Orion Group Holdings, Inc.

Greetings, ladies and gentlemen, and welcome to the Orion third quarter 2020 earnings conference call. At this time, all participants will be in a listen-only mode. A question and answer session will follow the following presentation. Should anyone require operator assistance during the conference, please press star zero on your telephone keypad. It is now my pleasure to introduce your host, Mr. Fran Okoneski. Thank you. You may begin.

Good morning, everyone, and welcome to Orion Group Holdings third quarter 2020 earnings conference call webcast. My name is Fran Okoneski, Vice President of Investor Relations, and joining me today are Mark Stauffer, Orion Group Holdings President and Chief Executive Officer, and Robert Tabb, our Vice President and Chief Financial Officer. This is my first earnings call with the Orion Group after spending 28 years on the buy side, so I'm pretty excited to be here. 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. 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 to the most comparable GAAP measures and reconciliation tables accompanying this earnings call within the press release issued yesterday. The press release can be found on our website at www.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 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. Thank you for joining our call. Today, we will discuss our third quarter 2020 results and provide you with an update on the current state of our business. 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 turn to Q&A. Before getting to our third quarter results, I'd like to address the tragic accident that occurred during the quarter, taking the lives of five of our colleagues and injuring several others, some seriously. On August 21st, an explosion and fire sank our dredge, Wayman Boyd, in the port of Corpus Christi Ship Channel while it was performing work near a pipeline. Right now, our primary concern is the well-being of the crew members involved in this incident and their families. Safety is an essential part of our guiding beliefs and part of the fabric of our culture. We remain deeply committed to our Target Zero program to support our vision of an incident-free workplace. Our support, thoughts, and prayers remain with the crew of the Wayman-Boyd and their families. The cause of this incident remains under investigation, led by the National Transportation Safety Board in collaboration with other governmental agencies. We continue to fully cooperate with the NTSB investigation, and we are eager to understand the cause of this accident. With respect to the COVID-19 pandemic, we continue to be able to work on our projects with only minor disruptions. During this challenging environment, the health and safety of our team members is our top priority. And to that end, all the precautionary measures we've implemented in response to this public health crisis will remain in place for the foreseeable future. I'm proud of our entire team on all our project sites, vessels, construction yards, shops, and field support offices, and their continued resilience and commitment to improve our performance despite the challenges brought about by COVID-19. Turning to our financial results, in the third quarter, we once again delivered solid bottom line improvements with year-over-year expansion in gross margin and adjusted EBITDA margin, along with improved operational performance in both segments. We continue to see bid opportunities in both our segments, and we expect bid opportunities to accelerate when the headwinds from the COVID-19 pandemic abate. We have diversity in our end markets, which continue to drive project bid opportunities. We also believe in the resiliency of those end markets currently being impacted by the pandemic, and we are confident in the long-term strength of these markets to drive future bid opportunities. To that end, we are seeing signs of recovery in some of the end markets impacted by the pandemic. We will continue to focus on targeting the end markets and projects we expect to provide the most profitable opportunities moving forward. Additionally, our liquidity position remains strong and provides us with more than sufficient financial flexibility to continue to pursue new awards and execute existing backlog. I'm confident in our team's ability to navigate through the pandemic with the health and safety of our employees always as our foremost priority. Now I'll turn the call over to Robert to discuss our third quarter results in more detail. Robert?

