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spk00: Greetings and welcome to Orion Incorporated second quarter 2021 conference call-in webcast. At this time, all participants are on a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host today, Mr. Fran Okoneski, Vice President of Investor Relations. Thank you, sir. Please proceed.
spk04: Good morning, everyone, and welcome to Orion Group Holdings' second quarter 2021 earnings conference call and 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 Executive 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 to differ materially from those statements. 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 gap 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 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?
spk05: Thank you, and good morning, everyone. Thanks for joining us today. Today we'll discuss our second quarter results along with our markets and outlook. I'll begin with an overview of the quarter. Robert will then discuss our financial performance in more detail. Then I'll come back to discuss our market outlook before we turn to Q&A. As always, I'd like to begin by thanking all of our team members for their hard work and commitment to our success. We remain deeply committed to our Target Zero program to support our vision of zero damage, zero harm, and zero incidents. Safety of our employees is a key priority, and we want to ensure that our team members leave work the same way they came in, healthy and injury-free. During the second quarter, we closed on the sale of our Tampa property, further strengthening our balance sheet and enhancing our liquidity. The gain on this sale is included in our second quarter results, which also reflected the impact of inordinately wet weather in our key operating geographies, which affected both our business segments, but predominantly our concrete business. Our concrete segment's production was hampered by wet weather patterns across Texas, resulting in an under recovery of labor. With normal weather conditions, our concrete segment will be efficiently executing on any delayed projects. Despite the weather challenges, our marine segment delivered year-over-year improvement in adjusted EBITDA margins for the quarter. During the quarter, we bid on approximately $2 billion of project opportunities, a record level for the company. Included in this number were two long duration projects totaling approximately 500 million, where we saw one of our competitors severely undercut market pricing on both projects. Our focus will remain on being disciplined in our bidding and not filling up our backlog with cheap work. Despite these two losses, our backlog was up sequentially on a book to bill of 1.2 times. We remain optimistic about the trends we're seeing with respect to project opportunities across our end markets. especially in markets that are emerging from the impacts of the COVID-19 pandemic, particularly in the energy and cruise sectors. Our current level of quoted work stands at roughly 2 billion, up 50% from this time last year, and remaining at elevated levels sequentially. We view this continued trend as a positive leading indicator of sustainable improvement in project-leading activity. The current level of bids outstanding and improved macroeconomic environment and a potential infrastructure bill gives us confidence that as 2021 progresses, we will continue to see a robust project pipeline with bid opportunities available to grow our backlog, positioning us for a strong 2022. Now I'll turn the call over to Robert to discuss our financial results for Q2. Robert?
spk01: Thank you, Mark, and thanks, everyone, for joining us. Today, I reviewed the financial results for the second quarter, 2021, and provide an update on the company's liquidity position and balance sheet. Starting with the financials, revenues for the second quarter of 2021 were $145.9 million compared to $183.7 million in the second quarter of 2020. The decrease was driven by a combination of weather, supply chain disruptions, and the timing mix of certain projects. Second quarter gross profit was $12.3 million compared to $20.7 million in the prior year period. The year-over-year decline was driven by a decrease in construction activity leading to increased unrecoverable costs. Project execution continued to improve as we saw over 100 basis point improvement to project level margins year-over-year. As a percentage of revenues, gross profit margin was 8.4% in the second quarter of 2021 compared to 11.3% in the prior year period. Turning to our segments. In the second quarter of 2021, our marine segment had revenues of $63.9 million. Adjusted EBITDA was $7.8 million, equating to an adjusted EBITDA margin of 12.2%. In the prior year period, we generated revenues of $91.7 million and adjusted EBITDA of $9.9 million, with an adjusted EBITDA margin of 10.8%. Marine's revenues and EBITDA decline do impart to a difficult comparison to a strong second quarter of 2020. which included progression on some large projects that as they got closer to completion had larger contributions in the prior year period. Despite the decrease in revenues, we were able to expand EBITDA margins by nearly 150 basis points. Our concrete segment had second quarter revenues of $81.9 million compared to $92 million in the second quarter of 2020. Adjusted EBITDA for the concrete segment was a loss of $433,000. compared to 2.8 million in the prior year period. Our concrete segments year-over-year declines were due to weather impacts, which affected our ability to pour concrete and progress projects. SG&A expenses for the second quarter were 13.7 million, or 9.4% of revenues, compared to 16.5 million, or 9% of revenues in the