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Orion Group Holdings Inc
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Good day and welcome to Orion Group Holdings Second 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, Dustin, and thank you all for joining us today to discuss Orion Group Holdings second 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. Welcome to everyone joining our call today. In the second quarter, we made substantial progress against our strategic plan and Scott and I will cover the details in our prepared remarks.
Before that, I want to give you more context around our second quarter performance. As you saw in our press release, revenue came in at $182.5 million, our loss per share was $0.01 and adjusted EBITDA was $3.7 million.
Last quarter, we told you that we expected second quarter results to be better than the first quarter. And they are a significant improvement over last quarter, reflecting the progress we are making to improve our long-term performance. We expect continued improvement through the back half of the year.
I'll start with our concrete business. As you've heard me say before, our immediate priority was to improve concrete's profitability. When Scott and I came on Board, the concrete business had been losing money for too long.
Since we started the transformation of our company in September, we implemented disciplined bidding processes, made leadership changes, added more rigor in our project delivery, exited the unprofitable Central Texas market, focused our resources on our Dallas and Houston markets.
As a result of these actions, our concrete business returned to profitability in March. That profitability continued in April, May, and June, and we expect that trend to be sustainable. Right now, we have a large volume of work that has been bid, which reflects very strong demand in our core markets.
We won't win all that work, especially if it doesn't meet our bid margin thresholds. and some customers are delaying decisions until the cost of capital stabilizes. Even so we feel concrete is in a strong position for the rest 2023 and beyond.
While concrete was a bright spot this quarter, our volume challenges in the marine business continued, primarily in our dredging operation. For context, our dredging business has historically been roughly 20% of our revenue and 30% of our profit. When that business is slow and we don't have worked a bit, it has a big impact on us.
The Army Corps of Engineers has the responsibility that mandate and the funding to maintain US waterways along the Gulf Coast. They are very aware of the pressing need to dredge major shipping channels to keep commerce moving efficiently along the coast and to the ports.
Delay of this maintenance activity has far reaching consequences on the Gulf economy and the US supply chain, potentially disrupting shipping, goods handling, warehousing, and ground transportation.
While we are excited about the potential to see significant opportunities in this space in the long run, our near-term bidding opportunities continue to be limited relative to historical levels.
In this environment, our focus is on carefully managing our costs and maintaining bidding discipline. In the second quarter, we were successful in winning a $27 million dredging contract from the Corp. and just last week we won another $18 million with the Corp. for dredging in Louisiana. These wins will help to get our dredges busier in the latter half of the year.
We have several large outstanding bids for marine construction, and we remain confident that our opportunities to grow will continue. The $1.2 trillion Infrastructure Act was passed two years ago, and while only a very small portion of the work has started, it is coming.
Our project to build a dry dock at Pearl Harbor is underway and we are mobilizing equipment and resources to Hawaii. We expect our portion of the work on this $435 million contract to continue over the next two and a half years.
Orion is now fundamentally stronger and better positioned for accelerated profitable growth. We laid out our three point strategic plan earlier this year and we have made substantial progress in a short time. We are committed to doing what we say we will do and delivering on our plan to transform our business.
We began with a long checklist and have ticked off many of the boxes, all focused on derisking the business to clear the path for long-term and sustainable growth. We short up our balance sheet and liquidity. In many ways, this was one of the most critical objectives we faced. We secured a new $103 million ABL credit facility and have thus far monetized $25 million of assets with substantially more under contract.
We have attracted great talent to focus on business development and growth. Building stronger customer relationships is a critical element in driving future growth. Casey Stavino [ph] has joined us to lead Business Development for our efforts in Louisiana, which is an important state for us considering that $50 billion is earmarked for Louisiana Coastal restoration.
Alan Eckman joined us in July to lead Corporate Growth and Strategy reporting directly to me. These individuals bring years of experience and proven results to Orion. We will continue to invest in key resources focused on growing our business.
