Orion Group Holdings, Inc.

Good morning, everyone, and welcome to Orion Group Holdings' fourth quarter 2020 earnings conference call and webcast. My name is Fran Okoneski. I'm 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. 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. Through 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 that 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 for 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 SDC, which are also available in the investor section of our website. And with that, I'd like to turn the call over to Mark Stauffer, President and Chief Executive Officer. Mark?

Thank you and good morning, everyone. Thanks for joining us today. Today we'll discuss our fourth quarter and full year 2020 results, provide updates on the benefits we continue to reap from our ISG and other operational improvement initiatives, and discuss our outlook for 2021. I'll begin with an overview of the fourth quarter. Robert will then discuss our financial performance and provide an update on expectations for 2021. Then I'll come back to discuss our markets and provide an update on our ERP implementation before we turn to Q&A. I'd like to start by noting that our operations in Texas resumed this week after being impacted last week by the winter storm. Many of our employees across Texas were affected by the winter storm, and we are working through our HR support programs to provide assistance to our team members most impacted. I'd like to thank our team for their strong performance and ability to overcome obstacles, hardships, and challenges this past year. 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. Along with our focus on operation and financial performance, our foremost priority is that all our employees go home to their families the same way they came into work, healthy and injury-free. As such, we remain deeply committed to our Target Zero program to support our vision of an incident-free workplace. Turning to our financial results, during 2020 we made significant progress in our financial performance with near record level adjusted EBITDA. This progress is directly attributable to the implementation of our ISG initiatives, especially around labor and equipment efficiencies. Overall, in-market demand remains positive as evidenced by our Q4 year-over-year bookings growth of 30% and the approximately $1.6 billion in bids outstanding at the end of 2020. We continue to see bid opportunities in both our segments, and we expect to see bid opportunities increase as the COVID-19 vaccine rollout intensifies and the headwinds from the pandemic abate. A new infrastructure bill would also add an additional catalyst for bid opportunities. These factors combined with the operational transformation we've implemented through ISG support our ability to continue to deliver improved results as we progress through 2021. Now I'll turn the call over to Robert to discuss our financial results for Q4. Robert?

Thank you, Mark, and thanks everyone for joining us. Today I reviewed the financial results for the fourth quarter 2020, provide an update on the company's liquidity position, and discuss the company's full year 2021 outlook. Starting with the financials, revenue for the fourth quarter 2020 were $170 million compared to $199.8 million in the fourth quarter of 2019. This decrease was due to the timing and mix of projects in both the marine and concrete segments in the current year period. Fourth quarter year-over-year gross profits rose 13.7% to 21.7 million. This increase was a result of continued project execution gains and better labor utilization across both segments. As a percentage of revenues, gross profit margins expanded 320 basis points to 12.8%. Turning to our segments, in the fourth quarter of 2020, our marine segment had revenues of $97.6 million and an adjusted EBITDA of $13.1 million. This equates to an adjusted EBITDA margin of 13.5%. In the prior year period, we had revenues of $111.2 million and an adjusted EBITDA of $12.1 million, resulting in an adjusted EBITDA margin of 10.9%. The year-over-year revenue decline was due to time and a mix of projects in the current period. Despite this, we were still able to improve our profitability in this segment as a result of better labor and equipment utilization. Our concrete segment had fourth quarter revenues of $72.5 million compared to $88.6 million in the fourth quarter of 2019. Adjusted EBITDA for the concrete segment was a loss of $580,000 compared to a loss of $577,000 in the current year period. Our concrete segment year-over-year revenue decline was driven by a decrease in production volumes resulting from the timing of startups on certain newly awarded projects. That being said, we were able to more than offset the year-over-year revenue decline with improved operating margins. Adjusted SG&A expenses for the fourth quarter were $16.6 million. or 9.7% of revenues. The year-over-year increase is due to an increased accrual in the current period for the annual incentive compensation plan. Net income for the fourth quarter of 2020 was $3.7 million, or 12 cents diluted earnings per share, which includes $150,000 of non-recurring costs and other charges predominantly related to ERP initiatives. Adjusted net income was 3.5 million or 12 cents per share. Fourth quarter adjusted EBITDA grew 9.5% to 12.6 million. This represents an adjusted EBITDA margin of 7.4% compared to 11.5 million for an adjusted EBITDA margin of 5.8% in the prior year period. Now to bidding metrics and win rates. For the fourth quarter 2020, we bid on approximately 954 million worth of opportunities and were successful on 181 million. This resulted in a book-to-bill ratio of 1.06 times and a win rate of 19% for the quarter. As of December 31st, 2020, our backlog was 440 million, of which 203 million was associated with our marine segment and 237 million for the concrete segment. Additionally, we were the apparent low bidder or have been awarded subsequent to the end of the fourth quarter 96 million worth of opportunities Of this, 46 million is related to the marine segment, while 50 million is related to the concrete segment. In total, currently, we have over 535 million of projects between backlog and low bid. Now turning to the balance sheet. As of December 31st, 2020, we had approximately 1.6 million in cash and 63 million of availability under our revolving credit facility. We ended the quarter with $35 million of outstanding debt, $5 million of which was related to the revolver and $30 million related to the term loan. This translated into a 0.89 times leverage ratio and a fixed charge ratio of 4.05 times, both well within the covenant requirements. Our current liquidity position provides us with flexibility to execute on our strategy, pursue new awards, and perform work in backlog. Regarding our outlook for 2021, while we expect the COVID-19 pandemic to continue to impact certain end markets, based on our current backlog and bid opportunities, we expect adjusted EBITDA to be in the mid to high 40 million range, which is comparable to 2020, normalizing gains on the sale of assets. As macroeconomic factors develop, such as increases in nationwide distribution of the COVID-19 vaccine, we will provide and EBITDA update as the year progresses. Overall, 2020 was a successful year. The company achieved record high revenues and gross profits, leading to a near-record annual adjusted EBITDA. We are pleased with the progress that was made last year, but we remain focused on execution and continued improvement in 2021. Now, I'll turn the call back to Mark.