prior year period. The year-over-year decrease in SG&A dollars were driven primarily by a decrease in bonus expense as compared to the prior year period. Net income for the second quarter of 2021 was 3.5 million, or 11 cents diluted earnings per share. This includes a net one-time gain of 3 million, primarily related to the sale of our Tampa property, offset by 1.1 million of tax valuation allowances. Given these factors, adjusted net income was 1.7 million, of 5 cents per share. Second quarter adjusted EBITDA was $7.4 million, representing an adjusted EBITDA margin of 5.1%. This compares to $12.6 million for an adjusted EBITDA margin of 6.9% in the prior year period. Now to bidding metrics and win rates. For the second quarter of 2021, we bid on approximately $2 billion worth of opportunities and were successful on $175 million. This resulted in a book-to-bill ratio of 1.2 times a win rate of 8.8 percent for the quarter as of june 30 of 2021 our backlog was 394.4 million of which 170.2 million was associated with our marine segment and 224.2 million for the concrete segment additionally we are the apparent low bidder or have been awarded subsequent to the end of the second quarter 30 million worth of opportunities In total, currently we have over $2 billion worth of projects and bids outstanding, which is up 51% from last year. Now, perhaps what I'm most excited to talk about, our balance sheet. As of June 30th, 2021, we had approximately $2.4 million of cash and $42.3 million of availability under our revolving credit facility. We ended the quarter with $6 million of outstanding debt, all of which was related to the revolver. as we use proceeds from the sale of our Tampa property to pay off the balance of our term loan. This translates into a .36 times leverage ratio and a fixed charge ratio of 3.52 times. Both were within the covenant requirements. Our current liquidity position after the sale of the Tampa property combined with our other non-core asset sales we expect to take place before year-end leaves us with one of the strongest balance sheets we've had in years. It gives us ample flexibility to execute on our strategy, pursue new awards, perform work in backlog, and explore both organic and inorganic growth opportunities, including in creative M&A activity. Overall, though our second quarter was hampered by weather, we remain confident in the end markets we serve, our long-range plan, and our team's ability to execute our overall strategy. Now I'll turn the call back over to Mark.
spk05: Thanks, Robert. Turning to our markets, as I noted earlier, we have seen improvement in our end markets that were impacted by the COVID-19 pandemic, and we continue to see an upward trend in project lettings in these end markets. While winning new awards and replenishing our backlog is a key focus, our primary focus continues to be bidding on the most attractive jobs where we have a strong likelihood of executing at or above our targeted profitability goals. We will remain disciplined in our bidding approach. To the extent we see competitors undercut the market, such as on the two large projects I mentioned earlier, those competitors will be tying up their equipment and workforce, which will position us well for the project opportunities we see ahead of us. We are also reaching beyond our traditional project targets in geographic regions to secure quality backlog, and we continue to target select larger, longer duration projects which provides us with greater operational long-term visibility. Our diverse skill sets and end markets and our ability to easily flex from one type of project to another is one of our competitive advantages. 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've recently booked new dredging work with the U.S. Army Corps of Engineers, which is highly beneficial to our project mix. We expect to see an uptick in bidding on core dredging projects as we near the end of the federal government's fiscal year on September 30th. And we are well positioned to capitalize on these upcoming lettings. We expect projects in the energy space and the Caribbean market will continue to materialize in numbers as economic activity continues to increase. As energy markets adjust to global economic activity and cruise lines resume sailings, we expect projects that push to the right due to the pandemic to reenter the bidding pipeline. In our concrete segment, we continue to pursue new projects in attractive end markets, such as the tech, e-commerce, and large retail distribution centers. We also continue to bid on larger structural projects involving high-rise residential or mixed-use towers. Texas is home to four out of the 10 fastest growing population markets in the country. And we are confident about the continued market growth for these types of projects, excuse me, driven by population growth. We also continue to pursue projects outside our traditional markets, particularly in Florida, which is the key market we have targeted for expansion of our concrete business. In addition to the Florida pursuits, we have recently pursued projects in West Texas, in the Texas Panhandle and in northern Louisiana. We continue to make progress in our new ERP system implementation, which we believe will be transformative in providing our managers with real-time quality information to drive better, faster decisions. We've also improved our balance sheet due to consistent operating cash flow generation and real estate sales. We expect to continue to improve our liquidity position over the course of this year positioning us well to invest in both organic growth and potential accretive M&A opportunities as we execute our strategic plan. With that, I'll turn back the call to the operator for Q&A.