We're also investing in training and tools that will allow our people to reach their full potential. Our goal is for our people to clearly understand our business objectives, embrace a growth mindset, and speak about the business in the same way. This is an important step in strengthening our culture, leveraging best practices, driving synergies, and cross-selling capabilities.
Looking ahead, we are extremely excited about the future. In the remaining months of 2023, we will continue to build momentum in the execution of our strategic plan and expect quarter-over-quarter improvements in performance.
After establishing a foundation for the new Orion this year, 2024 will be a very different year for the company. We are fortunate to have the most exceptional people in the industry and two businesses with different catalysts for growth; concrete, more driven by the private sector and marine by the public sector that can balance one another during challenging times. We both are performing well as we expect in 2024 they can deliver dramatic growth.
Now, I'll turn the call over to Scott for his review of the financials and operations.
Thanks Travis. I'll cover some highlights and then review the second quarter results. The main headline of the second quarter is the progress we've made, strengthening our balance sheet and improving the company's liquidity. As we announced on May 15th, we closed on a three-year $103 million ABL credit facility, which includes a term loan of $38 million and a revolving credit facility up to $65 million.
By extending our debt maturities and increasing our access to capital, Orion will be positioned to make the most of our market opportunities. In addition, we closed $25 million in equipment and real estate sale leaseback transactions in the quarter. We're pleased to deliver progress on our asset monetization goals and we remain focused on opportunities to unlock value on our balance sheet.
In April, we signed a $36 million contract to sell our East West Jones property and then in June, we signed a for the sale and partial leaseback of our Baytown Pipe yard for $8.3 million. We expect these transactions to complete in the third and fourth quarter, respectively.
While our balance sheet is stronger, and that is the headline for the quarter, I'm more excited about the transformation of our concrete segment performance, which as Travis mentioned, hit positive adjusted EBITDA this quarter for the first time in two years.
This was a $3 million improvement over both the prior year and the prior quarter. These margin improvements are sustainable and they're supported by both operational process enhancements and more disciplined bidding leading to higher margin in our backlog.
Moving on to our financial results, Orion produced $182.5 million of revenue in the second quarter, up 14.7% sequentially and down 6.2% from the prior year. The year-over-year decline was largely due to our exit of the Central Texas construction market, partially offset by increased revenue in our marine segment driven by our Hawaii drydock project.
Second quarter gross profit was $13.8 million or 7.6% of revenue compared to $14.3 million or 7.4% of revenue in the prior year period. Gross margin percentage increased due to our actions to improve concrete segment margins, partially offset by lower equipment and labor utilization in our marine business.
Turning to more detail on our segments. Our marine segment reported second quarter revenue just over $100 million, up 22.1% over the prior year. Adjusted EBITDA was $3.5 million or 3.4% adjusted EBITDA margin. This compares to adjusted EBITDA of $8.7 million and an adjusted EBITDA margin of 10.6% in the second quarter of last year. This decrease in adjusted EBITDA was primarily related to lower labor and equipment utilization.
Second quarter concrete revenue was $82 million, down 27% from the prior year. Adjusted EBITDA was $264,000 or 0.3% of revenue compared to negative 3 million and a negative 2.7% margin last year. As I mentioned, we expect these margin improvements to be sustainable moving forward.
SG&A expenses for the second quarter were $18.1 million or 9.9% of revenues compared to $17.2 million or 8.9% of revenues in the prior year. SG&A grew due to increased compensation expense, partially offset by lower consulting expense related to management transition.
Net loss for the quarter was $300,000 or a loss of $0.01 per diluted share compared to a net loss of $3.1 million or a loss of $0.10 per diluted share in the prior year. This result included $4.3 million or $0.13 diluted earnings per share of non-recurring items.
Excluding these items, second quarter 2023 adjusted net loss was $4.5 million or $0.14 loss per diluted share. EBITDA for the second quarter was $7.6 million and adjusted EBITDA was $3.7 million.