Thank you, Mark, and thanks, everyone, for joining us. Today I will review the financial results for the quarter, provide an update on the company's liquidity position and the status of our ERP initiative. Finally, I will close by discussing the company's fourth quarter 2020 outlook, starting with the financials. Revenues for the third quarter of 2020 were $189.4 million, compared to $199.5 million in the third quarter of 2019. The decline in revenues was driven by tropical weather in Texas at the end of the quarter, impacting production in our concrete segment. The third quarter 2020 reported gross profit was $22.5 million, or 11.9%, as compared to $20.9 million, or 10.5%, in the third quarter of last year. The year-over-year increase in margin was driven by a 200 basis point improvement to project margins. Now turn to the segments. The marine segment margins increased by 10 basis points year-over-year. The improvement is driven by execution-related margin gains on certain projects. The concrete segments year-over-year margins improved by 130 basis points, also driven by execution-related margin gains. Moving to SG&A, for the third quarter 2020, SG&A expenses were $15.3 million, up from $14.6 million in the third 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, third quarter 2020 SG&A was 8.1%, up from 7.3% 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. Third quarter 2020 operating income was $13.1 million compared to $6.1 million in the third quarter of last year. Now to the bottom line results. For the third quarter 2020, we reported net income of $11.8 million, or $0.39 per share. These results compared to net income of $4 million or $0.14 per share for the same period a year ago. After adjusting for approximately $2.5 million of non-recurrent items and $2.2 million of tax expense related to federal and state valuation allowances, adjusting net income for the third quarter of 2020 was $7.1 million or $0.23 per share. Third quarter 2020 adjusted even it was $17 million. representing an adjusted EBITDA margin of 9%, compared to adjusted EBITDA of $14.9 million for a margin of 7.4% in the third quarter of last year. I'd like to point out over the past nine months, Orion has generated approximately $42 million of adjusted EBITDA, and our Trilling 12 four-quarter adjusted EBITDA is $53 million. The company also has posted five straight quarters of positive earnings. This is indicative of the operational turnaround and the hard work of our employees, especially during an extremely difficult period. In the third quarter of 2020, we bid on approximately $734 million worth of opportunities and were successful on $90 million. This resulted in a win rate of 12% and a book to bill of 0.47 times. As of September 30 of 2020, backlog was $429 million. of which $242 million was associated with our marine segment and $187 million with the concrete segment. Currently, the company has $1.1 billion worth of bids outstanding, including $108 million of which it is the apparent low bidder or has been awarded contracts subsequent to the end of the third quarter 2020. In total, we currently have $537 million of projects between backlog and low bid. Now to liquidity. Our current liquidity position is solid, and we have generated over $36 million of free cash flow in the first three quarters of 2020. We ended the third quarter with $2.7 million of cash on hand and access to $58 million under the revolving lines of credit. We ended the quarter with $42 million in total debt, of which $10 million was related to the revolver and $32 million was related to the term loan. This translated in a 1x leverage ratio and a fixed charge ratio of four times, both well within our covenant requirements. Our current liquidity situation provides us with the flexibility to execute our strategy, pursue new awards, and perform work in backlog. Additionally, we are continuing to pursue steps to further enhance our liquidity, including continuing the process of selling non-core assets, particularly surplus real estate. Success in this regard would put us in an even better position to drive shareholder value. Now to the ERP update. As previously discussed, we have launched our ERP initiative, which was delayed earlier this year due to COVID-19. This project will move the company on to Microsoft Dynamics 365 and provide Orion the foundation to scale and grow the business. We expect to complete the design phase during the fourth quarter of 2020 and start the bill phase early in 2021. Overall, I expect this project to last 18 to 24 months and cost $15 million. Now, moving to the 4Q 2020 outlook. We are extremely pleased with our financial performance during a difficult period for the company and the country as a whole. Given the seasonality of the fourth quarter, we expect to generate between 10 and 12 million of adjusted EBITDA for the fourth quarter of 2020. As Richard before, we were pleased with our results, but we remain focused on execution and rebuilding backlog. Now I'll turn it back over to Mark.

Thanks, Robert. Turning to our markets, as I stated earlier, while pandemic related uncertainty has pushed some bid opportunities in certain sectors to the right, we continue to pursue projects in both of our segments. Our focus is on profitably bidding these opportunities as opposed to simply filling backlog at any cost. And our ability to adjust between differing end markets continues to serve us well in this regard. Additionally, we continue to target select larger and longer duration projects to provide us with greater operational visibility. We are in constant communication with our private sector customers regarding their projects and bid opportunities. And in our marine segment, we continue to target government sector projects at the federal, state, and local level. Specifically, in our marine segment, we continue to track bid opportunities driven by Hurricane Harvey relief funding. Significant funding is in place for these projects, and we expect bid packages related to this funding to materialize 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 as part of future stimulus spending plans in response to COVID-19. Any action on infrastructure funding would likely provide significant bid opportunities that we are well positioned to capitalize on. Additionally, in the energy sector, we are seeing long-range projects begin to move forward, which will provide bid opportunities in the near term. In our concrete segment, we are seeing bid opportunities from end markets in the sectors of the economy that have continued to operate throughout the pandemic. We are also seeing long-range projects move forward for structural projects. We continue to execute on our strategy of expanding our structural concrete business, where our competitive dynamics for this type of work has led to securing more of these projects, such as the large multi-use tower structure in Houston that we began work on during the third quarter. Our performance on structural projects has greatly contributed to the improved operating performance of our concrete business. Texas also remains one of the leading states for population and business growth in the United States, which will continue to provide opportunities for all types of concrete construction. We continue the strong operational performance in the third quarter that we saw in the first half of 2020, and we enter the fourth quarter with combined backlog and low bid at strong levels despite the COVID-19 impacts on some of our end markets. We also currently have over 1.1 billion of bids outstanding of which we are low bidder or have been awarded subsequent to the end of the quarter 108 million. We have performed incredibly well in a difficult and challenging environment and we continue to improve our liquidity and strengthen our balance sheet. As a result, we are incredibly well positioned with options to execute our growth strategy as we move forward and look toward a post-pandemic economy. I'm confident in our team's ability to perform in the current environment and the challenges it brings along with it. We have shown that, in spite of one of the most challenging macroeconomic periods in recent history, we are able to improve operational effectiveness and profitability by focusing on business development, efficiently executing the work on our projects, and controlling indirect costs in particular, unabsorbed labor and equipment. We remain confident in the diversity, sustainability, and long-term drivers of our markets, and we believe we are well-positioned to capitalize on both current demand and post-pandemic demand across our end markets. With that, I'll turn the call back to the operator for questions.

