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Good day, and welcome to Orion Group Holdings First Quarter 2023 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] On today's call, management will provide prepared remarks and then we will open up the call for your questions. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Margaret Boyce, Investor Relations for Orion. Please go ahead.
Thank you, operator, and thank you all for joining us today to discuss Orion Group Holdings first quarter 2023 financial results. We issued our earnings release after market last night. It is available in the Investor Relations section of our website at oriongroupholdingsinc.com.
I'm here today with Travis Boone, Chief Executive Officer of Orion; and Scott Thanisch, 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 would 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, such as statements regarding the current and expected status of our negotiations regarding a replacement credit facility are forward-looking statements. Our actual financial condition and the 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 10-Q and 10-K.
With that, I'd now like to turn the call over to Travis. Travis please go ahead.
Thank you, Margaret. On our last earnings call, we outlined our strategic plan for improved performance. And today, we have a lot of positive news to share.
Before that, I want to acknowledge that our first quarter results did not meet expectations. The main issue was volume and continued ramp-up of problem projects. We had several marine jobs that experienced owner delays in the quarter. And I know no one wants to hear us talk about weather, but we did, in fact, have some abnormally bad weather that impacted our business in Texas in January, and this significantly impacted our production rates and volume for the quarter.
As we've said, we are working toward closing out legacy underperforming projects by midyear. This resulted in revenue declining 9% to $159.2 million with a gross profit margin impact of around $5.8 million.
In the construction business, we are used to lumpy quarters, both on the upside and downside due to project timing and weather and other unforeseen delays, and we saw some of that this past quarter in both our concrete and marine businesses. We were very successful in winning significant contracts early in the quarter that will drive our volume later in the year, but we are seeing slower activity from major customers like the Army Corps of Engineers, especially for dredging in the Gulf.
Generally, we have seen some bids as well as contract awards slipping to the right. Overall, we think some of the hesitation with agencies revolves around funding availability from the infrastructure investment in JOBS Act especially with marine and transportation infrastructure projects.
However, on the concrete side of the business, we are continuing to see attractive bid opportunities from our key clients and partners, although we are hearing indications of possible slowing somewhat later in the year.
While we still have some project cleanup to complete, based on our current backlog, we anticipate that the second quarter will significantly improve over this quarter and in the back half of the year, we'll see some major acceleration. Until then, we're carefully managing expenses and running the business as efficiently as possible. We are executing our plan and all indications are that by September will be cranking. Above all, we certainly don't think the first quarter is indicative of what we can do for the full year. Scott will go into more detail on first quarter performance.
As we have said before, it will take time to get this ship turned around in performing to our expectations. Even so, we are acting with urgency and making steady progress on the execution front, and our new initiatives are starting to deliver tangible results. I'll start with our first initiative to fix profitability in the concrete business.
During the first quarter, we reached an important milestone in our concrete segment. March was our first profitable month in two years. The steps we've taken to implement more disciplined bidding processes have resulted in higher margin projects in Dallas and Houston, and the low-margin project in Central Texas will roll off in the next few months. Based on our current backlog and new opportunities under bid, we expect this trend to continue, especially with our new leader of the concrete segment.
Ardell Allred has already made important contributions in just a few short months. And we anticipate his leadership will have greater impact the longer he settles into his role. Ardell is focused on improving performance and profitability through continuing to rightsize the equipment fleet, streamlining the management structure, winning higher-margin work, improving field productivity, building synergies with the marine business and diversifying the concrete business into public sector projects.
The second part of our plan is to strengthen business development to drive growth. We are in the process of recruiting senior level talent to build out our growth team. We have hired a business development leader for our efforts in Louisiana, which is an important state for us due to market opportunities there. We are also in the process of hiring an executive to lead corporate growth and strategy reporting directly to me. The candidates we are interviewing are very enthusiastic about Orion's capabilities and reputation, and the positive industry dynamics ahead, including the $1.2 trillion infrastructure bill. The coastal investments in Louisiana and the Gulf, port expansions and maintenance as a result of the Panama Canal expansion and strong construction demand in both the private and public sector of the growing Texas market.