Turning to bidding metrics. In the second quarter, we bid on approximately $762 million worth of opportunities and won $534 million with our Hawaii drydock project added to backlog. This resulted in a contract value weighted win rate of 70% and a book-to-bill ratio 2.9 times for the quarter.
As of the end of June, our backlog was $818.7 million, a 75% increase over backlog at the end of the first quarter. Breaking out our second quarter backlog, $614.9 million of this was in our marine segment, with $203.8 million in our concrete segment.
Furthermore, we've been awarded over $84 million for new project work not included in our backlog at the end of the second quarter. Of this, approximately $39 million is related to marine with $45 million related to concrete.
Moving on to our balance sheet. As of June 30th, we had approximately $8.9 million of cash and $36.9 million of outstanding debt. In relation to our new debt facility, we incurred $5.9 million of debt issuance cost that will be amortized over the life of the agreement. As of the end of the quarter, we had no outstanding borrowings under our revolver.
As we look ahead to the second half of the year, we're optimistic. As Travis said, we expect to see quarter-over-quarter improvements throughout the year as we realize the benefits of our strategic initiatives.
While the low bidding volume in the dredging market continues to impact our industry, our recent wins will enable us to get more of our fleet to work in the coming months. And we are excited as Hawaii ramps up and contributes significantly to our second half.
With that, we'll open the call to your questions. Dustin?
[Operator Instructions] Your first question comes from the line of Joe Gomes from Noble Capital. Mr. Gomes, your line is open.
Good morning. Thanks for taking my questions.
Good morning, Joe.
So, I just wanted to just clarify some stuff here on the kind concrete segment. You talked about it being profitable, basically since March. But if I'm looking at the tables in your release that says the concrete segment had an operating loss of about $1.5 million in the quarter. So, when you say profitability, you're just talking about on an adjusted EBITDA basis? And when do you forecast that on an operating income basis, the concrete segment will turn profitable.
Yes, Joe, that's right. We're thinking about it on an adjusted EBITDA basis. In terms of when it might turn profitable on an operating income basis, I don't know that I want to call a month there, but I do think that we'll see continued improvement in that business.
We think that the opportunities in front of it are pretty significant and the strides that we've taken to improve the margins there as we've said, we think are going to stick. So, we expect continued improvement in that business then we'll close that gap on the op inc as well over time.
Okay. Thank you for that. And are you completely out of Central Texas? Or is there still a few more things that you need to finish up there?
We're wrapping up. I think we have two, maybe two or three projects kind of in the final throes of completion here. They should be wrapped up, I believe, in the next month or so. we're almost out.
Yes. It's punch list work. There's not much there's not really any significant backlog associated with Central Texas remaining.
Okay, great. And one more, if I may. You talked about some of the monetizations, East West Jones, Baytown, I think, Port Lavaca South. When all of those are said and done, how much cash do you think they're going to bring in on the balance sheet?
Yes. So think we've talked about the $25 million already that we did this quarter between the outstanding contracts that we have and other things that we see as potential opportunities on the balance sheet. I think there's probably another $40 million to $50 million that we anticipate as realizable in the near-term. So, that's kind of what we're working towards in our goals right now.
Okay, great. Thanks. I'll get back in queue.
Thank you.
Thank you. Your next question comes from the line of Julio Romero from Sidoti. Sir, your line is open.
Great, thanks. Hey, good morning, Travis and Scott.
Good morning, Julio.
Hey, I wanted to start on the marine segment. How much revenue in the second quarter did you see from the Pearl Harbor drydock project? And how much revenue do you expect to realize from that project in the third quarter?
Yes. We don't talk on specific contracts really, but it was a pretty significant contributor to revenue in the second quarter and it should be more in the third quarter. I think that in the second quarter, it was several tens of millions, but it was -- it's going to be more going forward. We'll have a more significant ramp in the beginning of next year as we really start to start to ramp up.
