Orion Group Holdings, Inc.

Good morning everyone and welcome to Orion Group Holdings Second Quarter 2020 Earnings Conference Call and Webcast. Joining me today are Mark Stauffer, Orion Group Holdings President and Chief Executive Officer, and Robert Tabb, our Vice President and Chief Financial Officer. Regarding the format of the call, we've allocated about 10 minutes for prepared remarks in which Mark and Robert will highlight our results and update our market outlook. We will then open the call for questions. For the course of this conference call, we'll 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 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 of future results. For 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 to the most comparable GAAP measures and reconciliation tables accompanying the earnings call within the press release issued this morning. The press release can be found on our website at www.OrionGroupHoldingsInc.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 in the investor relations section of our website. And with that, I'd like to turn the call over to Mark Stauffer, President and Chief Executive Officer. Please go ahead, sir.

Thank you, and good morning, everyone. Thanks for joining our call. Today we will discuss our 2020 second quarter results and provide you with an update on the current state of our business as we continue to navigate through the COVID-19 pandemic. I'll begin with a few comments on the quarter, then turn the call over to Robert to review our financial results in more detail, and then I'll make some concluding remarks before we return to Q&A. First, I'd like to extend our deepest sympathies to those in our company and others who have been affected by or have had family members or friends affected by the COVID-19 virus. I'd also like to sincerely thank our team members who continue to safely work at our project sites, construction yards, shops, and field support offices around the country. It's through the combined efforts of our entire team that we've continued to be able to perform during these unprecedented times. Our focus has been and will remain on ensuring the health and safety of our people. Even with the recent spike of COVID-19 cases in some of our markets, We've continued working on projects with only minor disruptions. To ensure the health and safety of our employees, all measures we implemented in response to COVID-19 will be kept in place for the foreseeable future. In the second quarter, we continued to post year-over-year improvements in both revenue and profitability and generated solid free cash flow, all of which reflects the benefits of the operational improvement initiatives we've implemented over the last 18 months. We remain encouraged by our elevated backlog, our continued productivity during this period, and the variety and resiliency of the end markets that we serve. The wide array of end markets that we serve enables us to pursue the most attractive bid opportunities in the end markets that are performing best at any given point in time. This strategy has served us well historically and will serve us well in this environment, and we will continue to focus our efforts on targeting the end markets and projects we expect to have the best opportunities to be profitable moving forward. We have also taken the necessary steps to ensure that our liquidity position is solid and enables us to continue executing on projects in backlog and pursue new bid opportunities. We believe we entered this pandemic from a position of strength and have met these challenges head on. I'm confident that we'll be able to navigate the effects of the pandemic as we move through the year. with the safety and health of our employees as our foremost priority. Now I'll turn the call over to Robert to discuss our Q2 results in more detail.

Robert. Thank you, Mark, and thanks everyone for joining us. Before I get into the quarterly details, I'd like to point out over the past 12 months, Orion has generated over $50 million of adjusted EBITDA and posted four straight quarters of positive earnings, something that is indicative of the hard work that all of our employees have contributed over this past year. Revenues for the second quarter 2020 were $183.7 million compared to $166 million in the second quarter of 2019. The growth in revenue was driven by increased production in our concrete segment. Second quarter 2020 reported gross profit was $20.7 million or 11.3% as compared to $15 million or 9% in the second quarter of last year. The year-over-year increase in margin was driven by a 300 basis point improvement to indirect project support costs. Now moving to the segments. Excluding the gross up impacts of accounting for uninstalled materials, the marine segments margins increased by 95 basis points year over year, of which 245 basis points came from indirect expenses such as labor and equipment utilization, partially offset by 150 basis point decrease in project level margins, which is attributable to changes in the mix of projects executed from period to period. Now I'll turn to the concrete segment. The concrete segment's year-over-year margins improved by 135 basis points, of which 65 basis points came from indirect project support costs and 70 basis points came from project-level margins. This improvement in our concrete segment's project-related margins was driven by an increase in labor efficiency. Moving to SG&A. For the second quarter of 2020, SG&A expenses were 16.5 million. up from $15.1 million in the second quarter of 2019. The increase is driven primarily by the full ratable accrual of the annual incentive compensation plan during the current year period. As a percentage of revenues, second quarter 2020 SG&A was 9%, down slightly from 9.1% in the prior year quarter. We remain focused on SG&A being at or below 8.5% of revenues for the full year, recognizing that we may see quarterly fluctuations. Second quarter 2020 operating income was $4.1 million compared to an operating loss of $0.4 million in the second quarter of last year. Now to the bottom line results. For the second quarter 2020, reported net income was $2 million for earnings of $0.07 per share. These results compared to a net loss of $1.6 million or a loss of $0.06 per share for the same period a year ago. After adjusting for approximately $350,000 of pre-tax non-recurring costs, and $1 million of benefit associated with the reduction of certain tax valuation allowances, net income for the second quarter of 2020 would have been $1.3 million or earnings of 4 cents per share. Second quarter 2020 adjusted EBITDA was $12.6 million, representing an adjusted EBITDA margin of 6.9% compared to adjusted EBITDA of $10 million for a margin of 6.1% in the second quarter of last year. In the second quarter of 2020, we bid on approximately $1.2 billion worth of opportunities and were successful on $120 million. This resulted in a win rate of 10% and we booked the bill 0.65 times. As of June 30, 2020, backlog was $528 million, of which $312 million was associated with the marine segment and $212 million for the concrete segment. Currently, the company has $1.3 billion worth of bids outstanding. including 73 million worth of which is the parent low bidder or has been awarded contracts subsequent to the end of the second quarter of 2020. Something that we view as indicative of the strength of our end markets. In total, we currently have over 600 million projects between backlog and low bid. Moving into further covered discussions, I'll provide an update on the proactive measures we continue to take. As always, we continue to monitor our CapEx needs and operating costs. As a result, We continue to be selective with certain capital and operational expenditures. Also, we continue to operate to heighten controls around cash management, broader risk management, and mitigation we announced on the Q1 earnings call. To that end, during the quarter, we entered into a new 360-day, $20 million revolver that adds to our existing credit facility. This increase provides us with more than sufficient financial flexibility to continue to pursue new awards and execute projects in backlog. Our current liquidity position is solid, which was further enhanced in the second quarter as we generated $16 million in free cash flow.