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.

We are pleased with our free cash flow generation over the last six months.

In the first two quarters of 2020, Auradon has generated more free cash flow than in any full year in company history. At the end of Q2, we had $10.3 million of cash on hand and access to almost $50 million under our revolving line of credit, which includes $20 million from the new revolver. went into the quarter with $54 million in total debt, of which $18 million was related to the revolver and $36 million related to the terminal. This translated into a 1.13 times leverage ratio and a fixed charge ratio of 3.66 times. We are comfortable with our current leverage profile. However, we will continue to evaluate opportunities to enhance our liquidity position, including continuing with the process of selling non-core assets. I want to reiterate my comfort level with the current liquidity situation. which will enable us to execute on our strategy, pursue new awards, and perform work in backlog.

Now I'll turn the call back over to Mark to wrap up. Thanks, Robert. Turning to our markets, we continue to see bidding activity in both our segments. While some bid opportunities in impacted end markets have shifted to the right, bid opportunities in other end markets continue to move forward due to our diversified customer base and end markets. Our focus is on profitably bidding these opportunities. We have a strong track record of adjusting between end market bid opportunities, and we will also continue our pursuit of select larger and longer duration projects. We continue to interface with our customers and monitor their spending plans, and we continue to target government bid opportunities across federal, state, and local agencies. In the marine segment, we recently announced $32 million of dredging awards in both the public and private sectors. which will contribute to maintaining utilization of our dredge fleet during the back half of 2020 and into the first part of 2021. One of these announced projects is as a result of Hurricane Harvey relief funding, and we expect additional significant bid opportunities related to Harvey relief funding in the coming quarters. We also continue to track any movement on a federal infrastructure bill, either as a replacement for the FAST Act or that may be part of future stimulus spending plans in response to COVID-19. Any action on infrastructure funding will provide significant bid opportunities that we are well positioned to capitalize on. In the concrete segment, we continue to execute on our strategy of expanding our structural business as evidenced by the $30 million structural concrete project we recently announced. The competitive dynamics of structural projects have led to an increase in awards for this type of work and our performance on these projects has significantly contributed to the improved operating performance of our concrete business. We continue to monitor the distribution and technology center growth in Texas, which continues to provide bid opportunities for our light commercial projects. In addition to general business and industry relocations into the Texas market. We completed the first half of 2020 with solid and much improved operating performance. and we entered the second half of the year with combined backlog and low bid at strong levels despite COVID-19 impacts. We currently have $1.3 billion of bids outstanding, slightly higher than we had in the prior year period. I'm confident that we have the team in place to continue to perform despite the challenges in the current environment. We are and we will always be focused on safely meeting our customers' needs and we remain confident in the long-term drivers and sustainability of our markets. We will get through this pandemic and we will be well positioned to take advantage of post-pandemic market conditions. Once again, our deepest sympathies go out to those who have been affected by the virus and I'd like to again thank our team members for all their efforts. With that, I'll turn the call back to the operator for questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Our first question comes from the line of Alex Riegel with B. Reilly FBR. Please proceed with your question.

Yes, good morning and very nice quarter, gentlemen.

Thanks, Alex. Thanks.

Could you give us a little bit of an update on

Some of your real estate sales or listings and how that's proceeding and then any other updates on any other dispute resolutions or claims that could be settled up sort of in the next six months.

Yeah, I'll take the real estate update and Mark can talk a little bit about the claims. The real estate update is pretty much where it was before. We continue to push to move those properties. With COVID going on, the timing could be a little shaky, but I'm confident that we will be able to move on from the pieces that we've deemed as non-core assets.

Yeah, and on the On the claim side, we continue to focus on that. We're making progress on some of these. I think it's probable that we'll have Some of these resolved this year. I think on others, probably a little bit longer duration. So not prepared to quantify what we think the impact of that might be. But I think, again, you know, part of that will get resolved this year. And depending on how the other one goes, it could push off into next year. And secondly, the commercial concrete margins were fantastic. Congratulations on that. How sustainable is that and how has this business kind of changed over the last kind of year or two as you pursue this structural business? Well, I think, you know, again, a lot of the things that we did that we've kind of focused on in operational improvements over the last year, you know, are bearing fruit for us. So we, you know, our focus is on keeping that sustainable. The team in the concrete group has done a fantastic job. We, again, we think we have the right people in place in the right spots. And, again, part of the strategy there, too, has been to expand our structural business. And we're seeing that and seeing that pay off. And we continue to be focused on improving from where we are today. We're very pleased. I'm very pleased with the progress we've made in the last year. But we think there's more progress that we can make. and again we're focused on bringing our projects in at or above what we bid them at and controlling our indirects and we've done a good job in that division making progress on that and we think we've got more progress that we can make going forward. And then just circling back to your comments about SG&A and the incentive comp accrual SG&A in the second quarter was a little bit higher than where I was looking at. I suspect that was due to the insurance cop accrual, excuse me, the bonus cop accrual. Did you recognize sort of a six months worth of that bonus accrual in the second quarter? Is that why it looked a little high?

