Our goal is to ensure that our team members leave work the same way they came in healthy and injury free.
We remain deeply committed to our target zero program to support our vision of zero incidents zero damage and zero harm.
As we previously noted the second half of 2020 , one was impacted by the lag effects from the COVID-19 pandemic.
These lag effects from the macroeconomic impacts to our markets and customers affected prior period project wins, which reduced the volume of working on our marine business and pressured margins in our concrete business.
That said, we are well positioned to see a re acceleration here in 2022 as we emerge from the trough of the second half of 2021 with improving markets increased backlog increased quoted bids outstanding and a robust pipeline of project opportunities.
Our disciplined approach to bidding continue to be rewarded in the fourth quarter.
The total amount of work we won in 2021 was up 27% over 2020 with two thirds of this work booked in the second half of 2021 .
Backlog at the end of the fourth quarter was up sequentially and was up significantly year over year.
Our current level of quoted work outstanding stands at approximately $2 6 billion up 63% year over year.
Our current level of bids outstanding and improving macroeconomic environment and the infrastructure investment and jobs Act as an added catalyst to our markets gives us confidence that we will continue to see a robust project pipeline of bid opportunities to grow our backlog positioning us for improved performance in 2022 and beyond.
Now I'll discuss our financial results for Q4 in more detail.
Revenues for the fourth quarter were $162 million down compared to $170 million in the fourth quarter of 2020.
This was primarily due to the decreased volume of work in our marine business.
Fourth quarter gross profit was $6 6 million compared to $21 7 million in the prior year period.
This decrease was primarily driven by lower volume of work at our marine business, resulting in under absorption of labor and equipment and decreased project performance in our concrete business as a result of pressured bid bid margins and COVID-19 impacts.
Additionally, the prior year benefited from three projects that earn final margins well above the as bid margins.
As a percentage of revenue gross profit margin was four 1% in the fourth quarter compared to 12, 8% in the prior year period.
Turning to our segments in the fourth quarter, our Marine segment had revenues of $73 1 million and an adjusted EBITDA of $5 2 million equating to an adjusted EBITDA margin of seven 1%.
That compares with $97 6 million of revenue adjusted EBITDA of $13 1 million and an adjusted EBITDA margin of 13, 5% in the prior year period. The decrease was driven by the decreased volume of work and the under absorption of labor and equipment costs.
Our concrete segment had fourth quarter revenues of $89 2 million compared to $72 6 million in the fourth quarter of 2020.
Adjusted EBITDA for the concrete segment was negative $4 3 million compared to negative <unk> 6 million in the prior year period.
Our concrete segment's fourth quarter results were impacted by pressured bid margins and inefficiencies and executing work due to COVID-19 impacts.
SG&A expenses for the fourth quarter were $16 1 million or nine 9% of revenues compared to $17 4 million or 10, 2% of revenues in the prior year period.
The decrease in SG&A dollars compared to the prior year was primarily primarily related to a decrease in bonus expense.
Net loss for the fourth quarter was $8 8 million or 29 cents loss diluted loss per share.
This includes a nonrecurring expense of $2 1 million related to the development of a new ERP system.
Adjusting for nonrecurring items and tax expense associated with the movement of certain valuation allowances adjusted net loss was $5 3 million or 17 cents loss per share.
Fourth quarter, adjusted EBITDA was <unk> 8 million, representing an adjusted EBITDA margin of <unk>, 5%.
This compares to an adjusted EBITDA of $12 6 million and an adjusted EBITDA margin of seven 4% in the prior year period.
Turning to bidding metrics in the fourth quarter, we bid on approximately $1 6 billion worth of opportunities and were successful on $180 million.
This resulted in a win rate of 11% and a book to Bill ratio of 1.11 time.
For the for the quarter.
As of December 31, 2021 our backlog was $590 million up from $440 million at the end of last year.
Of our year end backlog of $377 million was in our marine segment and $213 million was in our concrete segment.
Approximately $455 million of the year end backlog will burn during 2022 with the remainder associated with longer term projects burning through 2023 and into 'twenty 'twenty four.
Additionally, we are the apparent low bidder or have been awarded a $138 million of new work subsequent to the end of the fourth quarter.
Of this approximately $24 million is related to the marine segment, while $114 million is related to the concrete segment.
As of December 31, 2021 we had approximately $12 3 million of cash and $9 3 million of availability under our revolving credit facility.
We ended the year with $39 4 million of outstanding debt $39 million of which is related to our revolver.
