Q2 2023 Orion Group Holdings Inc Earnings Call
Good day and welcome to the Orion Group Holdings second quarter 2023 earnings conference call and web.
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On today's call management will provide prepared remarks, and then we will open up the call for your questions.
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Please note. This event is being recorded I would now.
I would like to turn the conference over to Margaret.
Investor Relations for Orion. Please go ahead.
Thank you Justin and thank you all for joining us today to discuss Orion Group Holdings second quarter 2023 financial results, we issued our earnings release after market last night. It is available in the Investor Relations section of our website at Orion Group Holdings, Inc. Dotcom I'm here today with Travis.
<unk>, Chief Executive Officer of Orion, and Scott <unk>, Chief Financial Officer.
On today's call management will provide prepared remarks, and then we'll open up the call for your questions before we begin I would like to remind you that today's comments will include forward looking statements under the federal Securities laws forward looking statements that are identified by words, such as will be intend.
Believe expect anticipate or other comparable words and phrases statements that are not historical facts are forward looking statements our actual financial condition and results of operations may vary materially from those contemplated by such forward looking statements discussion of the factors that could cause.
Cause our results to differ materially from these forward looking statements are contained in our SEC filings, including our reports on Form 10-Q and 10-K.
With that I'd now like to turn the call over to Travis Travis. Please go ahead.
Thank you Margaret and welcome to everyone joining our call today.
In the second quarter, we made substantial progress against our strategic plan.
And Scott and I will cover the details in our prepared remarks.
Before that I want to give you more context around our second quarter performance.
As you saw in our press release revenue came in at $182 $5 million.
Our loss per share was a penny and.
And adjusted EBITDA was $3 $7 million.
Last quarter, we told you that we expected second quarter results to be better than the first quarter.
And they are a significant improvement over last quarter, reflecting the progress we are making to improve our long term performance.
We expect continued improvement through the back half of the year.
I'll start with our concrete business as you've heard me say before our immediate priority was to improve concrete profitability.
When Scott and I came on board the concrete business had been losing money for too long.
Since we started the transformation of our company in September .
We implemented disciplined bidding processes made leadership changes added more rigor in our project delivery.
<unk> added the unprofitable central Texas market, we focused our resources on our Dallas and Houston markets.
As a result of these actions our concrete business returned to profitability in March.
Our profitability continued in April may and June and we expect that trend to be sustainable.
Right now we have a large volume of work that has been bid which reflects very strong demand in our core markets.
When all of that work, especially if it doesn't meet our bid margin thresholds and some customers are delaying decisions until the cost of capital stabilizes.
Even so we feel concrete is in a strong position for the rest of 2023 and beyond.
While concrete was a bright spot this quarter.
Volume challenges in the Marine business continued primarily in our dredging operation.
For context, our dredging business has historically been roughly 20% of our revenue and 30% of our profit.
When that business is slow and we don't have worked a bit it has a big impact on us.
The Army Corps of Engineers has the responsibility the mandate and the funding to maintain U S waterways, along the Gulf Coast.
We're very aware of the pressing needs of dredges major shipping channels to keep commerce moving efficiently along the coast and to the ports.
So I have this maintenance activity has far reaching consequences on the golf economy in the U S supply chain potentially disrupting shipping goods handling warehousing in ground transportation.
This environment, our focus is on carefully managing our costs and maintaining bidding discipline.
In the second quarter, we were successful in winning a $27 million dredging contract.
From the quarter and just last week, we won another $18 million contract with a core for dredging in Louisiana.
These wins will help to get our dredges busier in the latter half of the year.
We have several large outstanding bids for marine construction, and we remain confident that our opportunities to grow will continue.
The one two trillion dollars infrastructure Act was passed two years ago, and while only a very small portion of the work has started it is coming.
Our project to build a dry dock at Pearl Harbor is underway and we are mobilizing equipment and resources to Hawaii.
We expect our portion of the work on this $435 million contract to continue over the next two and a half years.
Orion has now fundamentally stronger and better positioned for accelerated profitable growth.
We laid out our three point strategic plan earlier this year and we have made substantial progress in a short time.
We are committed to doing what we say, we will do and delivering on our plan to transform our business.
We began with a long checklists and have ticked off many of the boxes.
All focused on Derisking the business to clear the path for long term sustainable growth.