Our recent win in Hawaii is a game changer in so many ways, and I'd like to take a minute to expand on this joint venture to build a drydock at Pearl Harbor. We're very pleased with the terms of our contract and our ability to proactively mitigate downside risk. We have strong local partners, good contract terms and our material prices are locked in and our FOB Hawaii. These measures, among others, provide confidence that we can deliver on this large and important project profitably. This win also strengthens our team's credibility and reputation in the marketplace and we'll open the door to future opportunities working with the US Navy and the Pacific theater. Our work at Pearl Harbor will be underway by late this summer and encompasses the early stages of construction. Consequently, we expect the nearly $450 million in revenue to be recognized over the first 2.5 years, as we finish our portion of the project.
On the concrete side of the business, we've been pursuing larger, more complex and more profitable projects. Some may be under the impression that we simply pour concrete for sidewalks and driveways. But in fact, the type of work we do is complex and requires an extensive amount of expertise.
I'd like to share some details of our recent milestone on a 43-story tower project in Houston. We placed three million pounds of rebar in a few days and then poured 10,000 cubic yards of concrete, which is 1,000 truckloads with 9,000 man hours of work in less than 24 hours to complete a mass foundation.
It was an incredible planning and execution effort by our team. Our ability to deliver outstanding infrastructure concrete services is the main reason we have 90% repeat business rate. Our partners have absolute confidence in the strength and reliability of our team to deliver.
The third prong of our strategy is making the right investments and having the resources to realize our full potential. The big news is that we have reached final agreement on terms with a new credit facility. Scott will discuss further, but this is a key component in strengthening our financial flexibility.
Another headline is that we executed a contract for the sale of our East and West Jones properties on the Houston Shipping Channel on April 26. The purchase price is $36 million, and we anticipate closing in the third quarter. Scott will also give more color around our plan to monetize non-core property assets.
With these funding sources, we will have dry powder to make investments in the business to drive future growth and make fleet improvements. For example, investing in more efficient and lower emissions power plants in our dredging fleet will expand our opportunities on our margins as well as support Orion and our customers' commitment to the environment and lower carbon emissions.
With the completion of our projects in Central Texas this year, we are disposing of some underutilized equipment. Also, most of the equipment that we use in our concrete business can be easily leased or rented rather than purchased, and we will be taking this capital-light approach going forward.
We've continued to remove the silos between divisions that has inhibited our talented people from sharing skill sets, relationships and ideas. There is tremendous power in collaboration of an integrated team and has really energized our entire organization.
I'm very proud that for the first time in our company's history, we brought all three divisions of our company together; our engineering group, our marine division and our concrete division to jointly pursue a major project. Right now, we don't know, if we won the project, but it demonstrates our new culture of eliminating historical silos and moving forward as an integrated company.
Finally, the most important resource is our people, and I believe we have the best talent in the industry, guided by our core values of safety, quality, delivery and teamwork, all based on integrity. Our experienced professionals bring an unmatched depth of industry knowledge and exceptional service to every project that we undertake. Morale is high and our people are more enthusiastic than ever to deliver exceptional results to customers and stakeholders alike.
I will now turn it over to Scott to discuss the first quarter financials.
Thanks, Travis. As Travis just addressed, we're not satisfied with our first quarter results. We expect to deliver substantially stronger financial results throughout the rest of the year as we complete our exit of Central Texas jobs as we realize the benefits of our margin improvement efforts, and as we begin to ramp-up our work in Hawaii and on other recently won projects. Our confidence is rooted in the meaningful progress we are making, executing our three-point strategic plan to improve financial performance. I'll cover some highlights and then review the first quarter results. The first piece of important news is we are very near the successful completion of our ABL credit facility. As Travis mentioned, we have reached final agreement on terms and signature pages are in escrow, while we work to complete the final loan documentation. The close of this facility will provide us with a term loan of $38 million and a revolving credit facility up to $65 million. We expect to have further news to report on this in the near future.