Subsequent to the end of the quarter the company amended its credit agreement.
<unk> for the quarter, ending December 31, 2020 one.
The goal of this amendment was to provide the company with a waiver and greater flexibility as it provides for suspension of the leverage ratio and fixed charge coverage ratio for the quarter ending December 31st 2021 before revert we're reverting back to a live or leverage ratio not to exceed three point O times beginning in the.
Third quarter of 2022, and reverting back to a fixed charge coverage ratio of a minimum of 1.25 times beginning in the fourth quarter of 2022.
Additionally, the amendment reduces the revolver for 242, and a half million dollars for the remainder of the term and provides pay downs on the revolver by any amounts.
Of cash above $10 million until delivery of the third quarter 2022 compliance certificate.
Capacity created by any such pay downs remains available to the company.
The amendment includes minimum EBITDA requirements for the first and second quarters of 2022.
The company is pleased with the continued support from its lenders and looks forward to maintaining its excellent relationship with its bank group.
We also expect to begin discussions regarding a new credit facility in the coming months.
As for guidance for 2022 we expect adjusted EBITDA to be in the mid $30 million range will provide an update on this guidance as we progress through the year.
Turning to our markets, we continue to see improvement in our end markets that were impacted by the COVID-19 pandemic and to see a robust level of opportunities that are bidding pipeline.
Winning new awards and replenishing our backlog remains a key focus we will continue to bid on the most attractive projects that support our profitability goals and we will remain disciplined in our bidding approach.
We will continue to select target select larger longer duration projects to provide us with greater operational visibility.
In our Marine segment, we will continue to pursue opportunities in the public sector at the federal state and local levels, including Port expansion projects D. O T bridges over water Navy facilities, and environmental and flood control projects.
We now have an additional multiyear catalyst for public sector projects as a result of the infrastructure investment and jobs Act.
We expect this act to be a tailwind in our markets for several years.
The infrastructure Act reauthorized as highway transportation funding as well as providing significant new funding for ports waterways water infrastructure and bridges among other things.
We are also pursuing project opportunities in the private sector as we continue to see bid opportunities in the recreational and energy sectors.
In our concrete business, we are seeing an increased volume of bid opportunities in our Houston market.
Along with improving bid margins across all of our markets.
Projects that continue to come in from a variety of end markets, such as tech ecommerce and large retail distribution.
Demographic trends will continue to provide project opportunities in our Texas and Florida markets.
We entered 2022 with increased backlog increase from quoted work outstanding a strong bid pipeline and long term tailwind driving our markets as we emerge from the lag effects of the COVID-19 pandemic, we are well positioned for improving results for 2022 and beyond with that I'll turn the call back to the <unk>.
Operator for Q&A.
Re acceleration yeah.
To ask a question. Please press star one on your telephone keypad.
Tom will indicate your line is in the question queue.
You May press star two if he would like to remove your question from the queue and.
For participants using speaker equipment it may be.
The necessary to pick up your handset before pressing the star keys.
Our first question is from really all Romero with Sidoti and company. Please proceed.
Hey, good morning, Thanks, so much for taking the questions.
Good morning Julien.
Hey, so can we start off on the concrete segment.
You mentioned pressured bid margins.
Not necessarily pressured execution margins does that imply that maybe the pricing that they were bid at or under the target margins in and if so when do you think you.
Get through this lower margin.
Margin backlog.
Well as a reminder, on the concrete business, we turning of work relatively quickly so.
One of the work is kind of in the three month to six month range. So we'll burn through the backlog.
Really quickly.
Again, yeah, we we've just seen the pressure, particularly in the Houston markets.
As a result, just the shifts and in in markets over over the last period related to Covid and things like that.
As I noted in the remarks, though.
We are seeing we've seen a significant uptick in.
The market in Houston and awards in Houston, and we're seeing improving bid margins as you know across all of our markets so that.
That stuff will the prior stuff will burn off relatively quickly and we will start replacing that with improving margins.
Okay. That's very helpful. So I guess.
Your your bids outstanding is up yeah.
Yeah, 2.6 billion, it's up about 30% sequentially and I guess you mentioned that.
<unk> bid margins are trending upward.
Yes.
Okay.
I guess you know.
Thinking about utilization year to date you're.
Your your two months through the first quarter are you seeing better utilization in the first quarter.
Than you did in the fourth quarter and third quarter.
Well couple of points to make up I mean, we are seeing the trend in upward utilization improving utilization keep in mind, though the at the beginning of the quarter, we were having the surgeon omicron.
