Orion Group Holdings, Inc.

Good day and welcome to the Orion Group Holdings First Quarter 2025 Conference Call. All participants will be in 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 your telephone keypad. 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, Michael, and thanks everyone for joining us today to discuss Orion Group Holdings First Quarter 2025 financial results. We issued our earnings release after the market last night. It's available in the Investor Relations section of our website at oriongroupholdingsinc.com. I'm here today with Travis Boone, Chief Executive Officer, and Scott Fannish, 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'll turn the call over to Travis. Travis, please go ahead.

Thank you, Margaret, and good morning, everyone, and thank you for joining our first quarter 2025 conference call. I'll start with an overview of our first quarter results and market update, and then I'll turn it over to Scott to cover our financial results. We're off to a strong start in 2025. For the first quarter, we reported revenue of $189 million and adjusted EBITDA of $8 million, which reflects the strength of our operating model and the successful execution of our strategic priorities. Before I talk about our business, I'd like to address some topics that have been causing market uncertainty over the past few months. Starting with some of the actions of the Trump administration to reduce government spending and to impose tariffs. The recent tariffs and steps taken to reduce the size of the federal government will not have a material impact on our results for 2025. We were proactive in managing tariff risks starting last summer. After recently conducting a thorough evaluation of our business, we haven't identified any material impacts based on what we know today. Additionally, we have not seen reductions in government spending have an impact on the domestic infrastructure projects that we are pursuing or delivering, and there has been no fallback on the US government's China deterrence policy. Even though macroeconomic conditions remain somewhat fluid, certain policy directives from the Trump administration are clear and unwavering. Chief among them are a renewed focus on domestic industrial policy through reshoring US manufacturing and shipbuilding, and a strategic pivot to defense and economic investment in the Pacific over other geopolitical regions. At the heart of Trump's executive order, restoring America's maritime dominance is the goal of revitalizing US maritime power to promote national security and economic prosperity. This order will include grant programs for capital improvements to commercial shipyards and vessel repair facilities and dry docks, which are right in our wheelhouse. These key policy directives represent meaningful tailwinds for our business, and we expect the full benefit will begin to materialize over the next couple of years. We have seen no fallback in our market opportunities. On the contrary, so far this year, we have secured almost $350 million in new winds, $161 million in marine and $188 million in concrete, which have started or are scheduled to start within the next few months. These winds include projects across the full spectrum of Orion's specialized capabilities, including marine facilities, dredging, bridges, large buildings and data centers. Our solid start to the year of project winds brings our backlog plus awarded work to $890 million. We will continue to focus on building profitable backlog from our strong pipeline of opportunities. Most of our marine winds in the first quarter were detailed in our press release in February. Marine projects are typically larger in size and take longer to close. We currently have four large pursuits in the pipeline with decisions expected in the next couple of months, along with many more modest sized pursuits. I especially want to congratulate our concrete team for their strong start to the year with building backlog. In the last several months, we've seen increased demand across our markets and continue to win repeat business with our world-class partners. This quarter, we have won five data centers with our trusted partners, that total $47 million, bringing our total number of data centers to 35 and more than $235 million that we have delivered. Demand in the data center market remains strong. And so far, we haven't seen any signs of a slowdown. In fact, several hyperscalers have reaffirmed their commitment to investing in the AI revolution. Any pullback that we have seen is related to inability to obtain the power needed in certain locations. The new administration's goal to re-short manufacturing should also support the growth of our concrete business over time. In addition to data centers, other concrete winds included $17 million for projects with our partner, O-Line Construction, for a multi-story mixed-use project, a $10 million project with Durotech for a Houston school, and a $24 million award for Phase 2 of the Costo Distribution Center in South Florida. In summary, everyone at Orion is extremely excited about our future and our markets. Our morale has never been higher, and our business and operating model are well positioned to benefit from the current administration's agenda. With a talented, energized, and collaborative team focused on delivering projects safely with predictable excellence, we are on a strong path for continued success. Before I turn the call over to Scott, I want to encourage stockholders to cast your votes and participate in our virtual annual meeting coming up on May 15th. You can find the details in your proxy materials and on our website. Scott, your turn is back.

