Orion Group Holdings, Inc.

Greetings. Welcome to Orion Holdings' fourth quarter 2021 conference call. At this time, all participants are in a listen-only mode. A question and answer session for analysts will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Frances Okenski, Vice President of Investor Relations. Thank you, you may begin.

Good morning, everyone, and welcome to Orion Group Holdings' fourth quarter 2021 earnings conference call and webcast. My name is Fran Okoneski, Vice President of Investment Relations, and joining me today is Mark Stauffer, Orion Group Holdings President and Chief Executive Officer. Regarding the format of the call, we've allocated about 10 minutes for prepared remarks in which Mark 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. Moreover, past performance is not necessarily an indicator of our 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 conference call within the press release issued today. The press release can be found at 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. Thanks for joining us today. Today, we'll discuss our fourth quarter results, our markets, and our outlook. As an update, we continue to work with the search firm to diligently conduct our CFO search, and we expect to have news on this soon. Filling this key role in our organization is an opportunity to significantly improve our team as we focus on executing our strategic plan. For today's call, I will begin with an overview of the quarter, then discuss our financial performance in more detail, and finally discuss our market outlook before we turn to Q&A. As always, I'd like to begin by thanking our entire team for their hard work and dedication. We've worked through a challenging period, and I appreciate everyone's efforts. I also want to thank our team for safely performing their tasks. Our goal is to ensure that our team members leave work the same way they came in, healthy and injury-free. We remain deeply committed to our Target Zero program to support our vision of zero incidents, zero damage, and zero harm. As we previously noted, the second half of 2021 was impacted by the lag effects from the COVID-19 pandemic. These lag effects from the macroeconomic impacts to our markets and customers affected prior period project wins, which reduced the volume of work in our marine business and pressured margins in our concrete business. That said, we are well positioned to see a re-acceleration year in 2022 as we emerge from the trough of the second half of 2021 with improving markets, increased backlog, increased quoted bids outstanding, and a robust pipeline of project opportunities. Our disciplined approach to bidding continued to be rewarded in the fourth quarter. The total amount of work we won in 2021 was up 27% over 2020, with two-thirds of this work booked in the second half of 2021. Backlog at the end of the fourth quarter was up sequentially and was up significantly year over year. Our current level of quoted work outstanding stands at approximately $2.6 billion, up 63% year over year. Our current level of bids outstanding and improving macroeconomic environment and the Infrastructure Investment and Jobs Act as an added catalyst to our markets, gives us confidence that we will continue to see a robust project pipeline of bid opportunities to grow our backlog, positioning us for improved performance in 2022 and beyond. Now I'll discuss our financial results for Q4 in more detail. Revenues for the fourth quarter were $162 million, down compared to $170 million in the fourth quarter of 2020. This was primarily due to the decreased volume of work in our marine business. Fourth quarter gross profit was 6.6 million compared to 21.7 million in the prior year period. This decrease was primarily driven by lower volume of work in our marine business resulting in under absorption of labor and equipment and decreased project performance in our concrete business as a result of pressured bid margins and COVID-19 impacts. Additionally, The prior year benefited from three projects that earned final margins well above the as-bid margins. As a percentage of revenue, gross profit margin was 4.1% in the fourth quarter compared to 12.8% in the prior year period. Turning to our segments, in the fourth quarter, our marine segment had revenues of $73.1 million and an adjusted EBITDA of $5.2 million, equating to an adjusted EBITDA margin of 7.1%. That compares with $97.6 million of revenue, adjusted EBITDA of $13.1 million, and an adjusted EBITDA margin of 13.5% in the prior year periods. The decrease was driven by the decreased volume of work and the under-absorption of labor and equipment costs. Our concrete segment had fourth quarter revenues of $89.2 million compared to $72.6 million in the fourth quarter of 2020. Adjusted EBITDA for the concrete segment was negative $4.3 million, compared to negative 0.6 million in the prior year period. Our concrete segment's fourth quarter results were impacted by pressured bid margins and inefficiencies in executing work due to COVID-19 impacts. SG&A expenses for the fourth quarter were 16.1 million or 9.9% of revenues compared to 17.4 million or 10.2% of revenues