Orion Group Holdings Reports Adjusted Fourth Quarter and Full Year 2017 Results

Orion Group Holdings, Inc., a leading specialty construction company, today reported net income of $9.5 million ($0.34 diluted earnings per share) for the three months ended December 31, 2017. These results compare to net loss of $6.3 million, ($0.23 diluted loss per share) for the same period a year ago. Excluding net benefits of $4.3 million related to the implementation of the Tax Cuts and Jobs Act of 2017 and other tax reserves, adjusted net income for the fourth quarter 2017 was $5.2 million ($0.19 diluted earnings per share). For the full year 2017, the Company reported net income of $0.4 million ($0.01 diluted earnings per share), which compares to the prior full year 2016 net loss of $3.6 million ($0.13 diluted loss per share). Excluding the fourth quarter tax-related benefit, adjusted net loss for the full year 2017 was $3.9 million ($0.14 diluted loss per share).

2017 Highlights

• Continued strong demand for services across market segments
• Bid on $2.5 billion of projects with a win rate of 20%
• Continued to right-size infrastructure sector by reducing costs and evaluating equipment needs in the marine segment to meet forward market demand
• Expanded the building sector by entering into the strong growth market of Central Texas with the acquisition and integration of a concrete company serving this region
• Prepared to further develop our targeted infrastructure, industrial and building sectors

“While 2017 was a challenging year with customer permitting delays in the first half, and significant hurricane impacts in the third quarter, we ended the year with solid operational performance and continued strong market demand,” said Mark Stauffer, Orion Group Holding’s President and Chief Executive Officer. “The recent hurricanes created opportunity for additional projects in the fourth quarter and helped lead to better equipment utilization during the quarter in our marine segment. Upcoming opportunities, in addition to macroeconomic drivers for our concrete and marine business segments, provide us with confidence as we enter 2018. We are pleased with the Company’s fourth quarter execution and look forward to continued strong execution throughout 2018.”

Consolidated Results for Fourth Quarter 2017 Compared to Fourth Quarter 2016

• Contract revenues were $162.2 million, an increase of 12.4%, as compared to $144.3 million. The increase is primarily attributable to the expansion into the Central Texas market, as well as absence of one-time charges related to the accounting treatment of a specific contract with significant differing site conditions in 2016.
• Gross profit was $27.8 million, as compared to $11.7 million. Gross profit margin was 17.1%, as compared to 8.1%. The increase is primarily attributable to the increase in demand in the Marine segment related to an active hurricane season and timing and mix of projects, as well as the absence of one-time charges related to the accounting treatment of a specific contract with significant differing site conditions during 2016.
• Selling, General, and Administrative expenses were $17.0 million, as compared to $17.3 million. The decrease is primarily attributed to reductions in corporate overhead and consulting fees, offset by the addition of Central Texas operations in the Concrete segment and to one-time charges related to management changes.
• Operating income was $10.8 million as compared to operating loss of $5.3 million. The increase is primarily attributable to the increase in demand in the Marine segment related to an active hurricane season and timing and mix of projects, as well as the absence of one-time charges related to the accounting treatment of a specific contract with significant differing site conditions during 2016.
• EBITDA was $17.9 million, representing a 11.1% EBITDA margin, as compared to EBITDA of $3.1 million, or 2.2% EBITDA margin.

Consolidated Results for Full Year 2017 Compared to Full Year 2016

• Contract revenues were $578.6 million, an increase of 0.1%, as compared to $578.2 million. The slight increase is attributed to the absence of one time-time charges from prior year, offset by delays in customers obtaining necessary permits and unprecedented weather events affecting operations.
• Gross profit was $66.9 million, a decrease of 0.9%, as compared to $67.5 million. Gross profit margin was 11.6% as compared to 11.7% in the prior year. The decrease is attributed to delays in customers obtaining necessary permits and unprecedented weather events affecting operations, offset by the absence of one-time charges from the prior year.
• Selling, General, and Administrative expense was $66.0 million, as compared with $65.0 million. The increase is attributed to the acquisition of TBC in the Concrete segment offset by reductions in corporate overhead and consulting fees.
• Operating income was $1.5 million, as compared to $4.1 million. The decrease is attributed to delays in customers obtaining necessary permits and unprecedented weather events affecting operations, partially offset by solid execution in Q4.
• EBITDA was $31.1 million, representing a 5.4% EBITDA margin, which compares to EBITDA of $38.3 million, or a 6.6% EBITDA margin. The decrease is due to delays in customers obtaining necessary permits and unprecedented weather events, slightly offset by solid execution in Q4.

Segment Results for Fourth Quarter 2017 Compared to Fourth Quarter 2016

Marine Segment

• Contract revenues were $88.2 million, an increase of 46.8%, as compared to $60.1 million. The increase is primarily attributable to higher demand related to an active hurricane season, timing and mix of projects and the absence of one-time charges related to the accounting treatment of a specific contract with significant differing site conditions in 2016.
• Operating income was $7.8 million, as compared to an operating loss of $11.3 million. The increase is primarily attributable to increased demand related to an active hurricane season, the absence of one-time charges related to the accounting treatment of a specific contract with significant differing site conditions in 2016 and solid execution in Q4.
• EBITDA was $15.4 million, representing a 17.4% EBITDA margin, as compared to $(4.0) million EBITDA and a (6.7)% EBITDA margin in the prior year period.

Concrete Segment

• Contract revenues were $74.0 million, a decrease of approximately 12.1%, as compared to $84.2 million. The decrease is attributable to abnormal winter weather delays, which caused certain project delays.
• Operating income was $3.1 million, as compared to operating income of $6.0 million. The decrease is attributable to abnormal winter weather delays, which caused certain project delays.
• EBITDA was $2.5 million, representing a 3.5% EBITDA margin, as compared to $7.2 million EBITDA and a 8.5% EBITDA margin. The decrease is attributable to abnormal winter weather delays, which caused certain project delays.