Thank you. Ladies and gentlemen, we will now be presenting 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 the handset before pressing the star keys. One moment, please, while we poll for questions. Our first question comes from the line of Joe Mondello with Sidoti and Company. Please proceed with your question.

Hi, guys. Good morning. Can you hear me? Hello? Joe, can you hear us? Yeah, can you hear me? Yes, we can hear you.

Okay. I couldn't hear you at first, so sorry about that. So my first question just regarding the marine segment. So backlog has declined sequentially for the last couple quarters. I'm just curious just overall how you're thinking about that business over the next handful of quarters or, you know, going into 2021.

Well, uh, you know, obviously we've been, we've been, uh, burning work that we've had in backlog and, uh, you know, we've, uh, we've had some timing of, uh, new awards that have impacted the book to bill, but, um, you know, we've, we've, uh, booked or low bidder on, uh, 108 million, uh, since the end of the third quarter, uh, roughly about half of that's been on the Marine side. Um, you know, we're starting to see, uh, some of the end markets that have been impacted, particularly in the energy sector, start moving forward with long-range projects. So we commented on that in our prepared remarks. So, you know, we're seeing upcoming bid opportunities there. So, you know, it's a weird environment right now, but we're confident that we're going to have the opportunities. As I've said on prior calls, we're you know, we're targeting where the work is coming out. And, you know, we're trying to book profitable backlog. So, you know, we're targeting the areas that are generating the bid opportunities for us. And we're seeing those. So I think some of this is timing. Some of this is, you know, certain projects moving to the right. But, you know, we're confident that we've got opportunities upcoming. And, you know, we're going to keep grinding away and and replacing the backlog.

Okay, so that's what I was sort of thinking. It seems like it's sort of a timing situation. It sounds like there's a lot of opportunity out there, just things maybe being delayed or just the trigger not being pulled immediately. What do you think about the following factors, the FAST Act, expiring and then sort of being extended one year, the election, state budget constraints. And I don't know what's going to happen, you know, if the fiscal stimulus affects you at all. But, you know, are any of those factors, do you think, sort of delaying things from moving along?

Well, clearly, you know, some of our end markets have been impacted by the COVID, you know, by the COVID pandemic. And it's kind of one of those things of if you think about The parts of the economy that have been moving forward are continuing to drive opportunities for us. The parts of the economy that have been impacted, you know, there's been a pause in some of those opportunities, or they've shifted rightward. You know, we have a lot of things that we were targeting, you know, when the pandemic hit. Those projects haven't gone away, but they have been, you know, they've been delayed and pushed to the right. Um, clearly the election, you know, from a macro economic standpoint is, is kind of out there. Um, you know, hopefully we'll get resolution on that in the next, you know, next week. And, uh, you know, we think once there's resolution on that and, you know, people assess what, what that means, then, you know, uh, uh, you know, things will, to the extent that that's impacting decisions that, uh, decisions will be made and so things like that will move forward. Also, you know, parts of the economy, like I said, that have been impacted, you know, we're starting to see things that are, you know, from a more long-range standpoint move forward, you know, because, you know, if people are thinking about a two or three year long, you know, outlook for their particular project, you know, we're starting to see stuff like that, you know, move ahead. So, you know, again, we're confident in the ability to pursue the work that is coming out right now. And we're confident in the end markets that have been impacted that, like I said, we're starting to see those things move, some of those things move forward now. And we're confident that, you know, once we sort of get to a little more certainty on the COVID pandemic and, you know, therapies and treatments and vaccines and stuff like that, that we think, you know, The end markets, all of our end markets will provide us that opportunity.

All right. And then in your prepared remarks, you mentioned the Harvey Hurricane Fund and some opportunities there. So this year, we saw a record amount of hurricanes. Just yesterday, we saw, you know, category two hit the Gulf. How much opportunity do you see related to the storms that we've seen this year?

Well, generally speaking, storms drive opportunities for us in the long term. So as an example, Harvey hit Texas two years ago, three years ago now, and we're just now starting to see a lot of that long-term funding generate project opportunities. So we typically will see anywhere from a one to five-year tail on project opportunities driven by hurricane activity. We'll see what comes out of this. Obviously, Louisiana was very hard hit this year. I think that was probably about the fourth or fifth storm that hit that state this year, yesterday. We'll see what happens. There's work that we've been chasing over there related to prior storms and just flood control and reclamation projects and things like that. We'll see what happens, but again, that can be a good long-term driver for us, just like we've seen with Harvey three years ago.