No. So the bonus is being, you know, accrued equally every quarter. SG&A was up a little bit. just by, you know, the nature of the timing of different expenses and where they fall. But, you know, as I mentioned in my note, we do expect it to taper off and be closer to eight and a half percent or below by year end.

Perfect. Very nice quarter. Congratulations. Thanks.

Thank you. Our next question comes from the line of Marco Rodriguez with StoneGate Capital Markets. Please proceed with your question.

Good morning, guys. Thank you for taking my questions. Hey, Marco. Hey. I was wondering if you guys could spend a little bit more time on the gross margins in the segments. You know, you did push out or rather you called out the improvements from a basis point standpoint that you saw from the indirect costs and then the project level margins. I was wondering if maybe you could talk a little bit more about those indirect costs, what you're kind of doing there per group to make those improvements go forward.

Well, it kind of goes back to what I said a minute ago. You know, again, the process improvements that we addressed over the last 18 months, a lot of those, if you'll recall, were directed around labor efficiency and equipment efficiency. That's been a big focus of our effort, of our teams. And again, just as kind of a reminder about that, one of the things we did last year when we did our review was just improve or enhance some of the tools that we're providing information back to our managers so that they can try to make better decisions and faster and quicker decisions. So, again, I think that's been a huge focus of ours. It's going to continue to be a focus of ours. And, you know, we're seeing the benefits of that reflected in the margins.

And I believe you mentioned, I mean, you had some pretty good improvements year over year on the marine side and the margin side. But I thought that I read in your prepared remarks that the dredging equipment was offline for a little while due to some maintenance. Can you maybe kind of quantify the drag that you saw there and the utilization levels on the marine dredging equipment?

Yeah, I mean, we don't get too specific on dredge utilization just for competitive reasons. But again, if we kind of think about the first quarter, we were sort of in the zone above Thank you for joining us. based off the schedule of work that we either were anticipating getting or that we were getting and took some time in the second quarter to go ahead and address some of the scheduled maintenance on some dredges. And that's really what pulled that back. Again, as we talked about in my remarks earlier, we've recently announced several projects. and that are going to contribute to that utilization. And so that's why we want to go ahead and get some of the maintenance knocked out during the second quarter.

Got it. And then looking at the concrete segment, just kind of echoing the prior comment, very impressive margins versus the historical run rate, if you will. Just trying to kind of understand a little bit more here. Your shift and your emphasis on trying to do structural work, is that a little bit of a higher margin business that kind of helps the situation? Or is this sort of more of the indirect cost focus that's kind of helping that margin come back up versus its recent historical trends?

Yeah, I think it's a combination of several things. I think one, as we said, it's our focus on our indirects and controlling those. And I've spoken to that. Two, structural work. I think we were good at all of what we do, but our structural group performs well. We have different competitive dynamics in those types of projects, meaning we're usually going up against different types of competitors, less of the smaller competitors, so the bidding dynamics are a little bit better. in that work for us. But in our live commercial group, again, our guys are performing well. And really, you know, kind of a big change there is we're performing better on projects across all of our markets. And we had, you know, in the quarter, we had good weather as well, so we had good production. And that's really been true for the first half of the year. I think, again, some of the changes we've made and the focus we've made in that business around performing better on our light commercial work is starting to pay off. So we're getting a little bit more of a consistency on that and not having projects that we're not performing on pull down that margin. So I think it's a combination of all three of those things.

Great. Very helpful. And then last question, just again on the concrete segment. I know in the past we've discussed pricing pressures in the bid market that you've seen down in the Houston area specifically. So it kind of sounds like your movement toward the structural work is kind of alleviating that somewhat. But I was wondering if you can maybe comment a little bit more on the pricing environment for bidding contracts in Houston, Dallas, and Austin where your concrete works are now.

