Orion Group Holdings, Inc.

Good day, and welcome to the Orion Group Holdings fourth quarter and full year 2024 conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on a touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Margaret Boyce, Investor Relations. Please go ahead.

Thank you, Operator, and thank you all for joining us today to discuss Orion Group Holdings' fourth quarter and full year 2024 financial results. We issued our earnings release after market last night. It's available in the Investor Relations section of our website, at oriangrupeholdingsinc.com. I'm here today with Travis Boone, Chief Executive Officer of Orion, and Scott Banish, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we'll open up the call for your questions. Before we begin, I'd like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases. Statements that are not historical facts are forward looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward looking statements. Discussion of the factors that could cause our results to differ materially from these forward looking statements are contained in our SEC filings, including our reports on Form 10Q and 10K. With that, I'd now like to turn the call over to Travis. Travis, please go ahead.

Thank you, Margaret, and good morning, everyone, and thank you for joining our fourth quarter and four-year 2024 conference call. I'll start with an overview of our fourth quarter results and market update, and then I'll turn it over to Scott to cover our financial results. It has been an incredible two years since we put our strategic plan into action. I am proud to say we did what we said we would do, and our focus on business development and discipline execution by our team is now delivering strong results. From the outset, our goal was to drive sustainable growth and profitability, enhance operational efficiency, and create long-term value for all our stakeholders. Today, we have not only met but exceeded those objectives in many areas. To summarize our four-year performance, revenue was up 12 percent to $796 million year-over-year. Gross profit improved 48 percent to $91 million. Adjusted EBITDA increased 76 percent, and adjusted EBITDA margin was up 200 basis points to 5.3 percent. While we have made great progress, we are far from finished. we still have work ahead to reach the profitability and growth that Orion is capable of achieving. Throughout 2025, we will continue to emphasize executing with predictable excellence, and we will be focused on growing our backlog to realize our planned growth in 2026. Most importantly, we have set ourselves up to address the huge market opportunity in front of us. Over the past two years, we have assembled an outstanding team whose expertise, hard work, and commitment to safety have been the driving force behind our success We appreciate all their efforts to make us a safer, stronger, and more profitable company. I've always said that winning high-value, long-term projects with the right pricing is critical to driving profitability. And now we have better organization-wide discipline than it takes to successfully bid on large projects with the appropriate evaluation of risks and built-in contingencies. The contracts we were awarded throughout 2024 and the wins we announced in February reflect the quality, complexity, and diversity of the projects we can win. This gives us confidence that our backlog of quality projects will continue to grow. Our year-end backlog stood at $729 million. And over the past two years, our pipeline increased from $3 billion to $16 billion. The depth and breadth of these projects lets us be very selective and disciplined in the projects we choose to pursue. Orion has greatly improved its reputation in our markets, and we are attracting new partners as well as strengthening our position with longstanding relationships. I can't emphasize enough how important it is to have the right partners with mutual trust to deliver complex projects. I credit a lot of the momentum to our focus on business development, which was a key initiative that we started two years ago. We now have experienced leaders who are driving our growth. The marine market has some very favorable tailwinds. We continue to see great developments for 2025 and beyond. Infrastructure projects, port expansion and maintenance, coastal rehabilitation and downstream energy projects. We see a strong pipeline of opportunities in the Atlantic and Gulf regions. In the Pacific, we see opportunities for large Navy projects toward the end of the year into next year. There are very few marine contractors that have the skill, experience and the logistical capacity to work in the Pacific as we do. Based on Orion Concrete's strong reputation, we have the name recognition that creates real currency in the marketplace. Concrete is no longer just a Texas concrete company. There are really no geographic limitations to where our concrete team can operate effectively with our reputation for quality work and our trusted relationships with Tier 1 contractors. Our reputation and partnerships are why we are building or have completed 35 data center projects to date for top hyperscalers and are building Costco's largest ever distribution center in Florida. We're winning work in multiple states with our best partners. These partnerships with world-class construction companies and our ability to deliver are important factors in most of our recent project wins. We just completed a 43-story high-rise project for Hanover Company, who gave us very positive reviews and have already awarded us their next project. Another example is Laredo, Texas, which is the largest inland port on the border. Last year, we were awarded a large project, and based on our strong performance, we recently won two more projects in Laredo. We have established great partnerships, and this has led to significant repeat business, which is always our goal. We remain confident that we can continue to grow our concrete business. We see a lot of untapped market opportunity as well as projects that had been dormant and are now moving forward. Concrete is a great turnaround story. The business has found its footing and it's really starting to move. This is what I envisioned when I took this job. I knew the issues were fixable. Now it's not just healthier, it's thriving. Finally, we have fielded a lot of questions related to the new administration in D.C. Mostly questions about tariffs and government spending pauses. We're not anticipating negative impacts to any projects or pursuits. Since the middle of last year, we were planning for potential steel tariffs during the bidding process and have mitigated our minimal exposure. We haven't had any projects impacted by government spending changes and don't anticipate changes to our pipeline or our opportunities. Additionally, the appetite for increased energy projection in oil and gas will likely drive additional capital project opportunities in the Gulf. The political landscape is quite favorable for us to continue our plans for growth in the years ahead. Looking forward, our team is focused on making investments that will help us capture and deliver the large volume of projects in our pipeline of opportunities. The key metric to watch this year is the increase in backlog. This will give an indication of future revenue. We expect to make continued progress improving our financial performance and are focused on growing our backlog through the year. As we enter 2025, I am confident in our strong foundation, the exceptional capabilities of our people, and their total commitment to both quality and safe execution. As I've said before, we're planning to have a big year in 2026. I'll now turn it over to Scott to discuss our financial results. Scott?