Okay, I appreciate that. So I got a few more questions, but I'll jump back in queue and let someone else have a shot at this point. Thanks.

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

Good morning. I have a couple follow-up questions, if you wouldn't mind answering. Mark, can you talk about you alluded to it a little bit that, you know, you have flexibility in the concrete business to, you know, bid or, you know, transition to where you think end markets are stronger and, you know, avoid weaker markets. Can you highlight some of the stronger end markets and maybe also some of the weaker end markets that you're seeing out there on the concrete side?

Well, that comment's really in reference to both segments, but specifically on the concrete side. I mean, again, if you think about things that have been impacted by the pandemic, as an example, back in the first part of the year, we had several projects on our light commercial side related around gym facilities or movie theaters or things like that. Clearly, those businesses have been impacted. by the pandemic. And so we're not seeing a lot of those opportunities right now. And ones that we were working on, you know, have been suspended or shifted to the right. So that's an example of kind of what's been impacted. But on the same token, we're seeing other areas, you know, for distribution centers and things like that related to, you know, again, you know, a lot of e-commerce type stuff has been going on and booming as a matter of fact. and so we're seeing opportunities driven by that business. Likewise, as I said just a minute ago, long-range projects, we're seeing people make decisions and move forward with things. Structural work, again, tends to be longer-term duration, and so even though our work on a structural project may be you know, 12 to 18 months, the overall project for that investor is probably, you know, a two to three year long project for them. So, you know, a lot of people are, you know, they're taking a long-term view and they're confident that, you know, two, three years out, you know, we're going to be in a post-pandemic environment. And so they're making decisions to move things forward. So, you know, and likewise, even with the you know, some of the states being impacted, uh, again, a lot of our exposure is in, uh, states that have been, um, you know, uh, back moving and opening their economies early on. And, uh, so we're seeing, um, you know, we're continuing to see, uh, bid opportunities driven. And again, a lot of the, a lot of the opportunities that we see in the government sector are driven by federal dollars. And so, uh, You know, we're still seeing opportunities driven by that, and we would expect that to continue, particularly if there's any kind of, you know, additional stimulus. But, you know, there's been a lot of stimulus that's come in already that, you know, is potentially going to help drive those opportunities for us.

Great. And then if we could talk about just the weather impact in the third quarter. um you know typically when you see weather impact um historically you've seen an impact on the profitability but the profitability held up even though the revenues were down robert can you maybe quantify the impact that you saw on revenues in the quarter and then also help us understand how you know profitability did hold up in the third quarter

Yeah, I think the revenue impact was $8 to $10 million on the concrete side. I think what you're alluding to when you go back to a few years ago with Hurricane Harvey, it was a weather pattern issue in that year. So we had a lot of unabsorbed labor that pulled back on margin. I don't expect to see that going forward. This was an event that just shifted some pours that were going to happen at the end of the quarter. into the fourth quarter. So we don't expect to see a margin impact from that. Just purely a timing thing.

Yeah, and the last, and I'd add to that, Poe, too, is, I mean, this is, again, we mentioned this on the remarks, I believe, but, you know, it's indicative of, you know, the ISG initiatives that, you know, we went through and implemented last year. And just, you know, our teams are just really performing well

uh despite despite challenges and as robert said this was this was very different this was like quick hit kind of stuff that impacted uh shorter periods of time this wasn't like a bad weather pattern like we saw a few years ago okay great and then uh thanks for putting guidance out there for ebitda for the fourth quarter um i have two questions on that guidance first of all do you have a mix robert on the 10 to 12 million for ebitda the fourth quarter and then when you look out into next year you know if you do hit the low end your guidance you're looking at 52 million for the year adjusted EBITDA and when you look at how 2021 is shaping up you know clearly there's some uncertainty but do you think that you can at least meet or, you know, stay in that same $50 million range in 2021 from an adjusted EBITDA standpoint? Or can you give us just a little bit of a preview on 2021, if you wouldn't mind?

Yeah, I think, you know, 2021 is going to depend on, you know, the next couple of months and how things shake out. I think Mark alluded to in his comments that there are a lot of great opportunities out there. Obviously, at the timing of when these things shake free and and people press go on projects will really determine how much we actually get to burn in 2021. But, you know, like Mark said, we feel really comfortable with where the bid environment is and the opportunities that are in front of us. It's really going to boil down to, you know, the timing of when those projects, you know, free up and actually let out.