We shored up our balance sheet and liquidity in many ways. This was one of the most critical objectives, we paced.
We secured a new $103 million ABL credit facility and have thus far monetize $25 million of assets with substantially more under contract.
We have attracted great talent to focus on business development and growth.
Building stronger customer relationships is a critical element in driving future growth.
Casey <unk> joined us to lead business development for our efforts in Louisiana, which is an important state for us considering that $50 billion is earmarked for Louisiana coastal restoration.
Alan Ekman joined US in July to lead corporate growth strategy reporting directly to me.
These individuals bring years of experience and proven results to Orion.
We will continue to invest in key resources focused on growing our business.
We're also investing in training and tools that will allow our people to reach their full potential.
Our goal is for our people to clearly understand our business objectives embraced a growth mindset and speak about the business in the same way.
This is an important step in strengthening our culture, leveraging best practices driving synergies and cross selling capabilities.
Looking ahead, we are extremely excited about the future.
And the remaining months of 2023, we will continue to build momentum in the execution of our strategic plan and expect quarter over quarter improvements in performance.
After establishing a foundation for the new Orion this year.
2024 will be a very different year for the company.
We are fortunate to have the most exceptional people in the industry and two businesses with different catalysts for growth.
Concrete more driven by the private sector and marine by the public sector.
Can balance one another during challenging times.
We both are performing well as we expect in 2024 taken delivered dramatic growth.
Now I'll turn the call over to Scott for his review of the financials and operations.
Thanks Ross.
Cover some highlights and then review the second quarter results.
The main headline of the second quarter is the progress we've made strengthening our balance sheet and improving the company's liquidity.
As we announced on May 15th we closed on a three year $103 million ABL credit facility.
Which includes a term loan of $38 million and a revolving credit facility up to $65 million.
By extending our debt maturities and increasing our access to capital Ryan and we'll be positioned to make the most of our market opportunities.
In addition, we closed $25 million in equipment and real estate sale leaseback transactions in the quarter.
We're pleased to deliver progress on our asset monetization goals and we remain focused on opportunities to unlock value on our balance sheet.
We expect these transactions to complete in the third and fourth quarter respectively.
While our balance sheet is stronger.
And that is the headline for the quarter and we're excited about the transformation of our concrete segment performance, which as Travis mentioned hit positive adjusted EBITDA. This quarter for the first time in two years.
This was a $3 million improvement over both the prior year and the prior quarter.
These margin improvements are sustainable and they're supported by both operational process enhancements and more disciplined bidding leading to higher margins in our backlog.
Moving on to our financial results.
<unk> produced $182 $5 million of revenue in the second quarter up 14, 7% sequentially and down six 2% from the prior year.
The year over year decline was largely due to our exit of the central Texas construction market, partially offset by increased revenue in our marine segment, driven by our Hawaii dry dock project.
Second quarter gross profit was $13 8 million or seven 6% of revenue compared to $14 3 million or seven 4% of revenue in the prior year period.
Gross margin percentage increased due to our actions to improve concrete segment margins, partially offset by lower equipment and labor utilization and our marine business.
Turning to more detail on our segments.
Our Marine segment reported second quarter revenue just over $100 million up 22, 1% over the prior year.
Adjusted EBITDA was $3 5 million or three 4% adjusted EBITDA margin.
This compares to adjusted EBITDA of $8 7 million and an adjusted EBITDA margin of 10, 6% in the second quarter of last year.
This decrease in adjusted EBITDA was primarily related to lower labor and equipment utilization.
Yeah.
Second quarter concrete revenue was $82 million down 27% from the prior year.
Adjusted EBITDA was $264000 or <unk>.
3% of revenue compared to negative $3 million negative two 7% margin last year.
As I mentioned, we expect these margin improvements to be sustainable moving forward.
SG&A expenses for the second quarter were $18 1 million or nine 9% of revenues compared to $17 2 million or eight 9% of revenues in the prior year.
SG&A grew due to increased compensation expense, partially offset by lower consulting expense related to the management transition.
Net loss for the quarter was <unk> $3 million were a loss of <unk> <unk> per diluted share compared to a net loss of $3 1 million or a loss of 10 cents per diluted share in the prior year.
This result included $4 3 million or <unk> 13 diluted earnings per share of nonrecurring items.
Excluding these items second quarter 2023, adjusted net loss was $4 5 million or <unk> 14 cents loss per diluted share.