Thanks, Travis, and good morning, everyone. Our fourth quarter was a strong contributor to our full-year results. Revenue increased 7.6%, to $217 million, adjusted EBITDA grew 15.3% to $17.1 million, and we generated $13.4 million of cash flow from operations. As we indicated early in 2024, the Pearl Harbor and Grand Bahama projects ramped up in both the third and fourth quarters, driving improved second half results. For the full year, we generated $41.9 million of adjusted EBITDA and adjusted EPS of 15 cents per share, squarely in our 2024 earnings guidance. While our full-year revenue of $796 million was lower than our expected revenue range, this was due to the timing of execution of projects, not softness in our markets. We continue to be excited about our growth opportunities as evidenced by the significant increase in backlog plus jobs awarded so far this year. In the fourth quarter, marine revenue was up 6.5 percent and concrete revenue increased 9.8 percent. As Travis mentioned, today our concrete business is now healthy and growing after implementing our disciplined bidding standards and refined business development approach. While we see our concrete opportunity expanding, Our opportunity in marine continues to be immense and will be the major driver in the growth ahead. Consolidated fourth quarter gross profit margin increased to $30.3 million, or 14 percent of revenue, up from $23 million, or 11.4 percent of revenue, in the same period last year. The 260 basis point increase in consolidated gross margins reflect both improved pricing and improved execution in both segments. SG&A expenses were $21.6 million, up from $17.2 million in the comparable period. As a percentage of total contract revenues, SG&A expenses increased to 9.9% from 8.5%. Compensation, IT implementations, business development spending, and legal expense largely accounted for the increase in SG&A expenses. Turning to profitability, adjusted net income was $6.4 million or 16 cents per diluted share in the fourth quarter compared to adjusted net income of 2.3 million or 7 cents per diluted share in the prior year period. The fourth quarter net income included $400,000 or one cent per diluted loss per share of adjusted items. Gap net income for the fourth quarter of 2024 was $6.8 million or 17 cents per diluted share. EBITDA for the fourth quarter increased to $14.9 million, and adjusted EBITDA grew to $17.1 million. Adjusted EBITDA margin improved 60 basis points to 7.9%, up from 7.3 percent last year. During the fourth quarter, adjusted EBITDA margin in the marine segment was 9.2 percent, compared to 8.4 percent last year. And adjusted EBITDA margin in our concrete segment was 5.3 percent, consistent with the prior year period. As a reminder, as we continue to build scale in our business, our medium-term goal is to generate adjusted EBITDA margins in the low double digits for the marine segment and high single digits for our concrete segment. Moving on to bidding metrics, in the fourth quarter, we bid on approximately $994 million worth of opportunities, of which we won $256 million. This resulted in a contract value weighted win rate of 25.7 percent and a book-to-bill ratio of 1.18 times in the fourth quarter. We expect to continue to see progress capturing our opportunities, and given the timing of project wins in particular quarters, there may be some variability in our win rate from one quarter to the next. As of December 31st, our backlog was $729.1 million compared to $690.5 million at the end of the prior quarter, and $762.2 million at the end of the prior year. Breaking out our fourth quarter backlog, $582.8 million was related to our marine segment, and another $146.3 million was related to our concrete segment. As Travis mentioned, we are off to a strong start in 2025, and our end-of-year backlog plus awards so far this year is $977 million, up 16% over the prior year. The business generated $13.4 million of cash flow from operations during the fourth quarter compared to $45.7 million in the fourth quarter of 2023. Looking at the full year, cash flow from operations in 2024 was $12.7 million compared to $17.2 million in the prior year. Cash flow can vary from quarter to quarter due to the timing of project mobilization and completion. We ended the fourth quarter with $28.3 million in cash. Total debt outstanding was $23.2 million, ending in a net cash position for the second consecutive quarter. We had no outstanding borrowings under our revolving credit facility at the end of the quarter. On March 4th, we executed an amendment to our credit agreement with White Oak. This amendment reduces our term loan and revolver pricing by 50 basis points, provides greater operational and administrative flexibility, including less restrictive financial covenants, and extends the maturity date of our agreement to May 15th of 2028. These improvements were possible because our lenders recognize our enhanced credit profile as we continue to execute our strategic plan. Over the last several months, we have made considerable progress on our ERP initiatives. Beginning in January, we have started using our new IT tools and processes for our operations and back office. As a reminder, we have been implementing new project management systems and new procurement tools. We've also been migrating our business segments to be on the same financial platform, which will give us clear line of sight across our entire business. These tools will share information and provide insight into the progress of our projects, which will greatly improve our oversight and effective management of our projects on the ground. As our operational improvements gain traction, we expect to generate efficiencies that will enable the continued growth of our business while benefiting from operating leverage in our fixed cost. Looking forward, we're excited by our improving performance and expanding pipeline. As Travis mentioned, a key indicator of our continued execution of our strategic plan will be our backlog growth in 2025, which will include winning projects for delivery in 2025 and beyond. For the full year 2025, we expect revenue to be in the range of $800 to $850 million, with adjusted EBITDA in the range of $42 million to $46 million. This translates to a range of 11 to 17 cents for adjusted EPS. We'll also make investments to prepare for the growth ahead. We expect 2025 CapEx to be in the range of $25 million to $35 million, as we acquire equipment we will use to take advantage of our large pipeline of opportunity. As an organization seeking to establish a firm foundation for future growth, a lot of the heavy lifting is behind us. While there is still more to do, we're looking forward to more progress in 2025, and we're very excited for the years ahead. And now I'll open up the call for your questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question today comes from Aaron Spichala with Craig Hallam. Please go ahead.