Thanks, Travis. And good morning, everyone. We're pleased with our first quarter results and the progress made in growing our business. As Travis highlighted, consolidated revenue increased over 17% to $189 million, and adjusted EBITDA doubled to $8.2 million. In the first quarter, marine revenue was up over 19%, and concrete revenue increased 13%. Our disciplined bidding standards and refined approach to business development contributed to the strong growth in both segments. Consolidated gross profit margin increased to $23 million, or .2% of revenue, up from 15.5 million, or .7% of revenue, in the same period last year. The 250 basis point increase in consolidated gross margin was driven by improvements in marine profitability, partially offset by lower concrete margins. SG&A expenses were $22.5 million, up from $19 million in the comparable period. As a percentage of total contract revenues, SG&A expenses increased to 12% from 11.8%. Incentive compensation, legal, IT, and operating lease expenses largely accounted for the increase in SG&A. While SG&A expenses have increased as we have invested in our growth, we expect a benefit from operating leverage as we continue to expand our top line. As a result, we expect SG&A as a percentage of revenue to improve in the near future. Turning to profitability, adjusted net income was $300,000, or one cent, per diluted share in the first quarter, compared to an adjusted net loss of $3.6 million, or 11 cents, per diluted share in the prior year period. First quarter net income included $1.7 million, or five cents, per diluted share of adjusted items. Gap net loss for the first quarter of 2025 was $1.4 million, or four cents, per diluted share. EBITDA for the first quarter increased to $6.3 million, while adjusted EBITDA grew to 8.2 million. Adjusted EBITDA margin improved 180 basis points to 4.3%, up from .5% last year. During the first quarter, adjusted EBITDA margin in the marine segment was 8.6%, compared to .9% last year. Adjusted EBITDA margin in our concrete segment was negative 4.4%, compared with positive .7% in the prior year period. Last year's first quarter exhibited unusually low marine margins due to project delays, and unusually high concrete margins due to project write-ups. This year's first quarter is more typical and in line with our expectations. Concrete experiences seasonally lower productivity in the first quarter, and we expect over the remainder of the year to see better margins in that business. 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 marine and high single digits for concrete. Moving on to bidding metrics, in the first quarter, we bid on projects worth approximately $761 million, winning $299 million. This equated to a -value-weighted win rate of 39% and a -to-bill ratio of 1.59 times for the first quarter. We expect to see continued progress capturing our opportunities and growing our backlog, but given the timing of project wins, there may be some variability in our win rate from quarter to quarter. As of March 31st, our backlog was $840 million compared to $729 million at the end of the prior quarter and $757 million at the end of the first quarter last year. Breaking out our first quarter backlog by segment, $607 million was related to our marine segment and $232 million was related to our concrete segment. As Travis mentioned, we are off to a strong start in 2025 and our -of-quarter backlog plus awards to subsequent quarter-end is $891 million. Turning to cash flow, in the March quarter, we reported negative $3.4 million of cash from operations compared to negative $22.8 million in the prior year quarter. Cash flow can vary from quarter to quarter due to the timing of project mobilizations and completions. We ended the March quarter with $13 million in cash. Total debt outstanding was $23.3 million and we had no outstanding borrowings under our revolving credit facility at the end of the quarter. Beginning this year, we made the cutover from our legacy systems to our new IT systems and processes for our operations and back office.