EBIT for the second quarter was $7 6 million and adjusted EBITDA was $3 7 million.
Turning to bidding metrics in the second quarter, we bid on approximately $762 million worth of opportunities and one $534 million with our Hawaii dry dock projects added to backlog.
This resulted in a contract value weighted win rate of 70% and a book to Bill ratio two nine times for the quarter.
As of the end of June our backlog was $818 7 million, a 75% increase over Zack log at the end of the first quarter.
Breaking out our second quarter backlog.
$614 9 million of this was in our marine segment with $203 8 million in our concrete segment.
Furthermore, we have been awarded over $84 million for New project work not included in our backlog at the end of the second quarter.
Of this approximately $39 million is related to marine with $45 million related to concrete.
Moving onto our balance sheet.
As of June 30, we had approximately $8 $9 million of cash and $36 $9 million of outstanding debt.
In relation to our new debt facility, we incurred $5 $9 million of debt issuance cost.
That will be amortized over the life of the agreement.
As of the end of the quarter, we had no outstanding borrowings under our revolver.
As we look ahead to the second half of the year.
We're optimistic.
And as Travis said, we expect to see quarter over quarter improvements throughout the year as we realize the benefits of our strategic initiatives.
While the low bidding volume in the dredging market continues to impact our industry. Our recent wins will enable us to get more of our fleet to work in the coming months.
And we are excited as Hawaii ramps up and contribute significantly to our second half.
With that we'll open the call to your questions Justin.
This time I would like to remind everyone in order to ask a question press star.
Then the number one on your telephone keypad.
Well pause for just a moment to compile the Q&A roster.
Your first question comes from the line of Joe Gomes from Noble capital.
Mr. <unk> your line is open.
Good morning, and thanks for taking my questions.
Good morning, Joe.
So I just.
Wanted to just clarify some stuff here on the concrete segment you talk about it.
Being profitable.
Basically SaaS March, but if I'm looking at the tables in your release it says.
Concrete segment had an operating loss of about $1 5 million in the quarter.
So when you say profitability, you're just talking about on adjusted EBITDA basis.
And when do you forecast that on an operating income basis, the concrete segment will turn profitable.
Yes, that's right we're thinking about it on an adjusted EBITDA basis in.
In terms of.
We need mine turned profitable on an operating income basis.
No.
Column months, there, but I do think that we'll see continued improvement in that business, we think that the opportunities in front of it are pretty significant and the.
The strides that we've taken to improve the margins there as we said that we think are going to stack. So we expect continued improvement in that business and we'll close that gap on the op, Inc. As well over time.
Okay. Thank you for that and are you completely out of central Texas or is there still a few more things that you need to finish up there.
We're wrapping up.
We have.
Two maybe two or three projects kind of in the final throes of completion here.
They should be should be wrapped up I believe in the next month or so we're almost out yes punch list work, where there's not much theres not really any significant backlog associated with central Texas remain.
Okay great.
And one more.
If I may.
You talk about some of the monetization East West Johns Bay Tower, I think cortland backup Sal.
When all of those are said and done.
How much cash do you think they're going to bring in.
On the balance sheet.
Yes, So I think we've talked about the 25 million already that.
We did this quarter between the.
Outstanding contracts that we have and other things that we see as potential opportunities on the balance sheet. I think there is probably another $40 million to $50 million.
We anticipate as is realizable.
Realizable in the near term. So that's that's kind of what we're working towards and our and our goals right now.
Okay.
Okay, great. Thanks, I'll get back in queue.
Thank you.
Thank you.
Your next question comes from the line of.
Julio Romero from Sidoti.
Yes.
Sir your line is open.
Great. Thanks, Hey, good morning, Travis Scott.
Good morning Julien.
Hey, I wanted to start on the Marine segment.
How much revenue in the second quarter did you see from the Pearl Harbor, our dry dock project in and how much revenue do you expect to realize from that project in the third quarter.
Yes.
We don't talk on specific contracts really but it was a pretty significant contributor to revenue in the second quarter.
And it should be more in the third quarter.
In the second quarter.
Yeah.
Several tens of millions, but it was it's going to be more going forward.
We'll have a more significant ramp in the beginning of next year as we really start to start driving part.
Okay.
Okay No I appreciate the color.
You can give there.