Thanks, Robert. Turning to our markets, as I've stated previously, while pandemic related uncertainty has pushed some bidding opportunities in certain sectors to the right, other end markets continue to function normally and we continue to pursue projects in both our segments. Our focus is on profitably bidding these opportunities and our ability to adjust between differing end markets continues to serve us well. Additionally, we continue to target select larger and longer duration projects in both segments to provide us with greater operational visibility. In our marine segment, we continue to pursue opportunities in the public sector at the federal, state, and local levels, including port expansion projects, DOT work involving bridges over water, Navy facilities, and environmental and flood control projects. We are also continuing to see bid opportunities materialize in the private sector with expected upcoming projects in the energy space and the Caribbean market. In our concrete segment, we are continuing to pursue projects and project opportunities in functioning end markets, including the tech, e-commerce, and large retail sectors. We are also pursuing larger structural projects involving high-rise residential or mixed-use towers, similar to those we are currently working on in Austin and Houston. Throughout 2020, the changes we previously implemented through our ISG initiative have resulted in improved operational effectiveness as we focus on labor management, equipment management, project execution, and corporate process. In all these areas, we've implemented enhancements and improvements leading to improved efficiencies and cost control. As part of our push to improve our operational efficiency, we have continued with the process of our new ERP system implementation. This will not only solidify our operational efficiencies, but also allow us to scale these efficiencies as we grow in the future. As a reminder, as a result of the acquisitions we've made, we currently operate on separate data platforms across our segments. ERP is crucial to achieve full system integration across our businesses and critical functions, including CRM, project management, HR, payroll, and financial. While it will come at an increased cost over the short term, our investment in the new ERP system will provide the scalable platform crucial for us to execute our strategic plan. We have performed incredibly well in a difficult and challenging environment, and we continue to improve our liquidity and strengthen our balance sheet. This past year has been one of challenges, hardships, and tragedy. Through it all, our team has proved to be resilient and focused, and I'm proud to lead such a great group of people. 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 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. Through the hard work and dedication of our team, we are incredibly well positioned with options to execute our growth strategy as we move forward and look toward a post-pandemic economy. We remain confident in the diversity, sustainability, and long-term drivers of our markets. And we believe we're well positioned to capitalize on both current demand and post-pandemic demand across our end markets. Lastly, we'd like to thank our customers, suppliers, and shareholders for their continued support. With that, I'll turn the call back to the operator for Q&A.

Thank you. If you would 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 would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys. Our first question is from Julio Romero with Sidoti and Company. Please proceed.