Yeah, then I'd add, Poe, I think we've talked about this on prior calls. Our focus is on aggressively going after work and backlog. Again, we want to do it profitably. We don't want to, as I said in my remarks, we don't want to just fill up on cheap work just to have work. We want to make sure that we're targeting the right things. Our message has been cast a wide net. We're going to go after all the opportunities we see out there. We're going to expect to generate greater throughput with our estimating staff. We've added estimating capability and flex estimating capability so that we can make sure that we're targeting opportunities and we're bidding everything we should be bidding. And even if we're bidding more opportunities, just to make sure that we're finding the right work, finding the right backlog so that we can continue

uh to perform well as we go into 2021. yeah robert um mix on fourth quarter but uh any rough you know estimates for marine versus concrete in fourth quarter yeah i think it's gonna look a lot like q2 um it's probably the best case from a revenue and a a a mix from the the different segments uh you know

this this quarter uh you have time shift this weekend so you're going to have shorter days less daylight uh so it's going to look a little bit like q2 from our internal modeling great so you know still profitable and concrete and maybe a little bit of a slow down or not slow down but a little you know lower from the standpoint of marine just because of those days yeah

Yeah, seasonality effect, but yeah, that's a good way to think about it.

Importantly, concrete looks like you potentially have hit a new level or at least have created a more sustainable profit fairway there.

Yeah, I think, again, we're not where we want to be yet, but we've made tremendous progress. Really proud of the team there. You know, the guys leading the division there are doing a fantastic job. You know, there's just, you know, there's a great energy in the division. There's, you know, just, you know, they've just done a great job and they continue to do that. They're executing on our strategy. And, you know, we've continued to make improvements as we've gone through this year, you know, building off of what we did last year. uh, with ISG and, uh, just really, really proud of the effort everybody's done and what they're doing. And, uh, again, I think we've got more room to improve there. And, uh, so we're, you know, we're going to keep grinding on that.

Great. If I could just talk about, you know, capital or, you know, CapEx and in the context of also surplus real estate, you know, you, in the press release, you talked about that you're going to have proceeds from the insurance recovery, uh, to reinvest or looking at reinvesting that into the dredging market in replacing the Wayman Boyd. Can you put some color on what level capex there? And then also, can you talk about the timing of the, you know, surplus real estate sales? I think in the last quarter, you talked about a preliminary sales agreement on Tampa. And I was just wondering, you know, where that what the status of the Tampa sale is?

Yeah, so, you know, as we said in our remarks, you know, we're currently working on, you know, what makes sense for us in terms of, you know, capacity replacement with our dredge fleet. You know, there's a lot of different opportunities and things like that that we're looking at to determine what's the best path forward for us on that. So we'll have more to say about that as we go forward. For now, you know, CapEx is, I would kind of, think about that in the same way that we've talked about that the last couple of years in the ranges that we've talked about. As we determine which way we're going to go on capacity for dredging, we'll have more to say about that and whether or not that alters or increases our overall CapEx picture there. I'll let Robert touch on the real estate.

The update on the Tampa real estate is you know, the linchpin for that property moving forward is the rezoning with the city. That hearing has been moved to February. So once that hearing happens, we hope to close shortly after that. But in this COVID environment, I don't want to lock in on a time frame. It's just really going to depend on the city of Tampa and their administrative process before we can move on that property.

Okay. And then, sorry.

I was going to say, I do think, you know, again, assuming that we expect that to occur, we don't think there's any issues there. But we could see, you know, in the next couple of quarters, you know, some movement on, you know, at least two of the real estate properties we have.

I'm sorry, Mark, two other ones?

No, two of the ones that we're talking about, Tampa and one of the other ones in Texas. We could see movement on that. in the next couple of quarters.

Is that East West Jones?

No, this is the surplus property in Port Lavaca. We have a deal for it right now, a PSA in place right now for $5.5 million. Hopefully, if some things break right, maybe it's a Q4 item, but we're getting close on that deal as well.

Great, thanks. And just lastly, if you could talk about the ERP launch. You know, you're through the design phase by the end of the year, and you're going to start in the first quarter of 2021. You're going to spend, you know, a total of $15 million. Can you talk about the timing of that spending? And then also, more importantly, you know, what the payoff is? Can you give us a couple examples of, you know, how the ERP is going to improve? your operating or operations?

Yeah, so we think that's been a good chunk of what's going to happen next year on into 2022, you know, over the life of the 18 to 24-month period of time. Speaking of the benefits, we think that this is going to be, you know, very beneficial to us, high return, just in a sense of being able to consolidate and standardize kind of our back office processes and how we execute projects and do them in a more efficient manner where we have better flow of data across the business. So when we launched IHG last year, we talked about labor management, equipment management, overhead management. This just reinforces all of those things and gives us the foundation to manage those resources better. The other benefit it's going to give us, it's going to give us the ability to scale and grow the business as we think about capital allocation and what the next steps are for Ryan, whether it's M&A or other opportunities like that. This will give us the platform to be able to scale up and to really grow the business.