Okay. I appreciate the color that you can give there. And it was nice to see the $45 million of dredging contracts that you won recently for Texas and Louisiana. But your commentary, Travis, on the prepared remarks, sounded a little bit kind of pessimistic on the pipeline of dredging bids. I don't know if you can just talk about that? Has it gotten maybe a little better or worse or same as three months ago?
I mean, it's I don't know if it's better or worse or roughly the same as it was three months ago. It's just been slow, quite frankly. Slower than historic volumes to be clear. And that as you know, it really impacted us in the second quarter. We had dredges sitting around waiting to go to work.
Fortunately, we have we'll get most of our dredges busy with the contracts we've won recently. But we need to keep the keep the bids going so that we can keep those keep those things moving when they're sitting. It costs us a lot of money.
We've had an active dialogue with the Army Corps of Engineers and we'll certainly continue that. They understand both the need and the value to their purchasing program of getting that bid flow up and getting the market in a more stable position.
Got it. And just one clarification question, you talked about the dredging historically has been 20% of revenue and 30% of profit. I assume those metrics are for the marine segment standalone and not for Orion overall. Is that correct?
It's actually overall.
Really? Okay. Okay. Great to clarify then. Okay. Excellent. All right. Well, thanks very much for taking the questions.
Sure. Thank you.
Thank you. Your next question comes from the of Dave Storms from Stonegate Capital Markets. Your line is now open
Good morning everyone. Just hoping we could touch on the burn rate for the backlog. I know last quarter you had mentioned it's in the high $300 million. Is that expected to remain constant, maybe another $300 million or so rest of the year, or is there any comment you can give on that?
Generally speaking, looking at our backlog, it's for the next 12 months, probably two-thirds. And I think that over the next six months, that -- it's probably the majority of that two-thirds, but I think that we typically are looking at backlog out longer than just the next few months. So, we see it right now in kind of the similar place and having a similar profile in terms of how it's going to schedule out is what we have typically seen in our business.
That's very helpful. Thank you. And then just sticking with the backlog, is there any sense that you could give us on what the margin expansion may look like specifically on the concrete segment in that backlog or you want to comment on that?
Well, in terms of how we're bidding jobs, we've not given a whole lot of details around that, but our historical approach to bidding jobs were several points higher than that in terms of how we're approaching our value in the marketplace right now. And we are being successful at those higher bid rates.
So, we'll see in our backlog over time, the rates coming up from our historical over the last 12 months, up another kind of two to three points over those historical rates, I think is what we'll see as that kind of bears out.
Yes, as we burn off the backlog with some of those lower bid margins.
That's very helpful. Thank you. One more if I could. You mentioned that in your concrete segment, you're kind of waiting for the cost of capital to stabilize before you think the bidding environment picks up again. Aside from the Army Corps of Engineers kind of change in their stance, are there any catalysts that you're keeping eye out for the marine segment to maybe pick up?
I'm not sure if you had a question on the concrete side there specifically, but I'll just clarify with the we've seen quite a few bid opportunities on the concrete side. A matter of projects actually moving forward. We're bidding work. The projects tend to or lagging longer before we get noticed to proceed and things like that as developers and move forward with projects.
On the marine side, there's quite a few different catalysts active right now that we see with bidding opportunities picking up. All of the ports are scrambling on the eastern part of the US to expand because of the expansion of the Panama Canal. So, bigger ships are able to come to the Panama Canal.
So, all the ports that that utilize ships coming through there are scrambling to increase whether it's increased shipping channel dips or the size of their ports to bring bigger and bigger ships in.
And then with that, the private sector does the same, right? All of the -- whether it's industrial Petrochem Companies all along the Gulf and East Coast that they utilize ships that come through there. They're also scrambling to be able to bring in bigger ships.
So, they're all in the same boat with needing to expand the facilities. So, you have that catalyst defense spending is continuing pretty rapidly, especially in the Pacific. So, that we expect that to view to continue ramping up. And then we've got the Infrastructure Act, IIJA, that's money we expect money to start flowing to projects in the relatively near future. So, there are several catalysts on the marine side that we're very optimistic about.