Hey, good morning. Hope you all are well.

Good morning, Julio. How are you doing?

I'm good, thanks. So my first question is just on the guidance. you know, wanted to ask about what are the big swing factors that get you to the high end of your EBITDA guide range?

Well, I think, you know, this is kind of where we are right now. I mean, you know, we're coming into the year. We feel good about where we are with respect to the backlog, the bid opportunities we see in front, the comments we made in the remarks. But, you know, we've still got the uncertainty around the COVID-19. Our focus is to meet or exceed the guidance like we did last year. You know, we've got a good plan. We've got good people, a good team. And so we're focused on the, you know, kind of the same thing we did in 2020 and just, you know, focused on beating it. And, you know, certainly if we see an infrastructure bill, that'd be a positive catalyst. But, you know, again, we've got functioning end markets now, and we expect those to improve as the year progresses.

Okay, and on the ERP implementation, can you just talk about how much investment you're expecting for 2021 and if you're still expecting to realize the full annual benefit beginning in 2023?

Yeah, as we've stated, we think that the total cost is going to be somewhere in the $15 million range once it's all said and done in 2021. We'll spend somewhere between $4 and $6 million on the expense side, then another two or three on the CapEx side. As far as realizing the benefits, yeah, we're still on schedule. We think that we'll be able to start seeing those gains in 2023.

Okay.

And I guess just on the ISG plan, can you maybe discuss the labor and equipment efficiencies you saw in the fourth quarter? can they progress throughout the year? And if so, what's kind of the cadence of that, of, you know, those gains throughout the year?

Well, I think we've kind of seen those in throughout 2020. So I think, you know, a lot of the improvement we saw in 2020 was related around better control around indirects, the indirect labor, indirect equipment. If we look at Q4, we actually, we continue to have improvement in indirects, so we actually had a lot of improvement in the production efficiency on the project. So in the fourth quarter, a little more weighted to that, to the project efficiencies, as we noted in the earnings release. But yeah, I mean, our focus has been to, you know, with IFG is to consistently focus on or have consistent performance with respect to controlling those costs. I think we've demonstrated that as we went through 2020. Our mission is to keep on that as we go forward. And I think we've done a good job with that. And I think, as we kind of noted in the remarks, with the implementation of ERP, that's just going to enhance our ability to manage those costs as we go forward even better. You know, right now it's about the, you know, consistency. I think we've demonstrated that in the last four quarters. And we just, you know, keep on with that to continue to have consistency in our performance.

Okay. I'll pass it on and circle back with any follow-ups. Thank you.

Excellent. Our next question is from Alex Regal with B. Riley FBR. Please proceed.

Thank you, and nice quarter, gentlemen.

Thanks, Alec.

Mark, have you seen any early proposals of the infrastructure bill and how the Army Corps' budget could be impacted? Or possibly could you address, you know, how their budget was impacted in previous infrastructure bills?

Yeah, no, it's a good question. And I think, you know, a couple of things. One, I think the overall spend on the core relative to kind of some of the numbers that we've heard. And right now we've heard inconsistent things. I think if, you know, on the president's transition website, you know, they're talking about a pretty significant, you know, $2 trillion type infrastructure bill. So I think, you know, a lot remains to be seen about the details of it. But to your, the latter part of your question is, For the Corps of Engineers, relative to whether we see, you know, a trillion dollar, trillion and a half dollar, you know, $750 billion stimulus, I think the Corps piece will be relatively small compared to that overall infrastructure bill. But relative to the Corps' budget can be very, very significant. And by way of example, you know, back in 2009 when we had a kind of a stimulus bill, a little bit different than infrastructure, but a stimulus bill, the Corps' budget, operations budget kind of doubled with the, so they sort of saw a 100% add to their normal budget with the stimulus. So again, we think it can be very, very significant for the Corps of Engineers. We think we can see other opportunities through DOTs and other transportation, surface transportation projects that could potentially be funded by infrastructure. So we think it'll be a very good catalyst for us across our business.

That's great. And then turn it to the concrete segment for a second. Backlog's holding up pretty well. Can you address the intermediate term sort of bidding environment? And do you have any plans to expand this more aggressively from a geographic standpoint?