And it was nice to see the $45 million of dredging contracts that you won recently for Texas and Louisiana.
But your commentary Travis on the prepared remarks on get a little bit.
Pessimistic on the pipeline of dredging bid I don't know if you can just talk about that is again, maybe a little better worse or same as three months ago.
It's.
I don't know, if it's better worse or.
Roughly the same as it was three months ago.
It's been slow quite frankly.
Slower than historic volumes.
To be to be clear on that.
As you know it really impacted us in the second quarter.
Dredges sitting around waiting waiting to go to work. Fortunately, we have that we'll get we'll get most of our dredges.
Busy with the contracts we've won recently.
But we need we need to keep that keep that.
Keep the bids go on so that we can we can keep those keep keep those things moving when they're sitting.
It cost us a lot of money.
We've had an active dialogue with the Army Corps of engineers, and we will certainly continue that they understand look the need and.
The value too.
They're purchasing program of getting that bid.
So up and getting the market in a more stable position.
Okay.
Got it and just one clarification question.
You talked about the dredging historically has been 20% of revenue and 30% of profit.
I assume those metrics are for the marine segment, Standalone and not for Orion overall is that correct.
It's actually overall.
Oh really okay, Okay got it.
Great to clarify okay.
Excellent alright.
Thanks, very much for taking the questions.
Sure. Thank you.
Thank you. Your next question comes from the line of Dave storms from Stonegate capital markets.
Morning.
You May now your line is now open.
Good morning, everyone.
Just hoping we could touch on the AR to burn rate for the backlog I know last quarter.
You had mentioned it's in the high 300 millions is that expected to remain constant.
Maybe another $300 million or so for the rest of the year is there any comments you can give on that.
Generally speaking looking at our backlog it's for the next 12 months, probably two thirds.
And.
Then over the next six months.
Uh huh.
That two three it's probably the majority of that two thirds, but I think that we typically are looking at backlog out longer than just the next few months. So we're we see it right now and kind of the similar place and having a similar.
Profile in terms of how it's going to schedule out is what we have typically seen in our business.
That's very helpful. Thank you and then just.
Sticking with the backlog is there.
Any sense you could give us on what the margin expansion may look like.
Specifically on the concrete segment in that backlog are.
Where do you want to comment on that.
Well in terms of how we're bidding jobs.
Given a whole lot of details around that but our historical approach to bidding jobs, we're several points higher than that in terms of how we're approaching our value in the marketplace right now.
And we are being successful at those higher bid rates. So we will see in our backlog over time the rates coming up from our historical over the last 12 months up another.
Two three points over those historical rates I think is what we'll see is that kind of bears out yes, as we burn off the backlog with some of those lower bid margins.
That's very helpful. Thank you up one one more if I could.
You mentioned that in your concrete segment youre kind of weighted cost of capital to stabilize before you think that bidding environment picks up again.
Aside from the Army Corps of engineers kind of change in their stance are there any catalysts that you're keeping an eye out for for the marine segment to maybe pick up.
But I'm.
I'm not sure. If you had a question on the concrete side, there specifically, but I will just just clarify what's the.
We've seen quite a few bid bid opportunities on the concrete side, it's a matter of projects actually moving forward.
We're bidding work.
Projects.
Our lagging longer before the before we get notice to proceed and things like that as developers.
Move forward with projects.
On the marine side.
There's quite a few different catalysts active right now that debt.
We see with bidding opportunities picking up.
All of the all the ports are scrambling on the eastern part of the U S to expand because of the expansion of the Panama Canal.
So bigger ships were able to come through the Panama Canal. So all the ports that debt.
That utilize ships coming through there are scrambling to increase whether it's increased shipping channel steps or the size of their ports to bring bigger and bigger ships and then with that the private sector does the same right all of the.
Whether it's <unk>.
Industrial Petro Chem.
Companies.
All along the Gulf and East Coast.
They utilize ships that come through there, they're also scrambling to be able to bring in bigger ships. So theyre all in the same boat with with needing to expand their facilities.
So you have that catalyst.
Sure.
Defense spending is continuing pretty pretty rapidly, especially in the Pacific.
So that that we expect that to do to continue ramping up.
And then we've got the infrastructure Act II JA.
Money, we'd expect money to start start flowing to projects.
Yes.
Relatively near future.