Well, of course, it is competitive business. It remains competitive. And I want to be careful to say that we are still focused on pursuing light commercial work. It makes up a significant part of the business and the business opportunities in concrete. It's still competitive. Again, like I said earlier, we do like the favorability of the competition dynamics in the structural business. But also on the light commercial side, again, depending on the projects, it can be more or less competitive. As I kind of talked about in my comments earlier, our overall strategy in both businesses, including concrete, is target the work that's coming out and target those sectors that are moving forward with things, obviously. and focus on those opportunities that we think give us the best opportunity to perform, to win the work and then perform it. So, you know, we're being very disciplined in our approach as we did this work. And so, you know, again, it's always going to be competitive out there. But again, we're trying to be very strategic about what we go after so that we can achieve our objectives.

Understood. Thanks a lot, guys. I really appreciate your time.

Thank you. Our next question comes from the line of Poe Frat with Noble Capital Markets. Please proceed with your question.

Good morning. May I follow up on the claims? Can you just quantify just I know you didn't want to quantify the potential impact, but could you quantify the amount of claims outstanding that you have?

I think we won't quantify the total amount. I do think that you'll see in the queue that we have booked about, in the quarter, we booked some claims about a million, 1.7 in claims outstanding that are actually booked. And again, that's a fraction of the overall claims. But I don't want to get into the total amount of our claims just for just for reasons of, you know, not negotiating in public.

Okay, great. But there'll be details in the queue.

Yep.

Great, thanks. And then could we focus on, you know, your free cash flow generation? You know, the operating level has been pretty consistent over the first two quarters of the year. But then part of that is because your CapEx has been running, you know, below average, below 3 million a quarter. Can you give us an idea how CapEx looks over the second half of the year? And then also on the working capital front, you know, when you look at the net cash flow or net free cash flow, that's been positive because of positive working capital changes. And can you just highlight sort of expectations for the second half of the year there?

Yeah, I'll take this. Yeah, CapEx for the first half of the year, roughly $5 million. I do expect for the rest of the year, somewhere between 5 to 7 million. So bringing us 10 to 12 million full year, but we'll continue to monitor that and watch it and we'll see what we need to get done this year. Obviously, we want to do what's right for the business and continue to keep our assets in good working condition. You're absolutely right. Working capital liquidation has been good. in the first half of the year. I know last year at the back end of the year, we saw it really build up. So when I think about the second half of the year, I do expect a little bit of a buildup in Q3 and to see that, you know, liquidate into Q4, Q1 of next year. But, you know, we talked about some of the heightened controls that we put in place around cash management. and Working Capital Management. So we're going to really, really try to, you know, to minimize that uptick. But it's just the time of year where we see more cost burn. We see more, you know, AP runs. So you tend to see, you know, working capital build up.

Great. That's helpful. And then, you know, it looks like Marine, you know, while backlog was down in the quarter, you do have 60 million of low bids pending awards. and that $32 million I assume that already has been awarded as part of that number?

I believe it is, yes, it is.

Okay. In the context of second quarter maintenance, do you have any maintenance that's scheduled for the second half of the year, Mark?

We do. I mean, you know, kind of less in duration today. That could change, but right now, It's kind of the normal quick hit stuff. The stuff we did in the second quarter was kind of a little bit more involved just to get ready for some of the upcoming work.

Okay, great. And I'm not sure if you've done this in the past, but to quantify, would you be able to quantify how much of Terminal 5 is left in your backlog?

We might have to get back to that. I think we're probably about 40% complete on that project right now, plus or minus. So maybe 100 million left. Yeah, we still have, you know, a ways to go on that.

Okay, great. And then going back to the concrete business, you know, really strong quarters has been pointed out previously. But your low bids right now look like 13 million low bids pending award. and it looked like the win rate was a little bit below average. Can you just comment on those two metrics?