Yeah, so I think the first part of the question is, yeah, I mean, if you go back to the Q2 and Q3 of last year, you saw kind of a pullback in our book to bill, just as sort of the markets adapted. And as we said in the remarks, there are functioning end markets. I think the good news is for us with the end markets that are being impacted, We think that's deferred demand. We think that those projects will eventually come back, so that's a positive for future bid opportunities. But right now, yeah, we saw in Q4 a very nice bookings for our concrete business. We've seen that continue on with some of the projects announced since you've seen in the first quarter so far. And yeah, we are already stretching beyond the Texas borders for bid opportunities. As I've said before, our mantra internally is to focus on backlog. We're going to focus on the project opportunities that are coming out. But along with all of the work that we've done in our concrete group in this past year and really the improvements and the strides we've made, You know, we are expanding our reach with our potential opportunities with a lot of our customers. And we are currently pursuing work outside the state of Texas, both in Louisiana and in Florida. And, you know, we think we'll have some, you know, news on that as the year progresses in terms of project wins.

That's great. And lastly, Robert, maybe you could help us to sort of understand the first quarter a little bit. in light of sort of the difficult weather in Texas this month and how we should think about sort of revenue and EBITDA or EBITDA margins?

Yeah, I think if you're looking at a year-over-year comparison to 2020, I expect the revenue to dip back maybe in that 5% range. I expect us, you know, from a profitability standpoint to be, you know, a little bit closer to break even than we were in 2021. Q1 of 2021. You know, as we laid out that full year guidance, so we did reflect that pullback in Q1 because of the winter weather. But we think as the year progresses, we'll make it up.

Thank you very much.

Thanks, Alex.

Our next question is from Marco Rodriguez with Stonegate Capital Markets. Please proceed.

Good morning, guys. Thank you for taking my questions. I was wondering if maybe you could talk a little bit more about your backlog. It seems like things are going pretty well. You're feeling pretty good about what you have in there. If you can talk maybe about what the margin profile kind of looks like in that backlog. And while I understand that the concrete backlog is pretty quick turn stuff, if maybe you can kind of help us understand by the two segments, how that backlog should sort of flow into fiscal 21?

Well, I think a couple of things. One, you know, we've obviously factored that into what we've talked about with guidance. Again, it depends on the type of work and the projects, the number of bidders on projects. I think, again, we feel good about where we are relative to the macroeconomic factors right now. You know, as we said in the marine segment, you know, we've got, you know, a lot of opportunities in the public sector space. We are expecting, as we said, you know, private sector opportunities to start park letting, and we've already kind of seen evidence of that. So I think, again, it just depends on the opportunity, whether, you know, how competitive the bid pricing is going to be. You know, we'd always like to see that pressed upward in our view, but, you know, we're focused on, you know, pursuing those opportunities. We said in the remarks, pursuing those opportunities that we think give us the best, you know, the best option and opportunity given what else is out there to achieve our objectives. So, you know, we want to focus on the opportunities that are out there, of course, but we also want to focus on those that we think will give us the the best profitable projects to achieve our objectives. So, you know, again, I think I've just summed it up by saying, you know, look, we feel comfortable with the backlog and the opportunities we have and think it supports what we've talked about for 2021. And, of course, as always, and I touched on earlier, you know, we're going to focus on beating that out just like we did in 2020.

And then in terms of the bids outstanding in the quarter, you're at 1.6 billion level there. Can you maybe talk a little bit about that right there? Just I believe in prior conference calls, you had discussed the fact that obviously with COVID, some of the bid markets had kind of been pushed and were kind of slower just because of the decision making and obviously not having everybody maybe in offices to make these sort of decisions. Are the bids outstanding still sort of reflecting that impact, or is that sort of kind of cleared away for you guys?