So there is there are several catalysts on the marine side that we're very optimistic about.
That's incredibly helpful. Thank you for the clarification and thank you for taking my question.
Thanks, Dave.
Thank you again, if you'd like to ask a question. Please press star and then the number one on your telephone keypad.
Moving forward please limit yourselves to two questions. Thank you at the next slide question comes from the line of Alex fragile.
Your line is open.
Thank you good morning, Travis Scott.
Good morning, Alex.
Can you.
First on the Hawaii project as is the profit recognition along the same trajectory as the revenue.
In terms of physical progress.
Bit different the revenue recognition.
A few different drivers physical progress is kind of that two and a half year fairly steady as we drive pile over that timeframe.
And we can report on that as we go but revenue recognition largely aligned but there'll be some differences early in the project as we have some.
<unk> related revenues.
Okay, and then can you talk a bit about the cash needed for working capital in the Hawaii project.
Sure Yeah in terms of our expectations of the level of working capital investment needed I think we've talked before about.
Between $5 million to $10 million of working capital investment when we were negotiating those contracts. We were very careful to include in that.
Good cash dynamics and terms for us both with the JV partner in the JV with the Navy. So we would have.
We have a fairly short period of time that we have to wait for some of our revenues and that helps to ease a little bit of the dip necessary for working capital.
And then lastly.
What's your Capex budget for this year and next.
Good question.
This year I would say that.
Our year to date Capex is <unk>.
Relatively low considering where we have historically been I think historically you would typically see us around $15 million of annual Capex I think that thats.
Probably a good number for us on a.
On a normal year and I would expect that we'll get a little more spending in the back half of the year, Although we won't quite approach that level for this year next year I expect we'll probably see a little bit more spending.
We're working through the plans on that right now not quite ready to talk about it but we will get there closer to the end of the year.
Perfect. Thank you very much nice quarter.
Thanks, Thank you.
More to come.
Okay.
Okay.
Thank you again, if you'd like to ask a question Press Star then the number one on your telephone keypad.
Moving forward please limit to substitute questions and your next question comes from the line of David <unk> from Henry Investment Trust.
Sir your line is good morning.
Good morning, good morning.
There was a press release from the company and not quite two years ago about a couple of contracts. One is state Road 405 Indian River Bridge.
And the other was burst six expansion there were a couple of nice sized contracts that were supposed to go on for two or three years. I was wondering could you give us an update on the status of each of those and whether you've had any snags or not.
The.
Quite frankly, I've only been here nine months I'm not familiar with either one of those projects those.
Those press releases, where before my time, and they must be complete because I'm not familiar with them at all.
So we can allow alright.
Alright had a better answer for me they must be complete or.
Worse or something because I.
I know by different names.
Maybe we know them by different names right im not familiar with those two projects.
Well, the first $125 million over the NASA causeway near Cape Canaveral can absolutely. Yes, yes. Thank you that's helpful and I know that one that's not contemplated in our terminology. So.
That project is going really well, we reached a big milestone here a couple months ago with kidney.
Two.
It said side by side bridges.
So we completed the first bridge here a couple of months ago.
Ahead of schedule.
And there's actually quite a bit of press from Florida Doty about that one.
They were really excited to get that one open we're now in the demo phase of the existing bridge.
And expect to get to the second bridge opened ahead of schedule as well.
So that project is going very well.
Okay. The other one maybe youll notice port Arthur.
Arthur burst six expansion projects $66 7 million yes.
Yes, it's under construction right now.
We're making good progress on it.
<unk>.
And I'm not sure if I have more more details than that other than we're making we're making good progress on that project.
Great. Thanks for updating those two large contracts and good luck as you continue.
Sure.
Moving forward with your turnaround plants. Thanks for taking my question. Thank you I appreciate it.
Thank you.
Again, if you'd like to ask a question. Please press Star then the number one on your telephone keypad and moving forward. Please limit yourselves to two questions. Thank you.
And with that being said there are no further questions at this time, Mr. Bloom I turn the call back over to you.
Thank you.
I just wanted to close with.
We are really proud of the progress we've made with transforming this business to be healthier profitable and set up for future success.
We've been doing what we said we would do and the results are starting to show.
Our team has been working hard to make it all happen and we appreciate all of their efforts to make us a stronger company.
Okay.
This now concludes today's conference call you may now disconnect.
Okay.
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