Yeah, I think that, yeah, the $13 million is correct there. We have a lot of bids outstanding, a lot of work that we're pursuing in both divisions. And as I said, we're still seeing opportunities in both divisions. I think when we look at the win rate, obviously, in the book to bill, were impacted during the quarter. Some of that is just kind of normal timing on win rate and timing of bids. Obviously, some of it has been COVID impacted, especially when we look at Q2 and the win rate and the flow of work, particularly like in Marine. At the beginning of the quarter, some of our efforts were focused on areas that wound up being impacted by COVID, and therefore projects sliding to the right. And so we had a lower win rate and book to bill, if you will, at the beginning of the quarter. And as we pivoted to other areas, other end markets where projects were coming out, we saw that improve as the quarter went on. So again, it's kind of A little bit of that is normal ebb and flow. A little bit of that is seeing the market reset in terms of who was impacted by COVID and maybe sliding projects to the right, and then us pivoting to where we see the opportunities and focusing our attentions on that. So that's kind of what happened in Q2. As we move forward, again, I can't predict what's going to happen in the second half with You know, our win and win rates and all that. What I can say is we have work out there to bid on. We're focused on it. We're focused on those things that are moving forward. And, you know, we're targeting work to win. And we're also potentially, you know, could see us bidding more work in order to win the work that we want to get to, you know, to refill our backlog. And, again, the key is we want to do that, refill it with profitable work. So, you know, we could see win rates fluctuate. We might see volumes go up, but we're focused on, you know, getting after the work that is out there and performing on it.

Yeah, you backlogged. You're still north of 200 million, so, you know, less concerned about the near-term win rate, just looking at sort of the second half of the year. That's helpful. Thank you, Mark. Robert, could you just, I think you mentioned that you had revolver availability of about 50 million and then you had about 10 million in cash, so potentially total liquidity of about 60 million. Can you just sort of expand on why you looked at adding the 20 million of the revolver capacity in the context of you paid down a healthy amount of debt in a quarter?

Yeah, so when COVID kind of first broke out, you know, there was a lot of uncertainty around, you know, you know, what we see widespread shutdowns that would stop us from working on projects with customers or cash, you know, as things slowed down. Those two things didn't happen. But out of abundance of caution, we wanted to get ahead of anything like that. And it hasn't happened. And as you've seen, we've been able to continue to generate you know, solid free cash flow, which in turn we pay down, you know, debt on the revolver. So we have that availability in that capacity, you know, available to us still. So without an abundance of caution, you know, at this point, you know, we, you know, we feel good about our position and where we are. And we have, you know, some, you know, some room, you know, to be able to weather any storm that might come. But as we sit here today, I don't think the country has a stomach for widespread shutdowns again. So I think the likelihood of that is lessened, but we do have some reserves, cash reserves to be able to weather any storm that comes.

Okay, great. That's helpful. And then if you could follow up on the real estate question, has the Tampa yard actually been listed or have you engaged a broker on that potential sale?

I actually have a PSA in place, but I think it's too early in the process to get into the weeds of that. I am pushing to get that deal closed as soon as possible, but there's rezonings and things like that, due diligence that needs to be completed. So we can see that late this year, we can see that Next year, early next year, it's just really going to depend on COVID, the city of Tampa, and how quickly they can move. People are working from home in the government, so it's not as efficient as it usually is. So I don't want to lock myself into guiding to a timetable, but we're hopeful and confident that we can get that deal completed. It's just a matter of timing.

Yeah, just to reiterate too, the real estate that we view as surplus, all of it has been listed. So it's listed and we've had various levels of activity on all three. The Tampa property is, as Robert says, a little bit further along than the other ones. And again, we're confident that that one's going to It's just a question of timing, as Robert said, due to some of the inefficiencies we're seeing right now with COVID.

Great. I really appreciate the detail on the Q&A. Thank you so much. One last one, if you wouldn't mind. You did suspend guidance when you reported the first quarter, just given all the COVID uncertainty. Any thoughts on why you didn't reaffirm or reestablish guidance for this quarter, given the performance in the quarter and what looks like a solid second half backlog and outlook? Why not reestablish guidance?

Well, I think, again, we're confident in our ability to perform. Again, as I said in the remarks, I think we've got the right team. We're focused on executing and performing the work in our backlog. We're focused on securing new work. I think right now, we just, again, sort of as a We're continuing to look at that. We'll put guidance back up when we think it's appropriate. That said, we are focused on performing. We see a pathway to good performance in the second half of the year and to perform well and at the levels that we were previously talking about. But again, we know what we know today. And again, it's kind of unusual times. So, you know, again, we think at this point, at this juncture, just prudent not to put that back up. But I want to emphasize that doesn't mean that we're not trying to execute, execute well and execute according to the plan that we previously laid out.

Great. Thank you, Mark. Thank you, Robert. Thanks, Bo.