Second, as you know, we've been in discussions for several quarters to monetize our real estate assets, including sale-leaseback transactions or sales of our non-core real estate assets. In April, we signed a $36 million sales contract for our East West Jones property, which is 341 acres adjacent to the Houston shipping chain that we formerly used as a dredge placement area. We expect to close this transaction in the third quarter and we will use the proceeds to reduce debt and for general corporate purposes.
Furthermore, we have two properties, our Baytown Pipe yard and Port Lavaca South Yard, under letters of intent for sale leaseback. We are pleased with the progress on our real estate monetization initiative and look forward to redeploying this capital in ways that can drive cash flow and shareholder returns.
Third, in addition to the key senior hires Travis mentioned, we also recruited a Director of Operational Excellence to develop our people and processes. We view this senior and new position as key to increasing project profitability and delivering improved financial performance on a consistent basis.
Moving on to our financial results. Once again, we believe our first quarter results are not indicative of what we can deliver for the full year. In the first quarter, revenue decreased 9% to $159.2 million from $174.9 million last year, largely due to our exit of the Central Texas construction market, as well as weather and owner delays that shifted production and revenue recognition to the right.
First quarter gross profit was $5.8 million or 3.7% of revenue compared to $12.8 million or 7.3% in the prior year period. Approximately half of this decrease was due to the impact of weather in Texas driving lower revenue and lower labor and equipment utilization. The rest of the decrease related to cleanup of problem projects driving write-downs in our business. This was partly offset by actions to manage costs during project delays by reallocating equipment, reducing the size of the fleet and reducing headcount, as well as the realization of margin improvements in the concrete business as a result of our margin improvement initiatives.
Turning to our segments. Our Marine segment reported first quarter revenues of $79.3 million, compared to $84.5 million in revenue during the first quarter last year. Adjusted EBITDA was negative $1.3 million or negative 1.6% adjusted EBITDA margin. This compares to adjusted EBITDA of $7.3 million and an adjusted EBITDA margin of 8.6% in the first quarter of last year. This decrease in adjusted EBITDA was primarily related to lower revenue from production shifted right due to weather, as well as owner delays, which resulted in lower production compared to the prior year quarter, which had more active projects.
First quarter concrete revenue was $79.9 million, a decline from $90.5 million reported in the prior year quarter. Adjusted EBITDA was negative $2.8 million or 3.5% of revenue compared to negative $2 million or negative 2.3% of revenue last year.
Both the decline in revenue and the decline in margin are due to jobs in Central Texas. While the full quarter adjusted EBITDA declined, as Travis mentioned, the business did reach an important milestone by breaking into positive territory with its first profitable month in two years. Given the changes we've made around disciplined bidding and higher-value quality projects, we expect this trend to continue.
SG&A expenses for the first quarter were $17 million or 10.8% of revenues compared to 16.2% or 9.1% of revenues in the prior year period. SG&A grew slightly due to increased compensation expense, partially offset by lower consulting expense related to the management transition.
Net loss for the quarter was $12.6 million or a loss of $0.39 per diluted share compared to a net loss of $4.9 million or a loss of $0.16 per diluted share in the quarter a year ago. This included $2.3 million of non-recurring items.
First quarter 2023 adjusted net loss was $10.3 million or $0.32 diluted loss per share. Adjusted EBITDA was negative $4.1 million compared to adjusted EBITDA for the first quarter of 2022 of $5.2 million.
Turning to bidding metrics. In the first quarter, we bid on approximately $1.4 billion worth of opportunities and on $178 million. This resulted in a win rate of 12.5% and a book-to-bill ratio of 1.12 times for the quarter.