With the

heavy lifting behind us, we are now working to fine tune these systems. This project was a key initiative to position the company for greater growth. By having our business segments on the same financial platform, we will have clear line of sight across the entire business. These tools will facilitate information sharing and offer valuable insights into status of our projects, significantly enhancing our ability to monitor and manage operations in the field. As our operational enhancements take hold, we anticipate achieving greater efficiency, supporting ongoing business expansion while capitalizing on the benefits of fixed cost leverage. We are also investing in our people and facilities. We are currently in the process of consolidating our Houston area offices from three down to one. In late June, we will co-locate our marine, concrete, and shared services teams in an office building that was constructed by our concrete segment in the East River mixed use development near downtown Houston. During the first quarter, we incurred about $400,000 of incremental lease expense during our finish out of this facility. The leases of our vacated facilities will end during the third quarter, resulting in the elimination of this bubble cost and lower ongoing facility cost. Looking forward, we are excited by our improving performance in expanding pipeline. As Travis mentioned, a key indicator of the continued execution of our strategic plan will be our backlog growth in 2025, which will include winning projects for delivery in 2025 and beyond. Our first quarter performance was aligned to our expectations, and we are reiterating our guidance 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 to $46 million. This translates to a range of $0.11 to $0.17 for adjusted UPS. We are also maintaining our 2025 CAFEX guidance in the range of $25 million to $35 million as we invest for the opportunities ahead. In closing, our first quarter performance reflects the strength of our business model, the discipline of our execution, and the dedication of our team. With a solid foundation in place and a clear strategy for growth, we are well positioned to capitalize on the exciting opportunities ahead. We remain heads down on execution to drive sustainable value for our shareholders, and we look forward to sharing our progress next quarter. We'll open up the call for your questions. Go ahead, Michael.

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the key. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. We ask that you eliminate yourselves to one question and one follow-up. At this time, we'll pause momentarily to assemble our roster. And the first question comes from Aaron Spahala with Craig Hallam. Please go ahead.

Yeah. Good morning, Travis and Scott. Thanks for taking the questions. First for me, on the defense side of things, seeing some good movement on defense spending, shipbuilding, some of these RFPs do seem like they're starting to see some traction. Are you still thinking late this year and into 2026 for awards there? Curious if it could be sooner than that. And then if you could just frame the opportunity, what that could look like for you in the coming years.

Yeah. There's usually quite a bit of visibility, especially in some of these big federal contracts, Aaron. So I don't expect that it will get sped up too much more than what we were thinking probably late this year, early next for to be anything concrete there. Unless something changes with the administration or something like that, it's probably going to be in that timeframe.

All right. And then just, you know, maybe kind of, can you talk about the, just kind of the size of that opportunity that you're seeing, you know, potential, you know, multiple RFPs, just any other color you could provide there on how that maybe looks for you in the coming years?

Sure. There's a couple of project pursuits that we are working on for later this year, kind of into early next year. Size in the, let's call it $500 million range. And there's a couple of them kind of in the, in the hopper now with expectations that a few more will, will get, get hot in the next couple of months.

All right. Thank you for that. And then, you know, you just on concrete, you know, good, good to see strong order activity in the quarter. Can you just talk about the outlook for that business for the rest of this year? You know, it doesn't sound like you're, you're seeing a slowdown there since early April or anything, so if you could elaborate on that and then just speak to kind of confidence in the margin expansion goals that you've kind of laid out there.

Sure. We haven't with our, with our bidding activity and, and award activity, we haven't seen, we haven't seen much slowdown. That's not to say that continued uncertainty with, with what's going on might, might slow things down a little, but we're, we're not seeing it yet. So I guess knock on wood, we, we don't, we don't, we're hopeful that there's not going to be a change in the activity we've been seeing over the first, first quarter.

And on the margin question, you know, as, as we've had some pretty strong winds at the beginning of the year, we're going to see nice blowing coming out of that business. And, you know, again, the operating leverage that we've kind of got built up into the business, I think it's going to help those margins improve considerably.

All right. Thanks. And then maybe one last for me, just on, you know, the private downstream energy markets, you know, it seems like we're starting to see some traction there too, activities starting to pick up. Just curious, you know, if you're seeing that and kind of the outlook there.