Great. Thank you so much.

Thanks, Bob.

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

Hey guys, how you doing? Just to follow up a little bit on the, you know, some of the assets or the real estate sale questions, you know, when you look at the various properties and or assets, you know, you look to, to pop the monetize here to, to, you know, as you try to make the portfolio more efficient and, and, you know, drive value. Can you give any, you know, holistic kind of ranges in terms of kind of proceeds you think we could generate?

Yeah, so the capital property, we think we can generate somewhere around 20 million bucks for that one in the Port Lavaca property, somewhere around 5 million. Eastwood Jones is a little early in the process. No firm offers on that. But I can say that it's listed in the 40 to $45 million range. From from that you apply some, you know, some some simple discounts on that for closing costs. I think you can calculate what you think the proceeds could be.

Yeah. So, and do any of these sales result in any degradation in EBITDA? I presume there may be some run expense, but not really operation. You're not selling businesses that produce revenues or profits as part of this.

No, these properties are company-owned properties. In Tampa, where we're moving to, we're leasing it, but that expense has shown up in the P&L for the last three quarters. So all of the, I guess, additional operating costs, it's already factored into the business, but these are gains to the business.

Yeah, this is surplus. Surplus, yeah.

Right. And just so that this is, you know, today your market cap is 90 million bucks. You said you have $36 million of debt. You know, I think you just highlighted, I mean, you highlighted over $60 million of sales, but this is say 60, I don't know what the tax bill is on that. But so basically post that, you know, if you, if you say you're taking enterprise values, 125 million, it would be $75 million. And I think you just said, you know, the low end of the dollar range for next year is 50 million. Is that, I mean, are those real numbers? In theory?

In theory, yeah.

All right. It doesn't seem very expensive by the company, but we'll see. Good job. It's nice to see another good quarter and great job with the balance sheet.

Thanks, Greg.

Thank you. Our next question comes from a follow-up question from Joe Mondello with Fedodian Company. Please proceed with your question.

Hi guys. Uh, thanks for taking the followups. Um, just on the concrete, um, segment, you've made tremendous amount of progress over the last three, you know, over the last couple of years, actually, when you go back to 2018, actually in the last three quarters of this year, you've sequentially made improvement, um, still a ways to go to that eight to 11%, uh, a goal, but you've made a lot of progress. What have you accomplished thus far, and what more do you have to do to get to that 8% to 11% EBITDA margin goal at Concrete?

Well, we've greatly improved project execution, and you're seeing that in our results. We had some challenges in some of the markets, particularly Central Texas. uh, that were, was, uh, you know, impacting us even after we came out of the, the poor weather pattern. Cause you know, a couple of years ago, that was one of the biggest drivers of performance was just a really bad weather pattern in the state of Texas and all of our markets. But, um, we've, uh, you know, as, as part of the, the, you know, the process last year, um, you know, we, we, uh, we're able to, you know, kind of get back to some, uh, uh, some basic blocking and tackling, you know, generating, uh, and enhancing reports and stuff like that. This is stuff we've already talked about in the past, but to just be able to get good information in the manager's hands so they can make good decisions. Again, we've changed out some personnel last year and this year, and so we're seeing really good improvements on project execution. And I think, you know, we will continue on that. Also, we'll have, you know, just focusing in on, you know, controlling indirects. And, you know, that's an area where, of course, we've been focused on, but, you know, we'll continue to focus on. And then just, you know, targeting the type of work that we're the most successful on and provides us the best opportunities that we think to be successful and successful in executing your work profitably. So, you know, it's kind of like all the stuff we've been doing, we're just going to keep doing it and, you know, keep drilling down on that. And we think that that will continue to pay off for us and drive us to continue improvements in that business.

Okay. So I guess for the third quarter, can you tell me how much structural made up of the concrete segment and Looking at your bookings and the low bid awards and awards that you won, you know post the quarter end How does that sort of mix look like what are your bookings looking like relative to structural and light?

Most of the work and I'm trying to remember I think most of the work in concrete that we've booked it that's been included in that books and low bid number since the end of the quarter is like commercial and there might be a small structure on there, but I think it's mostly light commercial at this point. We do have some upcoming work that we're bidding on in structural, so we're hoping to add to that backlog as we go forward.

As far as the mix from structural year-over-year, structural is up almost 60% year-over-year. We'll follow our queue tomorrow, and you can see the the disaggregation of the different services in it, but there was a mixed shift in the concrete business. Structural was up. Black commercial was down year over year.