As of March 31, 2023 our backlog was $467.4 million up from $448.8 million on December 31. Breaking out our first quarter backlog, $187 million was in our Marine segment, and $280.4 million was in our Concrete segment. Approximately $382.6 million of this backlog will burn during the year with the remainder associated with longer-term projects extending into 2024 and beyond.
Additionally, we've been awarded over $624 million for new project work not included in our backlog at the end of the first quarter. Of this, approximately $522 million is related to the Marine segment, including our $450 million contract with the US Navy as part of the joint venture, while $102 million is related to the Concrete segment. We expect to execute approximately one-fourth of these awarded jobs in 2023.
Moving on to the balance sheet. As of March 31, we had approximately $2.8 million of cash and $41 million of outstanding debt. We remain focused on optimizing our capital and disposing of underutilized and non-core assets. As we free up capital with asset dispositions and drive operating performance, we are confident that we will increase our cash flow and realize improved returns on capital.
As we have said before, we are not providing guidance during this transitional year. We do expect substantially improved results throughout the year, as we realize the benefits of our action plans. Our first goal is to return to margin levels that Orion achieved before the business disruptions of the past few years. With our more selective targeting of projects, higher bidding margins and operational improvements, we expect to make steady progress quarter-after-quarter.
Once we've restored the business to its historical margins, our second goal is to do much better, continuously improving delivered margins by managing our business more efficiently and productively. When the business is operating well, we believe that the concrete segment should be generating EBITDA margins in the high single-digits, and the marine segment should deliver low double-digit EBITDA margins.
With that, I'll turn the call back to Travis.
Thanks, Scott. While we had disappointing results this quarter, we remain optimistic about the year and about the future of Orion. The actions we are taking to make our business healthy are working and will drive long-term stockholder value. I want to recognize the tremendous contribution and dedication that our employees have shown as we continue this journey together to reenergize and transform our company.
We know there is still hard work ahead, but we are fully committed to realizing Orion's full potential and are very excited about our future. We are grateful for the support of our shareholders and look forward to sharing our progress as it unfolds. Operator, we're ready to open the line for questions.
The floor is now open for your questions. [Operator Instructions] Our first question comes from the line of Julio Romero from Sidoti. Your line is open.
Thank you. Hey, god morning, Travis and Scott.
Good morning, Julio.
Hey, good morning. Maybe to start on the marine side. I know you talked about weather and customer delays. I think last quarter, you had mentioned one particular project with higher job costs. I'm just curious if that project had an impact in the first quarter. And then if it did, are you complete or near completion on that one project?
Yes, the project that you're talking about, we are very near completion on that. And that wasn't a significant contributor to the underperformance of the first quarter that we experienced. So that we're getting ready to wrap that one up.
Okay. That's very helpful. And then for my follow-up on the concrete side. Congratulations on getting that profitable in March. Was the driver of turning concrete profitable in March, just better bid cycling through the backlog, or were there other drivers that you did right? And then if you could talk about how concrete performed through April from a profitability standpoint? Thank you.
Sure. So definitely, the plan is coming together, if you will. Definitely part of it was on the front end with the bidding side of it. And then the other part of it is better execution and better management of the business. And so it's kind of several parts that are coming together. I don't think we're going to say exactly what April looks like yet, but it's…
We see continuing trends in April, and we're encouraged that, that business has kind of reached a place where it can start to perform the way we expect it can.
That's right. We're confident.
Great. Thanks very much.
Thanks, Julio.
Our final question comes from the line of Joe Gomes from Noble Capital. Your line is open.
Good morning, Travis and Scott. Thanks for taking my questions.
Good morning, Joe.
So I'm just wondering, if you could maybe break out a little bit, approaches a couple of ways here. So you kind of call out the three things for impacts for the decline in revenue, weather, customer delays and obviously, the concrete segment reductions.