Yeah, good morning, Travis and Scott. Thanks for taking the questions. You know, first for me, can you just give some color on kind of the revenue shortfall in the fourth quarter versus guidance, you know, some of the impacting items there, and then just, you know, talk about confidence and visibility you have into the 2025 guidance, you know, given backlog and kind of recent order activity, and then Just also, if you could touch on, you know, you talked about an extension, you know, timing of the marine segment. Just want to confirm that that's just, you know, typical timing and you're not really seeing much, you know, project extensions there as well. Thanks.

Good morning, Aaron. Sure. Starting off with the question on revenue. I'd say, you know, we've been saying kind of from day one, we've been focused on profitability and and really getting the business healthy and the revenue based on the pipeline that we have in front of us, the revenue would come. And so we've been really focused on getting the business healthy, getting the business profitable, and the revenue will come. We, you know, as far as kind of the shortfall last year, there was, we started talking early in the year about A COUPLE OF MAJOR PROJECTS THAT THERE WERE SOME SLIPPAGES, PRIMARILY ON OUR HAWAII PROJECT. SOME OF THE REVENUE THAT WE THOUGHT WAS GOING TO COME IN LAST YEAR ENDED UP SLIPPING INTO THIS YEAR FROM 24 INTO 25, TO BE CLEAR. AND SO THERE WERE SOME THINGS SLID TO THE RIGHT. NOT ALL OF IT CAME IN LAST YEAR LIKE WE WERE THINKING THAT IT WOULD INITIALLY. SO NOTHING VANISHED. IT JUST MOVED A LITTLE TO THE RIGHT. into this year. So we're still feeling confident about 2025, feeling good about what we have going and the opportunities in the future that's going to lead to bigger growth in 2026. As we said, we're going to be really focused on building our backlog this year, which will turn into revenue in 2026.

All right. Thanks for that. And then maybe second, you know, on the pipeline expansion to $16 billion, can you just kind of talk about some of the key drivers of expansion there? And then, you know, maybe just touch on the bidding environment, how that's been with just some of the broader noise in the market. Obviously, good profitability this quarter, but just if you could touch on that, that'd be great.