And that's for the third quarter that you're referring to?

Yeah, third quarter 2020 versus third quarter 2019.

Okay. And then just another question on concrete. It looks like the non-res... construction market is going to turn over at least in a handful of sectors going into next year, you know, looking at office buildings, hotels, maybe retail. How are you thinking that is going to affect the concrete business as you go into 2021? How are you thinking about that?

Well, kind of what I just said earlier is that, you know, the parts of the economy that have been moving forward are driving opportunities. And so, you know, that's where we're seeing our opportunities today, and that's what we kind of expect to see in the near term. You know, some of the buildings that, you know, on the structural side that we're doing are, you know, kind of residential type or mixed use buildings. type structures. And again, those that are moving forward, people are thinking they're taking a long-term view on those types of deals because by the time they bring those online, we're into 2022, 2023. So they're taking a longer-term view on that. And we think there's a lot of opportunities in that infrastructural work that we're targeting. Also, the other thing too is that You know, we're in a state that is, you know, continuing to see population inflow. We're seeing a lot of businesses relocate to Texas. And again, obviously, you know, office buildings and some of the retail things, you know, we're going to have to see how that shakes out. But, you know, residential towers, mixed-use towers, we're seeing those types of projects move forward. And we're seeing, you know, again, a lot of... light commercial work and larger light commercial work that's related to the parts of the economy that have really never slowed down and in some cases have expanded in this COVID economy drive opportunities for us. So that's where we're looking to see those opportunities. In addition to even with the impact in education, again, we kind of have a mix of of, you know, districts in Texas going to school and going remote. And a lot of districts are doing both at the same time. And so, you know, we still – there was a lot of bond money that was already passed that we think can drive, you know, education opportunities for us as we go forward.

Okay. And just going back to the sort of EBITDA margin goals that you have at that segment, is there a mix – percentage that you have to get to to hit those goals at all?

You know, do you have to get structural? No, there's not really. I mean, again, what we want to do is target those opportunities that, you know, just give us the continuity that we perform well on. You know, we perform, our guys, our team, our guys and gals perform well in both segments. I mean, we, you know, we do excellent work in both light commercial and And in the structural work, and we work well with, you know, the general contractors that are performing that kind of work in both those areas. So we have the opportunity to achieve our objectives regardless of the mix. But, you know, as part of our strategy, we are targeting more structural work. We like our competitive dynamics in that. It's larger work, longer duration. It gives us, you know, better operational visibility. So we like that. And so, you know, that's a key part of our strategy. But, you know, we do excellent work on the light commercial side as well and perform well in that type of work as well. So, we think we can get there regardless of what the mix is going to be.

Okay. And just one last question on the Corpus Christi explosion. I just wanted to verify, I think you sort of said, but I just wanted to verify. you don't anticipate any liabilities related to the unfortunate incident?

Well, we have insurance coverage, and so what I would say is we believe we have adequate insurance coverage for this accident and all the claims associated with it.

Okay, and then lastly, also just to confirm, and you sort of already said it, but I just want to verify what kind of risk there is. Losing that dredge, you don't think that affects much of your business at all?

Well, as we've said, I mean, obviously, it's a tragedy, first and foremost. And, you know, we reiterate that, you know, our support thoughts and prayers are with the crew members. and their families that were impacted by this. Having, you know, just to repeat what we kind of said in the earnings release and in my remarks, I think we believe we've got, you know, we're able to work on all the backlog that we have in hand and, you know, we've communicated that out to our customers that, you know, we will meet all of our commitments And we're in the process of determining what's the best way for us to replace that capacity and in what form that takes. So we're still going through that. We'll have more to say on that later, but we're confident in our ability to execute the work we have in backlog.

Okay. Well, great. Thanks for taking my follow-up questions. Appreciate that. Have a great day. Thank you.

Thank you. Our next question comes from the line of Chris Hanson with Hanson Advisors. Chris has a video question.

Hi, guys. Good morning.

Good morning.

With respect to the low bids, is the margin profile on those opportunities similar to where the segments are currently? Are they, you know, greater or less?

Generally speaking, I'd say they're kind of the same. Obviously, on some of the smaller-sized contracts, we've seen a little bit of tightening of competitive bid margins from some of the smaller players. We're trying to target larger-sized work to offset that. But I would say the general comment, You know, we're pleased with where the bid margins are and the work we have in backlog.

Okay. And then with respect to approximately the $60 million worth of opportunities, you know, to monetize properties, where are those properties being carried on your books?

On the balance sheet as fixed assets?

No, yeah, but what's the value? Is it... valued at you know at approximately where you plan on on selling those properties oh sorry i didn't think of your question yeah we expect to get uh decent sized gains on all of them so um you know the the true economic uh tangible book value of the company is greater than you know where it's currently being uh stated you know vis-a-vis gap

Correct. Yeah. Yeah. And I think we've proved that out every quarter when you see that the gains on the sell of assets, uh, quarter in and quarter out.