The omicron variant.
Put that in perspective, we had about a 60% increase in our Covid cases.
From the beginning of the pandemic so from the previous 18 months until into December and January are we had a 60% increase over 60% increase in our case. It. So we did start the quarter off with the omicron variant.
We are continuing to ramp up on projects. So as we move through the quarter, we expect to see a utilization.
Utilization, improving and then of course as we get on to the year. We will we will continue to see that improve utilization with the with the ramp up of all of these projects.
Okay Perfect and then last one for me is I I may have missed if you gave any any kind of quantifiable EBIT guidance for 'twenty two.
And if not if you could just speak I guess qualitatively to how you see EBITDA shaping up for the year.
No. We did we said mid thirties.
For the year and we'll provide updates on that as we go through.
Again I think.
As we talked about we've got we've got significant backlog coming into the year, we've got good markets.
We're set up for re acceleration.
We've got work to go out and win and we've got the markets and the tailwind to go win that work.
Perfect I'll hop back into queue with any follow ups. Thanks.
You bet.
Our next question is from Min Cao with B Riley Securities. Please proceed.
Good morning, Mark and Fran.
Good morning, Ben.
Just a couple of questions here can you.
And Omnipod is taken care can you just give us an update on your asset sales from the last quarter.
Yeah on the real estate I'm, assuming you're asking about the real estate both properties.
Yeah, Yeah, both both properties remain under contract the Portland market property, we're just waiting for a closing date.
So that's the that's that's in progress and we're hopeful that they will we will have a closing date.
Shortly.
And then the east West Jones property.
Again still remains under contract, but were still in the diligence period with.
With the buyer. So we will we will we are still pending the conclusion of that before will now we have a close date.
Got it.
He talked about concrete margins improve.
Improving the bid margins improving.
Are you seeing that in your backlog currently or is that still yet to come in other words do we have another three to six to maybe nine months as you know are.
The lower margin in that business, just outside of kind of COVID-19 impact, but just due to the underlying margins.
Yeah, well I think we're seeing that now in the bid margin. So the backlog were starting to book I think is moving up from the bid margin perspective. So as you know as I said earlier I mean, we do have to burn off the <unk>.
Work from the last few.
A few months so we would expect to see improvement as we go through the year on that and I think again.
You've seen where we've set the guidance I think for you know for the first quarter. Obviously, we've had the challenges omicron and it's generally our seasonally weakest quarter.
To start with but we would expect as we get into Q2, and then on into Q3 to see to see the ramp up.
Got it.
Just wanted to get an update on your ERP system or are you still targeting full implementation by men in 2020 , two or did that get pushed out due to COVID-19 . That's gotten pushed that's gotten pushed out we're still committed to the ERP, we think thats going to be in a central piece for us we do expect to reduce the spend in the first half of the year.
We're focused on the ramp up of our projects and things that I talked about earlier, but we're continuing to prepare the.
For the implementation of that.
Yeah, we are developing our analytics and tools as a as an example, and data warehouses and a lot of.
Lot of the kind of stuff behind the scenes that we can do.
To continue the project, but we do expect to reduce the spend significantly in the first half.
In the first half okay. So it sounds like you'll probably be running kind of parallel systems, maybe through them through the entire year.
Yes, that's a reasonable assumption.
Okay.
Can you provide any update on your industrial expansion and is there anything in backlog currently is there any impact from recent oil prices can you just talk about the bid opportunities there.
Yeah, well, we have and we've had work in our backlog as you know, it's we it's not split out separately.
Included in the Marine segment.
<unk> been working on work of that we classify as industrial work.
For the last year.
Year year and a half.
So obviously as you point out I mean.
There was a general pullback or I guess I pointed that out in my remarks, there was a general pullback in private sector opportunities.
As a result of the Covid.
Pandemic, but as we've as.
As we noted is in the back half of last year, we started seeing those private opportunities come back online in a work that was.
Delayed.
We started seeing those bid opportunities. So we have been seeking opportunities in industrial again, along with all the other private sector work that we've seen in the in the Marine segment and so we'll expect to continue to see opportunities there.
Both both in the.
Predominantly in the private sector, but also some in the a and the public sector.
That's right and then just one final question you mentioned in your.
Memantine your credit facility that Theres, a new EBITDA minimum for <unk> can you disclose what those minimums are.
Generally speaking I think it's about $2 six for for Q1, and then accumulative 7.577.
For Q2.
And in the details of all that the will be will be included in the K, but we found that.
Yep sounds good great. Thank you.
