Orion Group Holdings Reports Adjusted Fourth Quarter and Full Year 2016 Results

HOUSTON, March 09, 2017 (GLOBE NEWSWIRE) — Orion Group Holdings, Inc. (NYSE:ORN) (the “Company”), a leading specialty construction company, today reported a net loss for the three months ended December 31, 2016, of $6.3 million ($0.23 diluted loss per share). These results compare to net income of $1.4 million ($0.06 diluted earnings per share) for the same period a year ago. Excluding one-time charges related to the accounting treatment of a specific contract with significant, highly unusual differing site conditions and net operating loss (NOL) valuation allowances, adjusted net income for the fourth quarter 2016 was $2.5 million ($0.09 diluted earnings per share). For the full year 2016, the Company reported a net loss of $3.6 million ($0.13 diluted loss per share), which compares to the prior full year 2015 net loss of $8.1 million ($0.29 diluted loss per share). Excluding stated one-time accounting treatment charges and NOL valuation allowances, adjusted net income for the full year 2016 was $5.2 million ($0.19 diluted earnings per share).

2016 Highlights

• Significant structural changes throughout the Company to provide a solid platform for future success
• 68% year over year increase in gross profit
• 86% year over year increase in EBITDA
• Bid on record-high $2.8 billion of projects during 2016, with a win rate of 24%
• Completed the integration of our Commercial Concrete Construction segment
• 58% year over year increase in Dallas market commercial concrete revenues
• Prepared to further develop our targeted infrastructure, industrial and building sectors

“During 2016, we made significant, long-term improvements in our operations, and saw continued strong demand for our services,” said Mark Stauffer, Orion Group Holding’s President and Chief Executive Officer. “We look forward to further growth and success in 2017. Our vision is to be the leading specialty construction company in the infrastructure, industrial, and building sectors, and we’ve made significant progress on this goal, particularly in the building sector, with the full integration of TAS, which has been a great success. We are focused on continuing to develop all three sectors and have laid significant ground work for our entry into the industrial sector in 2017.”

Mr. Stauffer continued, “Our fourth quarter reported results were impacted by one-time charges related to the accounting treatment of a contract issue involving significant, highly unusual differing site conditions on a large, multi-year dredging service project. Our ability to execute the project as originally planned was hampered when we encountered a significantly greater quantity of trash, debris, and ship traffic delays, than were anticipated by the project owner, or Orion, when the contract was signed. We have developed and are pursuing a large equitable contract adjustment, which we believe is fully supported by the contract and actual work performed, as well as the detailed facts and evidence that support our position. As a diligent contractor, we completed the project to the customer’s specifications and we are vigorously pursuing the proper compensation for our efforts and the project’s success. While we believe we are entitled to our full earned compensation, accounting practices limit the amount of contract revenue we can recognize at this time. Therefore, during the fourth quarter we incurred significant unforeseen expenses without the ability to recognize the related revenues for the work performed to complete this project. While we are disappointed with the accounting treatment and the associated impacts to our fourth quarter results, we ultimately expect to bring this matter to satisfactory conclusion. A successful outcome would reflect positively in our future results and be a benefit to our shareholders.”

Consolidated Results for Fourth Quarter 2016 Compared to Fourth Quarter 2015

• Contract revenues were $144.3 million, a decrease of 10.9%, as compared to $161.9 million in the prior year period. The decrease is primarily attributable to one-time charges related to the accounting treatment of a specific contract with significant differing site conditions, as well as the timing and mix of projects.
• Gross profit was $11.7 million, as compared to $17.4 million in the prior year period. Gross profit margin for fourth quarter 2016 was 8.1%, as compared to 10.8% in the prior year period. The decrease is primarily attributable to one-time charges related to the accounting treatment of a specific contract with significant differing site conditions, as well as the timing and mix of projects.
• Selling, General, and Administrative expenses were $17.3 million, as compared to $15.7 million in the prior year period. The increase is attributable to increased accounting and consulting fees, as well as higher group health expenses.
• EBITDA was $3.1 million, representing a 2.2% EBITDA margin, as compared to fourth quarter 2015 EBITDA of $12.8 million, or 8.0% EBITDA margin.

Consolidated Results for Full Year 2016 Compared to Full Year 2015

• Contract revenues were $578.2 million, an increase of 24.0%, as compared to $466.5 million. The increase is primarily attributable to the acquisition of TAS concrete, offset by the retrenchment of Tampa operations and to one-time charges related to the accounting treatment of a specific contract with significant differing site conditions.
• Gross profit was $67.5 million, an increase of 67.9%, as compared to $40.2 million. Gross profit margin was 11.7% for full year 2016, as compared to 8.6% in the prior year. The increase is primarily attributable to the acquisition of TAS concrete, offset by the retrenchment of Tampa operations and to one-time charges related to the accounting treatment of a specific contract with significant differing site conditions.
• Selling, General, and Administrative expense was $65.0 million, as compared with $47.7 million. The increase is primarily attributable to the acquisition of TAS concrete.
• EBITDA was $38.3 million, representing a 6.6% EBITDA margin, which compares to EBITDA of $20.6 million, or a 4.4% EBITDA margin.

Segment Results for Fourth Quarter 2016 Compared to Fourth Quarter 2015

Heavy Civil Marine Construction

• Contract revenues were $60.1 million, a decrease of 32.9%, as compared to $89.5 million. The decrease is primarily attributable to one-time charges related to the accounting treatment of a specific contract with significant differing site conditions as well as the timing and mix of projects.
• Operating loss was $11.3 million, as compared to an operating loss of $0.6 million. The decrease is primarily attributable to one-time charges related to the accounting treatment of a specific contract with significant differing site conditions as well as the timing and mix of projects.
• EBITDA was $(4.0) million, representing a (6.7)% EBITDA margin, as compared to $7.8 million EBITDA and an 8.7% EBITDA margin in the prior year period.