Yeah. Um, so do you have the ability, uh, within your covenants to buy back stock? Uh, is that something that you're discussing? Do we have to wait for proceeds from those sales to happen if that's part of the plan or, or can you do it now? Because it would just seem like, uh, given where the stock is trading, This would be a great opportunity for the company and for shareholders to see you guys buy back some stock.

Yeah, according to our existing credit agreement that's in place today, that restriction would go through into the beginning of June before that restriction comes off. But as we stated before, this is an option that's on the table and it's something that we consider all the time.

Okay, so you can't do anything until June unless there's maybe some proceeds from sales. And at that point, it'll be something you guys hope to consider?

Well, it will require us striking a deal with the bank group to remove that restriction.

Okay. I mean, I would hope, given where EBITDA is, that you should be able – is that something that you're trying to do?

Well, I would answer it this way. We always look at all options, including share buybacks for use of capital, and we continue to do that. So, you know, your point's well taken, and that is something that we continue to look at, as always, with all other options as well.

Great. Thanks, guys. Good, Claire. You bet. Thank you.

Thank you. Our next question comes from the line of Pofrat with Noble Capital Markets.

Please proceed with your question.

Yeah, thanks for allowing a couple follow-ups. If you wouldn't mind, something that hit the radar screen in, you know, September was the emergency work that you were awarded in Seattle and then the subsequent disruption of that work. Robert, was any of that work recognized in the third quarter or will it be a fourth quarter event? And can you frame potentially how um the work might the work potential might have expanded because of the collapse of that pier yeah i want to make sure i understand your question first are you saying the the additional emergency work did that get booked in q3 did you book any of the emergency work i think the original contract was four million bucks from the city of seattle and was that booked in the third quarter and then you know looking at uh you know how they're going to have to recover the the you know the fountain and other other things you know other structural structures that fell into the water can you just give us maybe a potential scope how much that work is expanded from a scope perspective yeah so oh this is mark i'll answer that um so the the first part

I believe that that contract was booked in the third quarter, if that's different. It did. So we booked that in the third quarter. It is too soon to tell what type of – so I'm not going to quantify any potential additional contract value at this time. We're working through that. And just to be clear, the part that collapsed was – so this was a demolition of a pier that the city identified – as failing, and so this was done as emergency work. This was a pier that they had planned to demolish and replace a couple of years from now, but their inspections determined that it was unsafe, so they closed this pier down and put out this contract, which we did book in the quarter. So the work, the failure that happened was work that was already going to be demoed, So we've submitted a plan to the city. They're looking at that. We are working back on site, have been, and are working on other areas, demolition of other areas of the pier, not the parts that failed. And so we will be working with the city to, and are working with the city to determine the best way to recover the, you know, the parts that failed and fell into the water. So too soon to tell what that might mean in terms of overall contract value, but, uh, it is possible that can go up. I just can't quantify it at this point.

Okay. And then, um, do you have a number for dredging revenues for the quarter? And then can you talk about, you know, you generated free cashflow, even though working capital was negative by about 8 million bucks. And can you give a forward looking view on how working capital might change in the fourth quarter?

Yeah, and again, the disaggregation of revenues will post up tomorrow as a part of the queue, but we saw roughly about a $5 million decline year-over-year in dredging revenues. Mark talked a lot about that earlier on some of the makeshift things, but we saw an increase in marine construction, which the overall number went up for marine. Moving to kind of your working capital question, you know, I expect it to be more in line with Q3. You know, this time of year is when we typically build up. We had some really good collections towards the end of the quarter and it kept us cash flow positive. But, you know, we put in place, you know, some heightened controls and, you know, we really tried to squeeze a lot of cash out of working capital. We'll keep those protocols in place and we'll continue to work at that. But we expect, we don't expect to see a big buildup in working capital over the fourth quarter.

Okay, great. And then can we just clarify in the insurance, it sounds like you've defined the asset side of the liability there or the asset side of you know, what potentially recovery you're going to get from insurance. And the, you know, the liability is a little open. Have you recognized all the deductibles that you were likely to incur from the Corpus Christi accident?

Those, yes, those were recorded in the, as we said in the earnings release, that's a net number that you see there. So those have been recorded in the third quarter.

Great. Thank you.

Thank you. Ladies and gentlemen, at this time, there are no further questions. I'd like to turn the floor back to management for closing comments.

Okay. Thank you, everyone, for attending today's call, and we look forward to speaking to you on our next quarterly conference call in early 2021.

Have a great day.

Thank you. Ladies and gentlemen, this concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.