You bet.
Our next question is from Marco Rodriguez with Stonegate capital markets. Please proceed.
Hi, good morning, everybody and thank you for taking my questions.
Hey, Mark.
Hey, just wanted to kind of circle back around.
On the margin pressures in concrete I appreciate them.
The information and the color surrounding it but I was wondering if maybe you can help us understand or quantify the impacts from the pressure bid margins and the COVID-19 impact he is kind of.
Where were the biggest issues and again, if you can quantify it in any any manner that would be helpful.
Well I guess I would say if you look at the results you kind of see the quantification of that in the concrete business.
I think you know again, a large part of that was.
Was driven by the Houston market.
The Houston market has always been a strong market for it it's been the base of our concrete business.
Since inception.
And as you know the you know the Houston market was impacted probably more than any of our markets as a result of the pandemic with the.
The global turned down and the impacts on energy.
Generally just been a competitive environment, there's been shifts throughout the pandemic of what projects are.
What projects have moved forward and as I talked about in previous calls.
Kind of the haves and have Nots type economy was driving where where are projects that are coming out and so it just shifted the dynamics and.
I think generally just Canada.
The the mood of the of the competitors was.
People were very aggressive in bidding work in and trying to get work you know at any price almost so it did put downward pressure.
On the margins you can kind of see that reflective in the results in that business year over year that said.
As I noted in the remarks, we have seen.
An improvement in the Houston market, we have won several projects in the last.
A couple of months and then you know a lot of the.
Work that we've mentioned that we've been low bidder on are awarded subsequent to the end of the quarter or the first the first quarter of this year.
As in the Houston market so.
We're pleased to see that and we're more pleased to see that we're seeing some improvement in the in the bid margins not only in Houston, but in the.
And all of our markets in that business.
Understood and I understand as well that Ah.
The margin debt.
Marine segment were pressured as well just kind of given your utilization of assets. There. So is it fair to say then that the.
The compression that we see here in your gross margin from where it normally is on a coupon basis is primarily due to your concrete segment or can you help us think through that mix aspect.
Well I think it's both I mean as I mentioned in the remarks, the volume of work on the Marine side was was was impacted.
And again, just due to the prior period win rates that we did start some ramp up of the Q3 work.
In Q4, but again as I said earlier.
Omicron variant came in.
Just as we were kind of <unk>.
Starting to gain traction on some of the startup of works so.
That impacted both segments as I mentioned earlier with the.
The huge increase in cases there are.
The good news is is now, whereas we sit here today, that's our cases have gone back down to a trickle I think which everybody else would recognize from from their own personal situations.
So that's positive but.
Is that that impacted the marine side as well and.
Just put pressure on us in the quarter.
But again as we move forward from where we are today.
Those cases have abated and.
We're ramping up on work and we've got good bid.
Bid pipeline in front of us.
Got it and then in terms of guidance.
Adjusted EBITDA at 30 million mid 30 million kind of based on some of the responses to questions.
Prior sounds like that he is going to be pretty much kind of second half weighted.
Got it yeah.
Yeah, I think well if you think about I think you know us.
As we've talked about previously.
And priory prior quarters. Prior years, you have kind of a normal cycle forces see Q1 is our seasonally weakest quarter, we start seeing a ramp in Q2, and then three and four are typically our peak months.
I think that's probably indicative of what we're going to see again. This year, obviously, we will work to outperform at all times, but we.
We do have we're coming into the year with good backlog.
A good base to build off of.
You know.
In an environment, where we expect to see.
The bid margins improve we're seeing that on the on the concrete side as I noted I will say that.
In our marine business.
Nobody should be bidding cheaply in the Marines.
Our marine projects that we're going after there.
There is so much work coming out of the pipeline there was a lot of work already with.
With private sector opening up and then with the addition, the additional catalyst of the AR.
The infrastructure Act.
There's no reason for people to be filling up on cheap work at this point, so we would expect that to.
Help help.
With bid margins on the marine business as well.
And we're in our marine business as well.
We're excited about the opportunities we see in front of us and continuing to replace backlog with improved our improved margins and as you pointed out we're already we're starting from a base of.
Better absorption of our interaction that our labor and equipment in the marine businesses with the backlog that we have so yes.
We're poised for improvement this year and on into the future.
And last quick question for me and I'll jump back in queue can you update us on on progress here as far as diversifying.
Your business into additional geographies.
Well in our in our concrete business. We are as we mentioned last quarter. We recorded our first project in the Florida market.