spk00: Thank you. At this time, we will conduct a question and answer session. 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 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one at this time. One moment while we poll for our first question. Our first question comes from Alex Regal with B. Riley FBR. Please proceed.
spk07: Thank you. Good morning, gentlemen.
spk03: Good morning, Alex.
spk05: As it relates to some of the early indications of the Federal Transportation Bill, it appears that there's a fair amount of money being allocated towards ports. Can you talk a little bit about your positioning on some of that? And historically, when the federal government does pass big bills like this, what does the timeline look like for lettings and revenue coming through this system? Uh, well, first off, yes. I mean, there's, the ports are definitely, you know, queued up in the, uh, the infrastructure bill. Um, and it looks like, you know, progress is being made on that. So, uh, it'd be a great additional catalyst to all the work that we're already seeing out in front of us with respect to the timing of it. It's going to vary again. A lot of the port authorities in our market areas have long range, uh, plans in place and, and, uh, expansion plans and things like that. So to the extent the funding moves in that, they can react relatively quickly. In the past, we've seen, for example, with the Corps of Engineers for some of the waterways and port work that they may be teed up on, that moves through fairly quickly. Again, they've got a lot of work that they can, you know, once they get funding for, they can get out fairly rapidly. So we saw that, you know, last time we saw kind of infrastructure slash stimulus bill after the Great Recession. So we're confident that enough of that moves quickly. It's a great positive on top of all of the work that we're already seeing in our end markets. So it'd be a great additional catalyst. And I think there's enough work that would come out relatively quickly, but also importantly, it would go on for quite some period of time. That's a lot of money that they're talking about. So We could see some quick things, but we also will see some things that go out, you know, over time. So it would be a good catalyst for years to come. And this is the second quarter in a row where your bids during the quarter were pretty significant. You obviously got to have a lot of bids outstanding right now. What does the timeline look like for those awards to be made? Well, it's a little, you know, varied. I mean, we've got some stuff that we'll expect to be seeing relatively soon. We've got other work that we're out, that's out like an RFP type work for the government where it's in the evaluation period. So it may be, you know, a few months before we fund that. It just, it's across the board. I mean, every day we, you know, or every week I should say, we go through, we find out some information on some things. It's short term, it's long term. It varies. The key thing that we're focused on is that we want to bid secure quality backlog, profitable backlog. That's our key focus. Project execution, Robert touched on this. We're executing well on the projects. Again, there's just a broad range of timing of projects. You know, we're trying to get stuff in that we can turn quickly on as well.
spk03: Thank you.
spk05: Good luck. Thanks.
spk00: Our next question comes from Julio Romero with Sidoti and Company. Please proceed.
spk06: Hey, good morning, everyone. Hey, so I wanted to follow up on Alex's question about the amount of money allotted to ports and waterways in the bipartisan framework. I think when I checked on the White House's website, that number was about $16 billion. And I know that's a moving number. But I guess my question is, how much was allotted to the U.S. Army Corps of Engineers back in the Great Recession and that stimulus bill? Would you happen to know what that number was?
spk05: Yeah, it was about $5 billion, which doesn't sound like a lot, but keep in mind that the operating and maintenance budget typically for the Corps of Engineers is about $5 billion. So back after the Great Recession, it was essentially a doubling of their budget in that period for operations. Perfect.
spk06: And do you know what their budget is now? No.
spk05: It's about the same. It's about $5 billion, $6 billion for operations and maintenance and a similar amount for capital projects.
spk06: So are we thinking about that? Go ahead.
spk05: No, no. Go for it.