I think it's largely cleared away. I mean, I think, again, I think, you know, everybody's learned how to work in the COVID environment over the last three quarters. And so I think at the year end, you know, that's a reflection of kind of – you know, fairly normal turn in, in, uh, in the business development process. So, you know, our, our, uh, bids outstanding quoted work. It's very dynamic. You know, there's projects coming on, on that. There's projects coming off that we may bid a project and then it turns out it gets, uh, reshuffled somewhere in the deck and gets deferred or gets rebid, or you might cry something, you know, two or three times, all of that's fairly normal. Um, and so, uh, I think, you know, as we look at that, we feel good. It's up year over year versus what we had in our, you know, quoted work and bids outstanding at the end of 2019, which was, again, you know, pre-COVID at that time. It's up over the, you know, where we saw that at the third quarter. So we think that's a good sign. You know, we did see, as we got in the latter part of the year, you know, an uptick in our book-to-bills. You can see that, you know, over one for fourth quarter where we were below one in Q2 and Q3. So I think it's indicative of, you know, just kind of a, I'm not going to say normalization of the end markets, but I will say of functioning end markets in the environment. And so, again, that's a good indicator for us. And, again, as we look at that, both at that and the opportunities we see upcoming, You know, we feel good about that. Obviously, we think that can improve even further as COVID starts to abate or at least vaccine rolls out and hopefully, you know, other parts of our end markets begin functioning more normally as a result of that.

And then another question here on the concrete business in relation to your prior remarks or answer to another question. expanding your bids into Louisiana and Florida. Can you maybe talk a little bit about what is necessary from an infrastructure standpoint to support that business, assuming that you start to win some bids there?

Yeah, well, obviously, it's stepping out from the normal footprint. But in both cases, Louisiana, we have a lot of experience working in the state. It's the neighboring state, Texas. So it's not, you know, too far of a distance. And like I said, we have a lot of experience on the marine side, marine segment, working in that state. So, you know, we feel confident in our team's ability to step into that market. Likewise with Florida, you know, we've had a big presence in that state for, you know, 20 years. And, you know, from a legacy perspective, even longer than that. So, we've got a lot of infrastructure around that state with our marine segment, and we're focused on leveraging that presence with our concrete group, and again, feel very confident in our ability to execute that work.

Got it. And if I can just sneak one last one in, and then I'll jump back in queue. Can you provide an update on the non-operational asset sales, Tampa, Port Lavaca, and East-West Jones?

Yeah, I'll start with Tampa. There was a hearing with the city council on February 11th. The buyers group asked for a continuous. The city wanted a couple of other concessions made to their designs and their drawings and their plans. So they will reconvene back on April 8th, and we'll get an update on what that rezoning is on April 8th. As far as the Port Lavaca property, the buyer continues to work with their bank to finalize their funding. We're in a waiting pattern until they wrap up the financing piece, but they're working through that. On East West Jones, I guess no real update to report here. I can say that there's been an increase or an uptick in interest and activity, so we feel good where that property is, and we feel comfortable that we'll be able to get a transaction on that property in the next, call it, six to 18 months.

Got it. Thanks a lot, guys. I really appreciate your time.

Our next question is from Poe Frat with Noble Capital Markets. Please proceed.

Yeah, just quick follow up on the Tampa sale, you know, deferred. They're going to come back with a modified development plan. Hopefully it'll be approved by the city council. If it's not, you know, if it's not rezoned, is there a drop dead date on that? And, you know, is there a deposit that you, you know, sort of what are the economics if they walk?

Yeah, you know, we have a contract in place and, you know, we're going to go through with, you know, the process and the hearing and see whether it shakes out. You know, I don't want to, you know, full negotiate over a conference call. But what I can tell you is that we have significant interest in the property beyond the party that we have a contract with. And, you know, we feel comfortable that, this property is marketable and we'll get a transaction done.

Just to clarify though, Robert, is there a drop dead date there? There were scheduling issues at the city council where they were talking about potentially going to the April 22nd meeting, but the buyer said that they couldn't do that from a contractual standpoint. Can you just address that? And also, do they have a deposit down? You know, would they forfeit a deposit if they walked?

Yeah, again, we typically, yes, we typically have drop-dead dates in contracts, and it's fair to say that we do have one there. We do have, they do have money up on this contract. So, again, as Robert said, we don't want to get into negotiating publicly, but there is a termination date if we don't get a, a transaction done or agreed to an extension. But right now, we're focused on working through the issues with this buyer and the city and getting a transaction closed. As Robert said, we feel this property is very, very marketable and we will get a transaction done on it.

Great. And then if you could just address the fourth quarter, you were above the range for EBITDA that you gave of $10 to $12 million. You know, it was all because of marine. Can you address one, how sustainable the marine performance is? And then second, just clarify what happened with concrete. You know, it seemed like you had a head start with some of the deferrals that you saw from, or the shift from the third quarter into the fourth quarter there, yet revenues were down quarter over, you know, sequentially. On top of that, profitability was you know, disappointing. Can you just address what happened in the fourth quarter?