Yeah, the pipeline continues to grow as more opportunities kind of come into view for us. So it's continuing to look like, you know, a really good environment for us in both marine and concrete. You know, data centers are – there's more, it seems like, everyday opportunities on the data center side of things. We've been bidding on and winning more and more of those projects. You know, there's no less urgency with the Navy efforts in the Pacific with China deterrence. That's continuing to be a strong, strong push for the Navy, albeit some of that is going to be in 26 as opposed to 25 like we thought a year ago. And then just generally speaking in the marine side of things, opportunities are strong, lots of bidding opportunities. bidding efforts going on. You know, we have been winning some great work and, you know, we're winning with good margins and feel really good about the health of our backlog. It's all going to be, you know, strong contributors to 25 and 26.

Yeah, with the pipeline expanding the way it is, we're expecting that there's going to be a nice margin environment. We can be pretty selective on which projects we pursue, and with a good deal of market tailwinds for us, we expect to see a good margin environment in 25 and beyond.

All right, thanks for that. And then maybe last for me, you know, you touched a little bit on the Navy opportunity. Can you just, you know, give us an update there with everything that's going on, you know, at a federal level from a funding standpoint? You know, how is that opportunity shaping up? Sounds like it's, you know, maybe extending a little bit. But when you talk about, you know, a transformational year in 2026, just want to make sure kind of level setting expectations on, you know, winning some of that business as it pertains to 2026.

Yeah, we're continuing to see signs that the Navy is really continuing. There's no slowing down or change of direction with new administration with what's happening in the Pacific. The Navy is definitely showing signs that there's a lot of work to be done in the Pacific, and we're expecting there's a fair amount of activity on the MAC procurements, multiple work construction contract procurements in the Pacific. And, you know, we expect that to be turned into projects in the next year or so.

All right. Thanks for taking the questions. I'll turn it over.

Thanks, Aaron.

The next question comes from Julio Romero with Sedoti & Co. Please go ahead.

Thanks. Good morning, Travis and Scott. I wanted to start on the gross margin you posted of 14%. I think that's the strongest quarterly gross margin you've posted in about eight years or so. Just if you could talk about what are the key drivers of that margin, and do you think you can see leverage on the gross margin line once you see additional volumes flow through on the marine side?

Yeah, good morning, Julio. I'll start, and then Scott can take it. You know, as far as You know, we've been talking, you know, since we got here a couple years ago about really working toward having more improved margins, building the health of our backlog, and we've been doing that, and you're starting to see it in our numbers. You know, that's quite a few different projects delivering on the margin that we've been, you know, winning on these projects, whether it's marine or concrete, both segments are performed pretty well and brought a lot in the last quarter that helped the profitability.

Yeah, and just further on that, you know, we've talked for a while about how making sure that we're priced appropriately and we factored in contingency for risk on projects is important to making sure that we can execute them well. And so, you know, you see a combination of those two factors in the fourth quarter. both better pricing at the start in the bidding process, as well as execution that's driven by, you know, our teams and our tools utilizing a better plan with more contingency and therefore able to deliver those projects to our customers better than our bid margins.

Got it. And I guess just, you know, I'm hearing better pricing, better execution. If you could just touch on the leverage aspect, can these margins sustain and perhaps grow on the gross margin line as you see increased sales?

Yeah, there's opportunity for us to increase gross margins through better equipment absorption, better labor absorption as we continue to expand the business and grow our scale. The tools that we're putting in place for project management are also going to help us to drive those efficiencies. So we do see, you know, a trend in our business of improving our gross margins through leveraging those operational efficiencies as well.

Got it. That's very helpful. You know, maybe thinking about better equipment absorption, just wanted to ask about the CapEx guidance, the $25 to $35 million range. Just talk about what growth projects are embedded in there.

Yeah, so, you know, we've talked about our typical maintenance CapEx level being about $10 to $15 million a year, and so the incremental CapEx in our guidance is really to acquire equipment that's going to help us with some of the projects that we see coming, whether that's projects in the Pacific for the Navy or projects through the Gulf and the Atlantic Coast. It's a little bit different by project as to what that equipment might look like, but it's primarily going to be marine construction equipment.