spk06: I was going to say, so are we thinking about that? Is that $16 billion the number that's most pertinent to the impact on Orion?
spk05: No, I think it's multiple. buckets in there. Our expectation is that, you know, when they're talking about ports and waterways and things like that, some of it is going to be our anticipation. I mean, we'll have to see the details. Our anticipation is that it would go directly to ports as well for port authorities to execute their expansion plans. So that's, you know, things like dock expansion, hard infrastructure, things like that. Our expectation, too, is that the Corps of Engineers would get some for traditional dredging projects. So both of those things are things that we could get. The other thing is, again, this is probably going to involve the elements of the transportation bill. So bridges, the DOTs, we would expect to get a significant funding as part of this. And that, again, is going to be providing projects for us. And then we'll have to see in the other. There's a lot of A lot of other elements of hard infrastructure, construction type activities, airports, things like that. So, you know, we potentially see opportunities across our segments in both the marine and the concrete segments coming out of this bill. And in any event, it adds to the already, our view of the robust pipeline that we see in front of us, number one. And number two, it will also use capacity in the industry's capacity. So all of these things are positive.
spk06: Great. Thank you for the call there. I guess maybe switching gears to another kind of topic here. I saw in the release there was some segment reclassifications of corporate costs. I think it takes about, you know, 3 to 4% off of the margins off the concrete segment and maybe adds 1 to 2% to the marine. Can you maybe just touch on the reclassifications and then secondly, Does that change your long-term expectation of high single-digit targets in concrete and low double-digits in marine?
spk01: Yeah, so the reclassification wasn't a change. What it was is when we were splitting out the operating income, we were breaking out certain costs. So what we've done is we've combined them to get to a true GAAP operating income measure. So those numbers are the same. I'll let Mark talk about the outlook and expectations for the segments.
spk05: Yeah, so, Julio, for your question on concrete, no, it does not change our expectation. Our expectation is to drive to high single digits. We've made progress in that regard. High single digits have a down margin for concrete. We've made progress on that. Obviously, the first half of the year has been a little bit challenging with weather, but particularly for concrete, I mean, Texas has been kind of hit in the first half of the year. That being said, we're confident in our team. We've got good prospects, good backlog. We're bidding on a lot of work. We're expanding our addressable market. We're moving into Florida. So a lot of big positives. Our backlog is close to pre-pandemic levels in our concrete business or at elevated levels. So a lot of positives there, and we've just got to keep grinding away on it, and we'll get there.
spk00: Our next question comes from Marco Rodriguez with Stonegate Capital Markets. Please proceed.
spk07: Good morning, everybody. Thank you for taking my questions.
spk06: Good morning, Marco.
spk07: I was wondering if you're able to, is there a way that you can kind of give us a sense as far as what the revenue impact was from the weather in Texas?
spk05: Well, the revenue impact is kind of a combination of impacts to the revenue, year-over-year revenue. Weather was a big part of it. Concrete business, we probably poured about 85% of what we expected. It was just inefficient in terms of the weather patterns and things like that for us in the quarter. Supply chain disruptions also kind of impacted on that just in terms of timing of projects. It's really kind of a combination of the weather and the timing of work. You know, getting stuff executed.
spk01: Yeah, I mean, just from weather days, we saw about a 50% uptake quarter over quarter. So, we had winter weather in February in Q1. But, you know, it's not apples to apples because, you know, just depending on what days you're scheduled to pull. But we had about 50% increase in weather days quarter over quarter.
spk07: Okay, yeah, I guess what I was trying to ask, and I apologize, if it was a way to quantify the dollars that were missed in the quarter due to the weather.
spk05: It probably, you know, in the concrete business would have been closer to, you know, last year or above had we not had the weather. So that's a $10-12 million impact at the top line.
spk07: Understood. Helpful. Thanks. And then, given obviously the shifts that you've had here, uncontrollable, the weather, is there an update on your guidance of mid to high 40 million adjusted EBITDA for fiscal 21?
spk05: Well, we're not updating. You know, we're still grinding towards that. I will say, though, that, you know, as, you know, depending on timing of projects and, you know, supply chain issues sorting themselves out, which we believe they are and they will, You know, some of the performance that we're targeting for 21 may shift into 22, but we're still grinding away at it. We're still trying to secure quality backlog. We're executing on projects, and, you know, we're keeping after it.