Yeah, I think what we've seen is kind of increased bullishness by, by some of the, you know, Petrochem clients that have been maybe a little more reserved over the past, past administration, just being a little more bullish about, about their plans to move forward to projects. So we're, we're optimistic that, that the fair amount of activity is going to, it's going to happen. I think, I think everybody's watching the, you know, global oil prices and things like that, that, that could impact some of those projects moving forward. But I do, I do think that we'll, we're going to see more, more activity happening here in the near future.

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

And your next question comes from Julio Romero with SidoDian company. Please go ahead.

Thanks. Hey, good morning, Travis and Scott. Hope all is well.

Morning, Julio.

Hey, so can you maybe speak to the margins posted in the marine segment? I know, Scott, you mentioned that this quarter's margins for both segments are more typical of a first quarter, but nonetheless in marine, just really strong segment margins, can you speak to the drivers there and can the margin strength continue in the quarters ahead, even as we have kind of lumpier quarter to quarter sales?

Yeah, thanks, Julio. And you're right. You know, we do have varying performance quarter to quarter as, as, you know, the project mix changes as, as you roll through the quarters. And this was a particularly strong quarter on a number of projects in the marine business. And so that's why you see somewhat elevated margins there. We do think that these are, these are margins that the marine business can achieve on a regular basis, but probably is a high point for the kind of current year, but we will see, you know, continued growth in that business and similar to the concrete business, the growth will drive some further margin improvement. Within this quarter, we had, we had, you know, really good performance on Grand Bahamas shipyard, which are two of our larger projects. And so those are more impactful to the results.

Got it. That's, that's very helpful. And then, you know, it sounds like you've been very proactive in tariff mitigation strategies. You know, just given your exposure to public work, to government contracts, can you talk a bit about how your contracts are structured? You know, how you're, you're differentiated as a specialty contractor, especially on the marine side. And if that allows you any competitive advantages in this uncertain operating environment.

On the, on the tariff front, you know, we do do a fair amount of work with the federal government, as well as other government agencies that require either bi-American or a bi-American that, that is either US steel or our allies. So that, that helps a lot with, with the tariff, the tariff question. On other projects where we're more, more free to buy, buy steel from other locations, we, as, as I said, in my comments, we've been pretty careful starting last summer when started thinking Trump, Trump might win this thing and everybody, everybody knows Trump equals tariffs. So we were preparing for that and we, we had contingency in place for projects that we were bidding that, that had foreign steel and things like that. So we were, we were making sure we were prepared for the scenario that we're seeing in front of us now. What was the second part of your question, Julio?

Just thinking about you guys on a competitive basis, how you're a little you know, any factors that might have some differentiation versus competitors and competitive behavior in this environment?

Well, I think probably our most significant competitive damage in this particular arena is our strong supplier relationships. And we are a key customer of a number of steel suppliers who we have strong relationships with and an important part of their business. So we're in constant dialogue with them and we have, you know, in the past gotten our best pricing from our best partners.

Really helpful. Thanks for the caller.

Thanks,

Julio. And your next question comes from Brent Thielman with DA Davidson. Please go ahead.

Great, great. Thanks. Good morning.

Morning, Brent. I

guess I just want to do ask a little more around concrete this quarter and the loss. I know there's some seasonal factors that play into this, but just wanted to understand the moving pieces around that. And then, you know, does the outlook contemplate a return to profitability here going forward?

Yeah. So, you know, as you said, we have typically lower results in the first quarter of the concrete business, you know, as in Texas, there's less workable days during that timeframe. And so that is, you know, kind of what you see in the results. And so there's just a natural seasonal improvements that you'll see in quarters going forward that can help concrete margins as the revenue comes up and their utilization of their indirects goes up. And so as we kind of progress through the year, you know, we'll see our concrete business get back to profitability over the course of the year. And although we haven't really given segment specific guidance, this is all kind of aligned to our top line guidance of 42 to 46. So we feel comfortable that the concrete business is on track for our expectations for this year.