Yeah, well, a couple of things. One on the Marine side, as you know, that if we look at the full year 2020, you know, we have said previously that we, we want to consistently be targeting a 10 to 12% EBITDA margin. And, you know, we've, we've done that. If you look at 2020, that's the range we're in. Obviously, you know, as we've also said, we want to try to outperform that. And I think you can see that we've, We were able to do that somewhat in the marine business as well. So, again, this has been a huge focus of our ISG initiative that we spoke about earlier. And, again, that's our objective is to keep that sustainable. And, again, I think we've demonstrated that through the last four quarters. With respect to concrete, a couple things. One, you know, we've made tremendous progress in that segment and that business for us. Uh, we've got a great team in place. Uh, you know, we continue to, to, uh, make changes, uh, kind of from the ISD perspective, uh, into the first part of, uh, uh, 2020. Um, so again, we, we were very confident in our team and the progress we've made in, in throughout 2020 with respect specifically to the fourth quarter. Um, again, as, as, uh, Robert kind of mentioned in his remarks, uh, you know, it really has to do with the startup of, uh, Startup of projects, again, if you go back and look at what the book to build was in Q2, Q3, we were substantially less than one in the segment. But as we got into the end of the third quarter and then the fourth quarter, had a substantial pickup in that work. Again, timing of the startups of those projects drove that. Obviously, we don't report it out this way, but I think it's fair to say that as the quarter progressed, we improved our performance in that division as that work started up. But clearly, a lot of that work started later in the quarter than at the beginning of the quarter as we won that new work. So that's really what went on there. Again, we feel good about the progress we've made in that segment. We still have work to do. You know, as we've said before, we're targeting high single digits for EBITDA margins in that business. We're not quite there yet, but we've made big progress in getting there. And, again, we've got the right team to make that happen. And, you know, we're focused on making that happen.

And then maybe, Robert, in that context, if you could sort of give us an idea of the mid to high $40 million range as far as EBITDA. The mix between concrete and marine, would that be helpful if you can give us a ballpark?

No, Paul. Where we are right now is still pretty fluid. We expect continued performance in the marine segment, but we also expect to take a step forward on the concrete side. As we sit here today and you see the book-to-bill ratio, and Q4 for concrete, they're starting to build up their backlog and have a healthy backlog to burn off. Marine is going to go through a period here where we have good bid opportunities in front of us and some work that we have to go get and some awards that we have to win. As that starts to play out, that margin profile will become a little bit clearer for us. But I think the mid to high 40 range you know, where we sit today is a good target. As we, you know, stated in the remarks earlier, as we get further into the year, we're going to update that number and provide a much targeted number.

Just to follow up on that, you know, if you look at the marine segment EBITDA for 2000, well, first of all, let's just, you're excluding ERP spending from that EBITDA you know, estimate, just to clarify, right?

Yes, adjusted EBITDA does not include ERP expenses.

But, you know, marine EBITDA was 47.7, concrete EBITDA was 6.7 for the full year. Can you give us an understanding of marine is likely to be down? Will concrete be down too, or will you be able to

enhance the performance of concrete in 2020 21 or 2021 relative to 2020 well i think i think the point is is is look there this is where we are today po uh you know we're we're factoring in the uh the kind of the uncertainty around covid we feel good about where we are with respect to the the start of the year and the awards we've gotten um in concrete we've got great opportunities in marine Again, we're focused on beating this out like we did in 2020. We've kind of stated what we think the range is, the targeted range is for EBITDA. We want to be in the 10% to 12% range on the marine side and the high single digits on the concrete side. Look, this is kind of how we see it today. As we said, we'll update it as we go forward. Again, we're focused on consistently performing and beating this out as we did in 2020.

Sounds good. Robert, if you could just give us an idea of what your capital spending level is for 2021. And then also, if you could just, since SG&A is a little more controllable than other factors, can you just give us an idea of how SG&A looks in 2021 versus 2020?