Just trying to get a better feel for the -- what kind of impact the weather and the customer delays had on the revenue on the revenues for the quarter? And would we anticipate or expect to see those coming in, in the second quarter.
Yeah. So in terms of weather, I guess, what we experienced kind of straddle January, February with winter storm Lara, affecting pretty significantly the Texas market. And when you look across both businesses, it really cost us about two weeks' worth of production, so, a fairly significant impact to revenue.
Now, we always want to catch those things up and deliver within the same quarter, if we can. But in this particular case, we just couldn't catch-up on that much of a delay. So anytime you have a weather delay, you are going to realize that production in the future.
And so, we're essentially working to backfill as much as we can and work the hours that can really do that in any given time when we experienced that. But in this next quarter coming in, I think that there's probably not a big uplift that you'll see spilling over from the first quarter as it is going to take us a little bit more time to kind of work through and pull in all of that production.
But ideally, that wasn't out of -- I mean, it was a named winter storm in Texas, right? So it's out of the norm, type of impact on us, we're hopeful that the second quarter will be I mean, so far, so good with weather this quarter and hopefully, for the rest of the quarter and beyond will be good. And we won't have to worry about that anymore. And I recognize that weather has been a sort of a sore subject with investors in Orion, but we're hopeful not to have to talk about weather again.
Okay. Great. Thanks for that. And then, on the East-West Jones and the other properties on East West Jones, so you're selling it for $36 million. How much of that do you think comes in on an after-tax basis that you're able to apply to pay down debt and/or for corporate purposes. And can you give us any indication for the other two properties, as to what ballpark figure what they could be bringing in?
Yeah. So we are expecting that there's going to be kind of nominal cost to close that transaction as you have in any real estate transaction. In terms of the tax bite, we have losses that enable us to shield our earnings related to that sale.
So I don't expect that taxes are going to take a significant chunk of the proceeds down the road. So we intend to utilize the largest portion of that proceeds really to fund the working capital investments and investment in equipment that we need for Hawaii. And we will also be using a good portion of that to pay down debt.
On the other properties, we've got -- we've been marketing those for some time, as you know. We feel very good about these transactions have had very good meetings with these buyers who understand these properties. We'll talk more about proceeds and amounts next when we announce the close of those transactions. But I would say that, it's consistent with the prices that we've marketed those properties and talked about them in the past.
Great. Thank you very much.
[Operator Instructions] We do have a question from the line of Dave Storms from Stonegate Capital Markets. Your line is open.
Good morning. This is John stepping in for Dave.
Hi, John.
So what are you seeing in the market bid volume-wise? What are your expectations for the volumes? How do you see them changing for the remainder of 2023 and going into 2024?
It kind of varies by different portions of our business, John. We've got -- we've got on the concrete side, things have continued to -- we've seen a steady volume of bidding on the concrete side. That's been good. We're hearing indications that there may be -- it may slow down a little later in the year, but so far, so good on the concrete side.
On the marine side, dredging is definitely slow right now on the bidding -- bidding front with the core of engineers in the Gulf. That's definitely something that we're keeping an eye on and concerned about, quite frankly. And then kind of marine construction, there's been a -- it's -- there's been a decent steady flow of marine construction bids.
I wouldn't say a plethora of bids, but we've been -- it's been a steady flow. We've got some good outstanding bids that we're hoping to hear positive news on in the near future. But it's with the exception of, I would say, our dredging business it's been a decent flow of bids.
What we haven't seen probably yet is a large number of projects that are coming out of the latest federal funding mandates. And so that that takes some time to work its way down to the actual state and local authorities that are going to be spending that money. But we still see that as a pretty significant uplift of the entire market a little bit further down the road.
Thank you. That's a very helpful And I guess, as you mentioned, concrete was challenged by weather events and intentional improvements. Are you seeing any green shoots from the implemented improvements? And what are your expectations on the length and depth of the J curve as that segment improves?