Okay, got it. And last one for me would just be, you know, thinking about the backlog. You mentioned that was the key metric to watch as an indicator of future revenue. Just how would you have us think about the cadence of backlog growth as we progress through the quarters throughout 2025, especially as your sales mix is shifting to larger projects with longer lead times in marine?

Yeah, I mean, it's all dependent on when we have the opportunities, right? So I don't know that we have a good view of exactly how it's going to play out through the year. What I know is we've had a really strong first quarter already, and the opportunities continue to come in. So as far as cadence goes, I don't know if I have a great answer for you, but I expect it to be a strong year of building backlog throughout the year.

Yeah, and typically our concrete jobs have a quicker burn, and we've had a nice number of concrete wins here at the beginning of the year. Those are going to be mostly 25 backlog marine jobs with longer project times, and we expect a lot of those opportunities to come later in the year. So as we build up the marine, it'll be a little more longer dated into 26 and beyond.

Great. I'll pass it on. Thanks very much.

Thanks, Julia. Thanks.

As a reminder, if you have a question, please press star and one to be joined into the question queue. The next question comes from Brent Thielman with DA Davidson. Please go ahead.

Hey, great. Thanks. Good morning, Travis Scott. I guess just back on the CapEx, the step up here in 2025, does that get funded? Out of cash flow, I'm looking at interest costs. Looks like that's going to come down this year. So trying to figure out how you expect to fund it.

Yeah, we do expect that largely to be funded out of our operating cash flow. That's been our goal really is to fund our own growth through our operational improvements. So that's how we anticipate most of that CapEx being spent. You know, we do have a good relationship with our lenders, and they've indicated a willingness to provide us capital if we had the opportunity to employ more. And so that's always an option, but we do expect to largely fund that from operating cash flow.

So I could infer you're going to see a pretty good step up in cash from operations this year. I know you've got the big projects contributing to that, but it sounds like you're stepping up. Okay. And then I guess just wanted to get a sense around the buildup to the outlook for the year. I know you've got seasonality in the first quarter and the first half is always the case, but it sounds like this Pearl Harbor project slid a bit. it seems like the concrete segment has great visibility even more so than maybe when you started 2024. So does the sequencing of the year look a little different than in years past?

Yeah, I think it looks slightly different from last year. Definitely our first quarter tends to be lighter based on weather in Texas and things like that. But so, you know, first quarter seems like it's always the the low point of the year. Last year was kind of a low first half and high second half. This year we kind of see a buildup from first, second, third, and then as the Hawaii project starts wrapping up, fourth quarter probably not quite as strong as last fourth quarter.

And then, you know, last question, just, you know, on concrete, since the lead times are shorter, again, it seems like you got great visibility there. Is there an opportunity to get to that high single digits kind of margin range this year? It may not be embedded in guidance. I get that. But it seems like the business, as you said, really on a good footing here. You've got pretty good visibility this year.

I think we'll get close to it. I'm not sure if we're going to get all the way there, but I think we're going to make a lot more progress toward that. That concrete business is a lot of good things happening there, and we feel really good about continued improvement. So I think we're going to get close. I don't know if we'll get all the way there, but we'll get closer.

Yeah, we typically talk about that as being more of a medium-term goal, and it's largely going to be – enabled by our growth in scale as we spread our fixed cost over those two businesses more efficiently. That'll be the real difference as we kind of make that last bridge over to those target margins.

Got it. And just the last one, appreciate the comments just around, you know, obviously lots of questions about federal spending, but doesn't sound like that's necessarily affected the opportunities in the Asia Pacific. I guess the question is, but is it causing any consternation or push out in the timing of bidding these projects? Or is that just simply just kind of typical stuff that's moving these sort of projects to the right in terms of bidding opportunities?

Yeah, I would say that we haven't really seen a delay in when we expect those bids to come to market, as Travis talked about. Those MAC contracts are starting to put out named projects that are part of that increased $16 billion in our pipeline. So I don't think that any of the government pause discussion or cuts has really impacted the areas where we're seeing funding come from.

Does that answer your question, Brent?

Yeah, it does. No, I appreciate it. Thank you.

All right. Thanks, Brent.

Once again, if you would like to ask a question, please press star, then 1 to be joined into the question queue. There are no further questions at this time, which concludes our question and answer session. I would like to turn the conference back over to Travis Boone, CEO, for any closing remarks.

Thank you all again for joining our call. We continue to be appreciative of our teams who are working hard every day out in the elements to deliver and for our clients and work safely and get home safe at the end of every day. Thank you all for joining and look forward to a strong year and have a good day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.