Yeah, so starting with the capital expenditures, we'll guide to 20 to 22 million. That's inclusive of the ERP spend. But as we say every year, we manage CapEx, we watch it as it flows with the business, with the schedule, and we'll continue to manage that. As far as SG&A, I'll talk about it from an adjusted standpoint. You know, we set the target of 8.5% and we're extremely focused on meeting or beating that percentage.

Great. Thanks for your help.

Our next question is from Jerry Heffernan with Walthausen and Company. Please proceed.

Good morning, everybody. Mark, Rob, Fran, thank you for having the call.

You bet.

Ed, I guess the backlog is the topic that I'd like to... focus on here and i understand a lot of people have asked the question you know mark you made the comment that you think the um slow down in the bid process due to covid is uh is kind of behind us that you know people have figured it out uh however if i look at the bid outstanding number that you put in the release of 1.6 billion um that's significantly higher than any number that you have had out there in the last Friday quarter over the last three years. So that kind of sticks out a little bit. Can you just tell us a little bit more as to why is that number so high? And, you know, is there any reason not to expect a historical hit rate on that? Also, if you could give us any colors to

how that breaks out between concrete and marine and how that breakout may be different from previous periods yeah so i think the i'll take the last one first the breakout is pretty consistent it's uh weighted towards the concrete business because that's the that's kind of just the nature of our concrete we've been a lot more volume of work uh because we're bidding uh you know just the nature of how how that business works and as a subcontractor and in order to get the, you know, the hit rate is a little bit lower. Our targeted hit rate is a little bit lower in the concrete business. So we tend to bid two things. We bid more volume in that business, number one, and number two, the duration that the bids are outstanding before there's a decision on it is typically a little longer. So none of that's changed from prior quarters. That's consistency. On the marine side, again, it's less weighted. That number outstanding is less weighted to the marine side. And the cycle of quoting the work and getting a decision on it is typically much quicker, particularly one of the things that drives that on the marine side is the public sector work. Largely, you know when you bid it. There's a lot of open bid reads, and you know exactly then with certainty whether you're the apparent low bidder or not. With one of the other things that's driving that, though, is, again, we are selectively targeting larger, longer-duration projects in both businesses. So if you think about it from the concrete side, the structural work, which is work that we talked about, is we're focused on expanding our structural market share So therefore, there's more of that work that we're bidding in the bid process, and those are larger projects, so that contributes to that. Likewise, on the marine side, as we've evolved and grown and increased the size of some of the projects that we're currently working on, we're pursuing more larger projects in that group as well. So that's going to impact the overall...

outstanding number as well okay okay I understand the idea for the marine side of targeting the larger longer duration programs projects are they out there right how I mean are those are we limiting ourselves as to what we're able to win here because of the desire for a certain demographic of project.

No, so, you know, just to be very clear, we're still pursuing all levels of projects. I mean, you know, our dive group is literally pursuing $50,000, $100,000 projects. We continue to blanket the all sizes of projects, whether it's, you know, a couple million bucks or $10 million or $25 million projects. So there is the mix of the work out there right now, and it varies. There's large port development projects out there. There's DOT bridge work that's out there. There's work for the U.S. Navy that's out there that is in the realm. We expect, again, as the Caribbean market improves with the improvement of COVID, there are some potential large projects there as well. uh there there is a good mix of work at all levels uh that that drives what we what we go after we're not exclusively or i'll say it a different way we're not excluding anything uh whether it's large or small if it makes sense for us um and it it's a good project for us and we think it helps us achieve our objectives uh then it's something that that we target if it doesn't we don't and again uh uh there's projects in that cat in that

description at all levels, large and small. Okay.

All right. In regards to the guidance, Robert, you said mid to high 40s for EBITDA, adjusted EBITDA. You cited the comparability issue to the current year, which came in at 54 due to the gain on sale of assets, correct?

Yes, that's correct.

Okay. And we had about $9 million of income from the sale of assets. So just to be clear, for the guidance, you're assuming zero as far as gain on asset sales.

Well, in that $54 million of EBITDA, $2.8 million in Q3 was already removed out of it. So if you normalize the nine for that 2.8, then you've got to get out of the 54.

Um, that'd give you a pretty good number. Uh, I'm sorry. You lost me.

What was the, we have on the year to date or total year, we have 9 million, 9 million of gain on the sell of assets.

If you back out the 2.8 a million from the Wayman boy incident, and then you use that number to back off of the 54, that would give you a pretty good year-over-year comparison.