We are definitely seeing improvements in just about every aspect of our operations on the Concrete business. lower issues on projects, fewer write-downs, better execution. And then in terms of our bidding practices, we've seen through latest market bids, opportunities with existing customers, repeat customers who we've done highly complex and successful projects with and we're seeing opportunities to get the kind of margins that we think that our business is entitled to, based on our capabilities and our ability to deliver for our customers.
So, see a lot of really good positive trends. Ardell has done a great job really kind of shaking things up and doing things differently and is getting a great deal of support from the team in the Concrete segment. I think that the entire business is excited about where it's headed, and we think that there's a lot of room for improvement still.
Awesome. Really appreciate it.
Thanks.
Okay. And our final question comes from the line of Poe Fratt from AGP. Your line is open.
Yes. Good morning Travis, good morning Scott. Its Alliance Global Partners. Can we talk about -- nobody has asked about the credit facility? And can you -- since the terms have been -- it sounds like [Indiscernible] just subject to documentation. Can you give us a little better idea of some of the terms, how long it's the term loan, the availability under the revolver? Is there a set tenure to that too?
And then also, if you could sort of give us an idea of sort of where your interest rate margin is going to come in on it and whether there might be any equity sweeteners on the arrangement with the private lender?
Sure, I'll answer what I can. Obviously, those are discussions that we're wrapping up right now. So, we expect to come back to you guys with more information on that when it's all finalized. But it's a three-year tenure on the term loan and the revolver. In terms of the rates, we have on the revolver rate fairly consistent with our previous debt on the term loan rates that are pretty consistent with what you're seeing for ABL loans of this type in the market right now. As you know, we went to market and ran a competitive process. So, we feel good that what we're achieving with this debt is going to be consistent with other market positions right now. So
Which, by the way, the market is not great for getting a loan, but it is what it is.
But a lot of flexibility in our operations with capacity in the revolver. We're expecting to -- it's like a typical ABL revolver with a borrowing base that it undergirds your borrowing capacity. So, over time, the amount of capacity we have changes, and we expect that to grow as the business grows.
Great. And then if you look at your awards subsequent to the end of the quarter, I think in the press release, you talked about $624 million the Navy contract is, what, $450 roughly of that. What are the other components of that sort of delta of $175 million?
There's both marine and concrete wins of varying sizes kind of throughout the business that make up that delta there. So, I wouldn't say there's one mega project in there. It's a variety of projects throughout the business.
And then, I think I heard Scott say that a quarter of that $624 million would be realized in -- or burned off in 2023. Was that correct?
Yes.
And if so, can you talk about the burn rate for the remainder. It sounds like it would be maybe 50% in 2024 and then 25% in 2025. Is that fairly -- is that a fair estimate?
I'd say that's a reasonable expectation.
Yes.
I didn't answer one part of your question earlier. There's no equity component to the debt.
Okay. Great. And then, along that line, you highlighted long-term margins target for marine of low-double digit, I think. Just to clarify is that on a gross margin basis or EBITDA basis? And then if you could talk about whether the Navy contracts meets that long-term goal?
That's on the EBITDA front. So, those are kind of quarter margins on the bottom of the P&L. The Navy contract is a massive contract. And I would say that we definitely achieved our margin goals with that contract. Given its size, as you might expect, it's not going to be the highest contract -- the highest margin contract that we have. But we're very pleased with where it has been, we think that when executed we'll be able to deliver a really nice result for ourselves and for shareholders.
Great. Congratulations. You guys have been really busy, so covered a lot of ground. Thanks.
Yes, we have.
Thanks, Poe.
Thanks, Poe.
[Operator Instructions] I would now like to turn the call over to Travis Boone for closing remarks.
Thank you, and thank you all for joining the call today. We enjoyed our time with you, and looking forward to continuing to have good news for you in the coming quarters.
Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.