Segment Results for Full Year 2017 Compared to Full Year 2016

Marine Segment

• Contract revenues were $285.7 million, an increase of 0.4%, as compared to $284.6 million. The increase is attributed to the absence of one time-time charges from the prior year, offset by delays in customers obtaining necessary permits and unprecedented weather events affecting operations.
• Operating loss was $18.4 million, as compared to an operating loss of $12.4 million. The decrease is attributed to delays in customers obtaining necessary permits and unprecedented weather events affecting operations.
• EBITDA was $11.2 million, representing a 3.9% EBITDA margin, as compared to $15.9 million EBITDA and a 5.6% EBITDA margin. The decrease is attributed to delays in customers obtaining necessary permits and unprecedented weather events affecting operations.

Concrete Segment

• Contract revenues were $292.8 million, a decrease of 0.3%, as compared to $293.6 million. The decrease is attributable to Hurricane Harvey and abnormal winter weather delays in Q4, partially offset by the expansion into the Central Texas market.
• Operating income was $19.9 million, as compared to operating income of $16.5 million. The increase is attributable to margin expansion in contract execution as well as decreased SG&A expenses compared to the prior year. This was partially offset by one-time acquisition costs related to the expansion into the Central Texas market.
• EBITDA was $19.9 million, representing a 6.8% EBITDA margin, as compared to $22.4 million EBITDA and a 7.6% EBITDA margin. The decrease is attributable to an increase in allocated corporate expenses to the reportable segment.

Backlog

Backlog of work under contract as of December 31, 2017 was $360.6 million, which compares with backlog under contract at December 31, 2016 of $434.0 million, a decrease of 16.9%. Of the 2017 ending backlog, $177.0 million was attributable to the Marine segment, while $183.6 million was attributable to the Concrete segment. The change in year over year backlog is due to the timing and mix of projects award, as well as a significantly large project awarded at the end of 2016.

“During the fourth quarter, we bid on approximately $606 million and were successful on approximately $140 million,” said Chris DeAlmeida, Orion Group Holding’s Executive Vice President and Chief Financial Officer. “This resulted in a 0.86 times book-to-bill ratio and a win rate of 23.1%. In the Marine segment, we bid on approximately $179 million during the fourth quarter 2017 and were successful on $66 million, which translated into a 0.75 times book-to-bill ratio and a win rate of 36.8%. The Concrete segment also had healthy bid levels for the quarter, bidding on approximately $426 million in work while being awarded approximately $74 million. This yielded a 0.99 times book-to-bill ratio and a win rate of 17.4%.”

Backlog consists of projects under contract that have either (a) not been started, or (b) are in progress and not yet complete, and the Company cannot guarantee that the revenue projected in its backlog will be realized, or, if realized, will result in earnings. Backlog can fluctuate from period to period due to the timing and execution of contracts. Given the typical duration of the Company’s projects, which generally range from three to nine months, the Company’s backlog at any point in time usually represents only a portion of the revenue it expects to realize during a twelve-month period.

Business Segment Overviews

The infrastructure sector, which consists of the Marine segment, continues to provide both public and private opportunities to maintain and expand marine facilities on and over U.S. waterways. Throughout the Company’s operating areas, market fundamentals remain positive, and Orion is seeing pockets of margin expansion. The weather events of the third quarter have and will continue to provide additional opportunities for marine segment projects in the near term. Private sector bid opportunities from downstream energy customers continue as they expand their waterside facilities associated with refining and storage. Recreational demand continues from private customers as local marinas are being expanded and remodeled, while business opportunities from cruise lines remains strong related to new destinations or refurbishment of existing destinations in the Caribbean.

The building sector, which consists of the Concrete segment, continues to see solid demand as its three major metropolitan markets continuously retain their positions as leading destinations for families and businesses to reside. Population growth throughout the Company’s markets continues to drive new distribution centers, office expansion, retail and grocery establishments, multi-family housing units, educational facilities and medical facilities. In Houston, the Company is experiencing some tightening in the market, but expects to continue to maintain market share. The Company is focused on continuing to expand its market share in the Dallas-Fort Worth market, including adding structural opportunities. Finally, solid growth is expected in the Central Texas market as the Company continues to expand with fundamentally strong end market drivers.

In the industrial sector, the Company will continue its greenfield expansion by combining talent and resources from the Marine segment and Concrete segment to execute and pursue concrete foundation work inside the industrial environment. The massive, long-term petrochemical driven opportunities along the Gulf Coast provide significant potential to expand the Company’s addressable project opportunities. In fact, the U.S. is on pace to become a net exporter of natural gas by 2018 as a result of the shale revolution, which has led to increased domestic production of natural gas. This will lead to outpaced growth in the petrochemical industry that should account for more than half of the construction spending in the manufacturing sector.

Outlook

“Delivering profitable returns to shareholders remains the key focus for the Company,” stated Mr. Stauffer. “Expansion of our existing and future operations in the infrastructure, industrial, or building sectors should provide further catalysts for EBITDA growth. As we look ahead, we expect to see continued strong demand for our services across the Company. We will continue to focus on delivering high quality projects to our customers with continued expansion of our services across our operating segments and areas. As a result, we expect to see some bottom line improvement in 2018 as compared to 2017. This bottom line improvement should expand more significantly in 2019 and beyond as our expansion plans become fully developed. While the past couple of years have been choppy, we believe we have developed a strong go forward strategy that will result in continued bottom line improvement, with more consistent earnings and higher free cash flow returns. We remain excited about the future and believe we have solid fundamentals for continued success.”

Source: Orion Group Holdings