That's incredibly helpful. Thank you for the clarification and thank you for taking my question.
Thanks Dave.
Thank you. [Operator Instructions]
Thank you. And your next question comes from the line of Alex Rygiel. Your line is open.
Thank you. Good morning, Travis and Scott.
Good morning, Alex.
Can you -- first on the Hawaii project, is the profit recognition along the same trajectory as the revenue?
In terms of physical progress, it's a little bit different. The revenue recognition has a few different drivers. Physical progress is kind of that two and a half year fairly steady as we drive pile over that timeframe. And we can report on that as we go. But revenue recognition will largely align, but there'll be some differences early in the project as have some mobilization related revenues.
Okay. And then can you talk a bit about the cash needed for working capital on the Hawaii project?
Sure. Yes. In terms of our expectations of the level of working capital investment needed, I think we've talked before about between $5 million to $10 million of working capital investment, when we were negotiating those contracts, we were very careful to include in that good cash dynamics and terms for us both with the JV partner and the JV with the Navy.
So, we have a fairly short period of time that we have to wait some of our revenues and that helps to ease a little bit of the depth necessary for working capital.
And then lastly, what's your CapEx budget for this year and next?
Good question. We this year, I would say that our year to date CapEx is relatively low considering where we have historically been. I think Historically, you would typically see us around $15 million of annual CapEx.
I think that that's probably a good number for us on a normal year. And I would expect that we'll get a little more spending in the back half of the year, although we won't quite approach that level for this year.
Next year, I expect we'll probably see a little bit more spending and we're working through the plans on that right now. Not quite ready to talk about it, but we'll get there closer to the end of the year.
Perfect. Thank you very much. Nice quarter.
Thank you. More to come.
Thank you. [Operator Instructions]
And your next question comes from the line of David Wright from Henry Investment Trust. Sir, your line is open.
Good morning.
Good morning.
There was a press release from the company not quite two years ago, about a couple of contracts. One is State Road 405 Indian River Bridge and the other was six expansion. There were a couple of nice sized contracts that supposed to go on for two or three years. I was wondering could you give us an update on the status of each of those and whether you've had any snags or not?
Quite frankly, I've only been here nine months. I'm not familiar with either one of those projects. Those press releases were before my time and they must be complete because I'm not familiar with them at all. So, sorry, I had a better answer for you. They must be complete or something because --
We might know by different names.
Maybe we know by different names, right? I'm not familiar with those two projects.
Well, the first one, a $125 million over the NASA Causeway near Cape Canaveral.
Yes. Yes, thank you. That's helpful. I know that one. That's not the Causeway in our terminology. So, that project going really well. We reached a big milestone here a couple months ago with getting there's two -- it's a side-by-side bridges. So, we completed the first bridge here a couple of months ago ahead of schedule, and there's actually a bit of press from Florida DOT about that one. They were really excited to get that one open.
We're now in the demo phase of the existing bridge. and expect to get the second bridge open ahead of schedule as well. So that project is going very well.
Okay. The other one maybe you'll notice Port Arthur? Wood Arthur, Birth 6 expansion projects, $67 million?
Yes, it's under construction right. now. We're making good progress on it. And I'm not sure if I have more details on that other than we're making good progress on that project.
Well, great. Thanks for updating those two large contracts and good luck as you continue moving forward with your turnaround plans. Thanks for taking my questions.
Thank you. Appreciate it.
Thank you. [Operator Instructions]
And with that being said, there are no further questions at this time. Mr. Boone, I turn the call back over to you.
Thank you. I just wanted to close with we are really proud of the progress we've made with transforming this business to be healthier, profitable, and set up for future success. We've been doing what we said we would do and the results are starting to show. Our team has been working hard to make it all happen and we appreciate all of their efforts to make us stronger company.
This now concludes today's conference call. You may now disconnect.