Thank you. Our next question comes from the line of Jerry Heffernan with Walthausen and Company. Please proceed with your question.

Good morning, Robert. Good morning, Mark. How are you? Good. Good. Lots of good discussion going on here. Perhaps a couple of things that look at it a little bit different way. One, in the last quarter, our concerns and our lack of knowledge of COVID were very high. I believe we spoke at that time of putting a stop to the new ERP system project out of an abundance of caution. I noticed in the adjusted EBITDA schedule in the press release that there was expenses for ERP implementation. So are we back on with the implementation? I know it's a very important system that you're looking forward to the improvements of management's abilities with it.

Yeah, so the way I would answer that question is yes, it's back on. The kind of way that we're approaching this is kind of a toll gate system. So we re-engage the project and we're going through a detailed planning phase, you know, over the last months or so. And we're re-evaluating our schedule, our timetables, our costs. And once we kind of get through that phase, we'll put together a new plan under the new world and then we'll make a decision on, you know, what the scope looks like, how far do we go, what's in, what's out, what will we do next year, what will we do this year and we'll have a solid plan. So you're correct, we did start that process back up in Q2 and we'll have a lot more to talk about this, you know, on the next call.

Okay, okay, thanks. You indicated that there is $1.3 billion of backlog bidding outstanding. Could you frame that number in regards to, is that a normal level for bids outstanding? Or I'm wondering if the, and speaking with a lot of other construction companies, they have indicated, look, the bids for work are still out there. However, the process of completing the bids has been greatly extended. So is that 1.3 to saying, wow, there's a whole lot more business, or is it saying, you know what, one of the reasons why our backlog member moved the way it did is that these bids just are not completing. They're extending out before we get the answers.

Well, it's a little bit of both. So to answer the first part of your question, is it normal? Yes, it's We've had over a billion dollars worth of work outstanding that's been quoted outstanding in previous quarters. And as I mentioned in my remarks, the 1.3 is slightly up from the 1.3 that was outstanding in the same period a year ago. It is safe to say, though, that some of that is driven by, again, some work that we quoted during the quarter, particularly at the beginning of the quarter. in markets that have been more impacted. That is a good way of looking at it, that there are some decisions that are being deferred or slow walked or whatever, but other end markets and other projects are moving ahead. There is a piece of that that probably fits into that category, but I think the majority of the work that we have in that number is work that is in markets that are moving forward and so again it's not it's not untypical to have that amount of work out outstanding or quote work quoted outstanding.

Okay okay great. In regards to the maintenance on the dredges, Mark and Robert, you guys have been very good, particularly over the last year when I think about it, of really kind of preparing us for what is going on in the upcoming three, six months with your business. I don't recall you... talking about a step up in maintenance expense for the dredges for the marine business last quarter. So I'm wondering, and these bigger maintenance projects, yes, they occur every so often, but the actual implementation of the maintenance can vary between a couple of months, depending on how you see windows. Did something change as far as the way you saw work lining up that said, hey, you know what? We better get this done now so we can really be hitting these upcoming projects with all cylinders sparking.

Yeah, so again, you are correct that we didn't call that out on the last call on that. But the scheduled capital repairs and repairs can be very dynamic in terms of when we do that work. Also, it can be dependent on the type of work that we get. So we may have work in hand that we know of, that we're planning for, and we may have other work that's coming up that we win in a given period, that given the type of that work, there is additional things that we need to do to the dredges, particularly if we're going for You know, deeper type dredging project. Sometimes that can alter the setup of the dredge. And sometimes, you know, again, we know when we get that work and we don't, sometimes, you know, that work comes along and it changes our thought on either A, the timing of when we're going to schedule that work or B, the actual work that we're going to do physically on the dredges. A little bit of a combination of both of that is that was a case of being very dynamic. When we spoke at the end of April, we had a little bit different thought about what that schedule was going to look like and did not comment on it, but the circumstances changed in terms of what we saw and then what work we had won and we're going to be executing on in the back half of the year, so that altered our thought process on getting some maintenance done in the second quarter.

It sounds like you have some pretty positive thoughts regarding the margins in the marine business in the second half here. Robert in his remarks made a comment that the adjusted EBITDA was over $50 million in the last 12 months. I came to $50.2 million. and for that matter even just the non-adjustability of the job being around 45.6. And Poe asked a question about guidance being re-established and I kind of chuckled because unless my memory is really awful, you're already ahead of your guidance where you were six months ago. Which does beg the question of what's Why not go out there and say, yeah, you know what, the previous guidance, we're comfortable with that, or some other statement. I mean, you guys are doing better than I think most had expected, and you're even doing better than where you were originally able to put a flag in the ground.