spk07: Got it. And then maybe if you could just address some of the balance sheet shifts, specifically kind of the debt levels right here and the ratios. Are there any particular levels of debt or debt ratios that, you'd be targeting, I guess, kind of short-term or longer-term?
spk05: Well, if you think about it historically, you know, when we've levered up for M&A as an example, we've gone above three. We've gone, you know, three and a half, in some cases a little bit higher than that, three and a half turns. So that, you know, that kind of range is ideally where we would not want to exceed M&A. And, you know, that's kind of where we were after the last acquisition. And so that's, you know, we've got a lot of options with where we are on our debt and our balance sheet.
spk07: Got it. And last quick question, if I might. You obviously have a lot of flexibility here with the improved balance sheet. You have a few different projects and a few different opportunities. Is there any way that you could perhaps sort of rank those opportunities? What might be a little bit more on the forefront?
spk05: Well, certainly, I mean, as we've talked about before, all things are on the table. I mean, we'll consider all uses of capital. We obviously, we talked about on the last call, we're reinvesting in the fleet or, you know, dredge rebuild at this time. We've talked about the last several quarters where, you know, we're investing in the ERP. platform, which is really a big deal for us. But also, we are looking to be opportunistic on a creative acquisition to strengthen our service lines and potentially expand our service lines and provide more recurring type revenue stream. for us to add an additional leg to the stool that we already, you know, we have with our other business lines. So those are things that, you know, we're keying in on. But, you know, obviously we'll always be looking at all options.
spk07: Great. Thank you guys very much. I appreciate your time.
spk00: Our next question comes from Paul Fratt with Noble Capital Markets. Please proceed.
spk02: Good morning. You know, a lot's been covered. Most of my questions have been answered, but I did have two lingering ones. One is, if you look at the weather, you address the weather issues for, you know, for the concrete business. But if you look at marine, marine was down more substantially year over year. Can you just address how the weather issues played out in the marine sector? And then secondly, if you could talk about timing of additional asset sales. You know, is the Port Lavaca sale going to close? And then also, could you talk about any interest that you've seen on East West Jones since the energy markets have picked up? Thanks.
spk05: Sure. On the first part, on marine, yeah, with marine, it's a little, you know, weather, quantifying the weather is a little more challenging. I mean, because, again, in weather, excuse me, in the marine side, when we have weather issues, I mean, we're able to kind of get back to work a little bit quicker. So there were disruptions there, but it wasn't the biggest driver. One of the biggest reasons, year over year, Delta in revenues, there was this timing of work. As Robert touched on in his remarks earlier, In the second quarter of 2020, you know, we had some large projects that were flowing through at the time and actually wrapping up, which drove revenue and the GP line. And, again, just compared to this year, just timing of work and startup of projects and just being at different spots on where we were, i.e., not at the completion of projects. We just had a different throughput on our – progressing on projects this quarter versus last quarter. With respect to the property, I'll let Robert touch on that.
spk01: Yeah, so update on the Fort Lavaca property. The buyers have completed whatever they needed with their financing partner. We had a couple meetings earlier this week, so they're working with the title company to get the schedule to close I think the only thing that's probably in between us and closing is them doing their customary closed stuff, getting surveys and completing the financing company's requirements. So I would imagine the next 30 to 45 days, knock on wood, it seems like this has been dragging out, but I feel very, very comfortable that this thing is finally making progress. As for East West Jones, same story, good news. We've been getting a lot of new interest in the property. I'd say over the last three or four weeks, interest has probably grown 40 to 45% from new inquiries. So we feel very optimistic about that. I think as energy continues to improve, I think that trend will continue. to improve as well. We'll get more and more people looking at it.
spk02: Great. Thank you.
spk00: Thank you. There are no further questions in queue at this time. I would like to turn the call back over to management for closing comments.
spk03: Okay. Thank you, LaTanya, and thank you, everyone, for joining our second quarter earnings conference call. We look forward to talking with you again in October for our Q3 earnings results. Thank you and have a great day.
spk00: Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time and have a great day. Thank you.
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