And that's been executing and going well for US we are continuing to bid work there.
And I would say describe it as our bidding efforts in that market have ramped up.
So that's moving ahead and.
We continue to bid projects throughout Texas beyond just our.
Traditional market. So we continue on with that.
And I expect that to continue this year.
Got it thanks, a lot guys I appreciate your time.
Beth.
Our next question is from Poe <unk> with noble capital markets. Please proceed.
Hi, can you give us a capex number for 'twenty two and then also how much are you actually going to be spending on ERP and if you could give us the cadence of that over the course of the year that'd be helpful.
Our capex is in the $15 million to $18 million range for the year.
And then on the ERP spend.
I would say less than $4 million of spend in that that would be back end weighted.
Great.
Thank you said that you had current availability under the revolver of nine 3 million at the ended the year.
What's your thought was already out there.
What's your current availability do you have that number right now.
It would be around 12 and a half.
And then you gave the minimum you know EBIT.
EBITDA for the quarter 2.6, and 5.1 in the second quarter. You know you look back at the cube to web.
What is there any.
Packed on your bonding capacity have you seen that change at all.
No.
I haven't seen that change we continue to have ample amount of bonding capacity.
And company.
<unk> has continued to support us with our bids and we expect that they continued we'll continue to do that we've got a great relationship with our bonding group and we are we have ample capacity for the projects that we see in our pipeline.
Great and then.
We're back has been really slow to close because my understanding was that the buyer, but it's looking for financing has the financing has been finalized there and so you know that's what you're you had been waiting for and you know the closing date will be set fairly soon or it could be this quarter marked where it did.
You know are we going to see it pushed out into the second quarter again.
I would expect just to be conservative it would probably push to the second quarter again, we believe they are.
They have.
Got in their ducks in a row, but we'll we'll we'll wait to see.
We're not going to.
Hi, five it until we've got a closing date set.
They don't have financing yet.
We believe they have it but there.
We don't know the exact timing of when that when that's available for them.
And the net proceeds from that sale are in what ballpark.
Somewhere around five.
Yeah, Yeah, and then on East West Joan.
Can you give us a ballpark number for the proceeds from that sale and you know we said we were sort of thinking.
Early or late second quarter early third quarter is that still a fair timeframe.
That'd be a fair timeframe again, assuming theres a lot to get done between now and closing on that so we continue to market that property.
But.
So the answer to your first part of your question was.
The current PSA on that is $35 million. So we would we would we would net somewhere north of 30 on that.
Okay, and then you know the category, it's been a perennial problem I mean, it's just inconsistent.
Well actually it's pretty consistently bad.
You talked about structural issues.
Just two years ago.
What structural organizational changes are you, making now or or is it just hey, the market's getting better cope it's not a problem. We can change our protocols that we won't have as many you know as.
As much problem as far as staffing what can you just help me understand.
Yeah, No I think I guess the basic thing I would say is we have made progress in that business. It's you know obviously with the ISG.
The program that we had in effect and we talked a lot about in previous calls.
You know what I would say is I think the the.
Fits of That've been scared a little bit scared obscured a lot by the COVID-19 pandemic I mentioned this on the call last time I think of it all I'll refresh it again is that we.
We have been undertaking a lot of things.
In that business to standardize things improved personnel improve our processes.
To execute better on the work and again, that's obscured somewhat from from visibility just by the pressured margins in the.
The impacts from the COVID-19 pandemic I think is we're emerging out of that we're going to see those those improvements to be able to come through.
Again.
I'll touch back on the points I made earlier with the improving market in Houston is improving bid margins.
We know we know we need to make progress in that business again, we've been working on a lot of things.
And processes with the business.
To make that come to pass and as we see conditions improve in the marketplace.
We expect to see that.
That division produce better results.
Great and.
I'm just.
Could you give us any amendment you know the amended revolver.
Yeah.
The Big thing was last year, when you're either involved or expired you could buy stock back does this amendment prohibit you from buying stock back.
The amendment does not but as you were as you probably recall pose there is the leverage ratio requirement on buybacks then we have.
I have to be below two to one before we can.
We can.
Do stock buybacks under the buybacks under the credit agreement that Hasnt changed at the same as it was.
And that's an LTM as far as.
Yes.
Great.
Thanks for your help.
You bet, though.
We have reached the end of our question and answer session I would like to turn the conference back over to Francis for closing remarks.
Thank you everyone for attending our fourth quarter 2021 earnings Conference call. We look forward to speaking with you in April on our Q1 results have a great day.
Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.