Yeah, Jared, I hear you, and I agree with you. Things are progressing well. There are still some uncertainties out there, but the way Mark characterized it is the way that I would characterize it, too, is that, yes, we see a pathway back into that range that we talked about. But at this particular point in time, you know, we don't think it's prudent to bring back guidance. But our level of confidence that we have the right people in place, we have the right team in place, we have the marketplace in place, we have the right assets in place, to be able to deliver in that range. Our conference level is increasing, it's rising, and we feel good where we are. But there's still work to be done. There's challenges to overcome, but we feel good about where we are and we think the future is bright for the company in both segments.

That's great. And one last thing on the The bonus accrual that you spoke of in SG&A, did you accrue for bonuses in the first quarter?

Yeah, so the bonus expense, we accrued for our quarterly amount, so we're turning to it. The reason I call that out is when you look at it year over year, our bonus expenses, SG&A is primarily driven by the bonus expense. So if you looked at the performance of the past few years, you haven't seen a full accrual of bonus expense. And, you know, obviously, where we perform, we've been able to, you know, to be in that range to, you know, to meet our incentive plan halfway through the year. You know, so we need to call out the year-over-year increase because we are in that range to be able to potentially pay our bonuses this year.

Sounds good. Sounds good. I just want to make sure I understood whether that was a year-over-year comparison or a sequential comparison.

Yeah, it's a year-over-year.

Year-over-year. Your business is coming along well, much as expected. We just need the market to recognize it. So please, thank you for keeping up the good work, and hopefully we continue, and everybody stay healthy. Thank you. Thanks, Jerry. Thanks, Jerry.

Thank you. Our next question comes from the line of Greg Weiss with Boston Partners. Please proceed with your question.

Hey, guys. Congratulations on the continued improved performance. It's been nice to see, and you can see it in the income statement, cash flow, and balance sheet. So hopefully there's more to come. Most of my questions were answered by or asked in the last

Two Callers.

But just for a little more granularity, can you give any more insights of how much, whether it's the real estate sales or non-core asset sales, how much more cash we might be able to harvest from those kind of measures?

Well, I mean, the real estate sales could be significant. You know, one property could be upwards to $20 million, another one, you know, $5 to $6 million. and then the big property that's much further behind in the process from a stage standpoint to be bigger than those, but that's way earlier in the process. I think the ones that are closer, call it $20 to $25 million of potential cash from those sales, but Greg, I don't want to get into exactly when that's going to happen because It is real estate, it is COVID, and the timing is just really, really unknown.

I understand completely. As the last caller stated, at some point the market will notice. Over the past year, you've brought debt down by $30 million, cash is up by $8 or $10 million. You've improved the results. You're not that levered anymore. I understand we are in COVID, but given how the stock has been ignored despite your heavy lifting, at what point do you guys reevaluate your capital allocation thought process?

Well, yeah, we're thinking about that all the time. As you pointed out, we're a little bit over 1x from a leverage ratio standpoint. So yeah, we're always evaluating and thinking about capital allocations and where should we apply that free cash flow, whether the debt. But as we go forward, everything is on the table, and we're going to make sure that we put the cash to the best and highest uses. I will point out, though, as a part of our 365-day deal that we entered into, There's restrictions on stock buybacks so that that deal ends in May of next year. But, you know, we're going to continue to monitor that. We're going to continue to watch it. And, you know, we'll have more to say on that, you know, if the strategy changes around where we're going to put capital.

But not only are you just over one-time leverage, you're now the company has been, knock on wood, profitable, you know, increasingly profitable. And you also just highlighted that Thanks, Greg. Thanks, Greg.

Thank you. Ladies and gentlemen, that concludes our time allowed for questions. I'll turn the floor back to Mr. Taub for any final comments.

Thanks for joining us today. As a note, I want to let everybody know that management is planning on attending the Jefferies Virtual Conference next week. We have a few available slots left open for one-to-ones with management, so if anybody wants to pick those up, reach out to our IR people and we'll get those scheduled. Stay safe, stay healthy, and we look forward to talking to everybody in late October as we report Q3 earnings.

Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your