Commercial Concrete Construction

• Contract revenues were $84.2 million, an increase of approximately 16.3%, as compared to $72.4 million. The increase is attributable to a larger volume of work being executed in the Dallas market.
• Operating income was $6.0 million, as compared to operating income of $3.8 million.
• EBITDA was $7.2 million, representing an 8.5% EBITDA margin, as compared to $5.0 million EBITDA and a 6.9% EBITDA margin in the prior year period.

Segment Results for Full Year 2016 Compared to Full Year 2015

Heavy Civil Marine Construction

• Contract revenues were $284.6 million, a decrease of 18.0%, as compared to $347.1 million. The decrease is primarily attributable to the retrenchment of Tampa operations and to one-time charges related to the accounting treatment of a specific contract with significant differing site conditions.
• Operating loss was $12.4 million, as compared to an operating loss of $14.2 million. The loss is primarily attributable to the retrenchment of Tampa operations and to one-time charges related to the accounting treatment of a specific contract with significant differing site conditions.
• EBITDA was $15.9 million, representing a 5.6% EBITDA margin, as compared to $11.1 million EBITDA and a 3.2% EBITDA margin in the prior year period.

Commercial Concrete Construction

• Contract revenues were $293.6 million, an increase of 145.9%, as compared to $119.4 million. The increase is attributable to having TAS concrete operations for a full year as well as a larger volume of work being executed, primarily in the Dallas market.
• Operating income was $16.5 million, as compared to operating income of $6.2 million.
• EBITDA was $22.4 million, representing a 7.6% EBITDA margin, as compared to $9.5 million EBITDA and an 8.0% EBITDA margin in the prior year period.

Backlog

Backlog of work under contract as of December 31, 2016 was a record-high of $434.0 million, which compares with backlog under contract at December 31, 2015 of $357.6 million, or an increase of 21%. Of the 2016 ending backlog, $280.7 million was attributable to the Heavy Civil Marine Construction (HCMC) segment, while $153.3 million was attributable to the Commercial Concrete Construction (CCC) segment.

“During the fourth quarter, we bid on approximately $837 million and were successful on approximately $190 million,” said Chris DeAlmeida, Orion Group Holding’s Vice President and Chief Financial Officer. “This resulted in a 1.3 times book-to-bill ratio for the quarter and a win rate of 22.7%. In the HCMC segment, we bid on approximately $495 million during the fourth quarter 2016 and were successful on $139 million, which translated into a 2.3 times book-to-bill ratio and a win rate of 28.1% for the quarter. The CCC segment also had healthy bid levels for the quarter, bidding on approximately $342 million in work while being awarded approximately $51 million. This yielded a 0.61 times book-to-bill ratio and a win rate of 14.9% for the quarter.”

Outlook

Mr. Stauffer stated, “As we look at 2017, we remain optimistic about the opportunities across both our segments and we are poised to take advantage of overall economic improvements and potential increases in infrastructure spending. The HCMC segment is making strides in the right direction and we continue to track federal, state and local government funding initiatives, as well as private sector expansion plans throughout our operating areas. With respect to our CCC operations, we look forward to extending our momentum in the Dallas/Fort Worth market, maintaining a strong level of operations in Houston, and we anticipate overall growth and expansion from the segment in 2017. We are also focused on pursuing additional upland project opportunities in the industrial sector. As we expand our specialty construction services from the infrastructure and building sectors into the industrial sector, it meaningfully expands our addressable market.”

“We begin 2017 with a solid backlog, exciting opportunities for new business avenues and continued strong demand for our services across both business segments”, said Mr. DeAlmeida. “In total, we have approximately $782 million worth of bids outstanding, including approximately $78 million on which we are apparent low bidder, or have been awarded subsequent to the end of the fourth quarter, of which, approximately $10 million pertains to the HCMC segment and approximately $68 million is in the CCC segment. However, recently in our HCMC segment our customers have been experiencing delays in permitting by the U.S. Army Corps of Engineers, which has pushed out the start of some projects and certain bids. We believe this is temporary and while this will have some impact on the first quarter, it should lead to outperformance as the year progresses.

“As we look at full year 2017, we believe we will generate a significant improvement in EBITDA relative to 2016 driven by sustained bid opportunities, record-high backlog and a return to growth from our Tampa operations. As a result, we would expect to see full year 2017 EBITDA grow at least 40% as compared to the full year 2016, which would be a record for the Company. We could see outperformance to this year-over-year EBITDA growth target if permitting delays ease, growth in our commercial concrete business accelerates, Tampa operations growth accelerates, or we experience higher bid margins as a result of the increasing focus on infrastructure repair and upgrade that is currently unfolding in the U.S. Additionally, any expansion of our existing operations or future operations in the infrastructure, industrial, or building sectors could provide further catalyst for EBITDA growth outperformance. We are excited about where the Company is headed and look forward to achieving our goals in 2017.”

About Orion Group Holdings

Orion Group Holdings, Inc., a leading specialty construction company, provides services both on and off the water in the continental United States, Alaska, Canada and the Caribbean Basin through its heavy civil marine construction segment and its commercial concrete segment. The Company’s heavy civil marine construction segment services includes marine transportation, facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services. Its commercial concrete segment provides turnkey concrete construction services including pour and finish, dirt work, layout, forming, rebar, and mesh across the light commercial, structural and other associated business areas. The Company is headquartered in Houston, Texas with regional offices throughout its operating areas.

Source: Orion Marine Group