Okay.

Yeah. And I guess the follow-up, I mean, at least in the last couple of years, you've been sort of more back half heavy on revenue and earnings and EBITDA. Is that the expectation this year as we're thinking about, you know, ramping execution on this book of business?

Yeah, that's right. I mean, if you just kind of take the 42 to 46 and subtract the first quarter, you can see that the remaining three quarters are going to have a higher average. And that's a typical pattern for us. And as well, you know, as we continue to grow the business, there's just a natural up into the right movement of our top line over time. So as we move through the year, you'll see bigger quarters and more profitable quarters, and that's all kind of aligned to where we see the year finishing out.

Got it. Maybe just one last one, if I could sneak it in. You've got some pretty sizable pursuits you talked about in the federal side and what you've already booked in terms of backlog thus far. Is the balance sheet in capital position in the place you want it to be in order to support getting those, that sort of work going forward?

Yeah, that's a great question. You know, as I mentioned, we had no draws on our revolver at the end of the quarter you know, capacity on that is it's an ABL, so it ranges up and down, but you know, 40 to 60 million dollars of capacity generally. So we do feel like we've got the dry powder we need to take on projects, mobilize and, and kind of fund project cash flow. As for kind of just further growth of the business, you know, we're in constant dialogue with financing partners and, and, you know, our lender is, is always stands ready to help, as they say, as we look to acquire equipment, we expect that we could potentially borrow some more money to do that. We think that those will be high ROIC investments. Great.

Thanks,

Ken. Thanks, Ben. Again, if you have a question, please press star then one. The next question comes from Liam Burke with B Riley FBR. Please go ahead.

Thank you. Good morning, Travis. Good morning, Scott.

Morning, William.

Um, I guess Scott, the, the operating cash flow, uh, or negative cash flow was 2.4 million versus 22 last year. Understanding that first quarter is typically a weaker cash flow quarter and there's variability based on project flow. But, uh, is this a trend when you're considering you had 17% sales growth, uh, and much better operating cash flow? Is this a trend that we could expect as you balance the, you know, the, through the four quarters of this year?

In terms of increasing cash flow as our, as our top line increases, absolutely. We, uh, you know, the improvement on a year over year basis, it's probably a little larger this quarter because the first quarter was somewhat adversely affected in cash flow from investment investment in the Hawaii project. But, um, but yeah, we expect to continue to see improving cash flow. And, and, uh, over the course of this year, we expect our cash flow will turn positive.

Okay, great. Um, you talked about tariffs, uh, government regulation, not affecting the revenue or the bidding process. Uh, you talked about existing supplier relations being stable. Um, when I look at input costs and eventually your pre-buying or pre-investment is going to run its course. Do you anticipate any kind of pressure on input costs as we go through the year into next year?

I mean, we'll be, we'll be, as we bid projects, we'll be bidding, you know, we do expect costs to increase on, on steel and other, and other, uh, products that we're buying. Uh, and as, as prices increase and as we bid projects, we're bidding that the higher costs in there. So there will be, you know, bids will increase across the board. Um, but, you know, as far as our risk goes associated with increasing costs, um, our approach to mitigating the risk is not going to change. We're either going to, uh, you know, have a contingency in place or, or, uh, manage it in other ways to protect ourselves.

Great. Thank you, Travis. Thank you, Scott.

Thanks, Lee.

This concludes our question and answer session. I would like to turn the conference back over to Travis Boone, CEO for any closing remarks.

Thanks. I'd like to close the call by thanking our, our team for working safe every day. Uh, they're working out in the elements in the mud and the rain and the wind and the, and the dirt, um, and they work really hard and without them doing their jobs every day, we couldn't do ours. So really appreciate our teams out in the field working every day. Uh, really appreciate our partners and clients for, uh, for great relationships and, and, uh, continued trust and also thank our investors for their support of their business. Thank you. Have a, have a good day.

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