Okay, so I backed it out. I normalized the EBITDA number, and it kind of seems for all intents and purposes you're looking for a flat year on an organic basis in 21 versus 20 on an adjusted EBITDA number. Would that be correct?

Yes, yes.

From where we stand today, based off of factoring in the uncertainty around COVID, you know, again, focused on beating that out like we did in 20. And then as things progress in the year, we'll update.

Understood. Understood. Yes. It's a matter of what we see here and now and being appropriately prepared. balanced as far as how good things can be given that COVID is still a real issue. I just want to make sure I understood the comparison now. Really, I guess if the backlog in marine was we were able to have a better scenario there. Can you tell us about how you see the marine business as far as big picture industry? Is it

uh excluding any possibility of an infrastructure bill just is it an improving industry well yeah i mean i think again as i've said uh on pre-prior calls we you know the long-term uh drivers uh we we feel very positive about um again some of those have been impacted by covid um But if we look across both in the public and the private sector, we think that the drivers are there for the long term. Again, there's a tremendous amount of infrastructure in the Department of Defense. There's recurring dredging that needs to be done year in, year out. In my view, the Corps is getting a lot more effective in executing their work. We'd like to see them make some improvements maybe in in the pace at which they bid work. But I think there's a lot of that work that's going on and that is recurring work. Again, I think the energy space is still going to be a driver of opportunities. We're still producing a lot of energy domestically, and I think that's going to continue even with maybe some of the changes in the student administration. There's still going to be a lot of energy produced domestically that has altered the supply chain dynamics that are driving opportunities for us. You know, even without an infrastructure bill, there's still DOT funding and DOT work that's out there. And, again, in the private sector as well, we think there's a lot of pent-up demand in the recreational space and that that's going to drive opportunities in the Caribbean. That's a classic case of where we see – Those opportunities is not going away. They just kind of slid to the right with COVID, but we think they'll come back. We think the demand for that is about ready to bust loose as we kind of see it.

Okay, great. And if I could change focus for a second and jump over to the balance sheet. Certainly your leverage is way down. That's very comfortable. um, you're going to be generating cash, uh, again next year. Um, how do we see the, the, the formation of the balance sheet? I guess I'm most interested in, uh, uh, how do you see the current bank, uh, agreement that you have, which, uh, unfortunately has, uh, still has some restrictions as far as, uh, capital allocation decisions that you guys can or cannot make. Um, can you, uh, update us as to what the status of that is.

Yeah, so as far as the banking relationship, it's in a good place. We're at a good leverage ratio. We're within covenant compliance. A lot of those restrictions that you're talking about, they will alleviate here in the next several months. But it is something that we're looking at as we look at our overall strategy for the company. And, you know, where we stand today, I think, you know, our banking relationship is more than adequate and supportive of what we, you know, need to execute this year. But we'll look into that and we'll be looking to, you know, make adjustments as needed.

And then, Jerry, I would add to that, too, is I think I said this on the remarks last time and touched on it a little bit this time. You know, again, we've been focused on that balance sheet and strengthening it and cash flow generation. You know, obviously we've got the real estate transactions hanging out there, which are just going to improve, you know, improve us even further. But the way we look at that is that opens up a lot of options for us with respect to capital allocation, to your point. And we think that's a good place to be. So I think, you know, in executing our strategy or otherwise deploying capital, We expect to have a lot of options as we go through the year here.

Well, Mark, I appreciate that. I really do. I guess the biggest sticking point is the inability to repurchase shares, which when you're trading at just round numbers, five times EBITDA, in my opinion, seems to be a very low valuation, a very good investment to be buying a quality company at five times EBITDA, particularly if you see things on the verge of getting even better. Having that credit agreement out there that restricts dividends and or buybacks to me seems like it's something that should be taken care of as soon as it's possible to be taken care of.

Yeah, yeah, I hear you.

Okay. Hey, thank you very much for the time today. Good luck going forward. Thanks, Jerry.

This does conclude our question and answer session. I would like to turn the conference back over to management for closing remarks.

Thank you, everyone, for joining our fourth quarter earnings conference call. We look forward to talking with you again in late April for Q1 earnings results. Thank you.

Thank you. This does conclude today's conference. You may disconnect your lines at this time, and thank you for your participation.