in the prior year period. The decrease in SG&A dollars compared to the prior year was primarily related to a decrease in bonus expense. Net loss for the fourth quarter was $8.8 million or $0.29 diluted loss per share. This includes a non-recurring expense of $2.1 million related to the development of a new ERP system. Adjusting for non-recurring items and tax expense associated with the movement of certain valuation allowances Adjusted net loss was $5.3 million, or $0.17 loss per share. Fourth quarter adjusted EBITDA was $0.8 million, representing an adjusted EBITDA margin of 0.5%. This compares to an adjusted EBITDA of $12.6 million and an adjusted EBITDA margin of 7.4% in the prior year period. Turning to bidding metrics, in the fourth quarter, we bid on approximately $1.6 billion worth of opportunities and were successful on 180 million. This resulted in a win rate of 11% and a book-to-bill ratio of 1.11 time for the quarter. As of December 31st, 2021, our backlog was 590 million, up from 440 million at the end of last year. Of our year-end backlog, 377 million was in our marine segment and 213 million was in our concrete segment. Approximately $455 million of the year-end backlog will burn during 2022, with the remainder associated with longer-term projects burning through 2023 and into 2024. Additionally, we are the apparent low bidder or have been awarded $138 million of new work subsequent to the end of the fourth quarter. Of this, approximately $24 million is related to the marine segment, while $114 million is related to the concrete segment. As of December 31, 2021, we had approximately $12.3 million of cash and $9.3 million of availability under our revolving credit facility. We ended the year with $39.4 million of outstanding debt, $39 million of which is related to our revolver. Subsequent to the end of the quarter, the company amended its credit agreement effective for the quarter ending December 31, 2021. The goal of this amendment was to provide the company with a waiver and greater flexibility as it provides for suspension of the leverage ratio and fixed charge coverage ratio for the quarter ending December 31st, 2021, before reverting back to a leverage ratio not to exceed 3.0 times beginning in the third quarter of 2022 and reverting back to a fixed charge coverage ratio of a minimum of 1.25 times beginning in the fourth quarter of 2022. Additionally, the amendment reduces the revolver to $42.5 million for the remainder of the term and provides paydowns on the revolver by any amounts of cash above $10 million until delivery of the third quarter 2022 compliance certificate. Capacity created by any such paydowns remains available to the company. The amendment includes minimum EBITDA requirements for the first and second quarters of 2022. The company is pleased with the continued support from its lenders and looks forward to maintaining its excellent relationship with its bank group. We also expect to begin discussions regarding a new credit facility in the coming months. As for guidance for 2022, we expect adjusted EBITDA to be in the mid $30 million range. We'll provide an update on this guidance as we progress through the year. Turning to our markets, we continue to see improvement in our end markets that were impacted by the COVID-19 pandemic. and to see a robust level of opportunities in our bidding pipeline. Winning new awards and replenishing our backlog remains a key focus. We will continue to bid on the most attractive projects that support our profitability goals and will remain disciplined in our bidding approach. We will continue to target select larger, longer duration projects to provide us with greater operational visibility. In our marine segment, we will continue to pursue opportunities in the public sector at the federal, state, and local levels, including port expansion projects, DOT bridges over water, Navy facilities, and environmental and flood control projects. We now have an additional multi-year catalyst for public sector projects as a result of the Infrastructure Investment and Jobs Act. We expect this act to be a tailwind in our markets for several years. The Infrastructure Act reauthorizes highway transportation funding as well as providing significant new funding for ports, waterways, water infrastructure, and bridges, among other things. We are also pursuing project opportunities in the private sector as we continue to see bid opportunities in the recreational and energy sectors. In our concrete business, we are seeing an increased volume of bid opportunities in our Houston market, along with improving bid margins across all of our markets. Projects continue to come in from a variety of end markets, such as tech, e-commerce, and large retail distribution. Demographic trends will continue to provide project opportunities in our Texas and Florida markets. We enter 2022 with increased backlog, increased quoted work outstanding, a strong bid pipeline, and long-term tailwinds driving our markets. As we emerge from the lag effects of the COVID-19 pandemic, We are well positioned for improving results for 2022 and beyond. With that, I'll turn the call back to the operator for Q&A.