Posted on May 8, 2017
Orion Group Holdings, Inc. (NYSE:ORN), a leading specialty construction company, reported a net loss for the three months ended March 31, 2017, of $1.8 million ($0.07 diluted loss per share). These results compare to a net loss of $1.2 million ($0.04 diluted loss per share) for the same period a year ago.
First Quarter 2017 Highlights
– Generated 7% year-over-year increase in contract revenues
– Maintained elevated level of backlog
– Affirming EBITDA growth guidance for full year 2017
– Further developed our targeted infrastructure, industrial and building sectors
Consolidated Results for the First Quarter of 2017 compared to First Quarter 2016
– Contract revenues were $138.8 million, an increase of 7.0%, as compared to revenues of $129.6 million. The increase is the result of improved operations in the marine construction segment’s Tampa office and the continued solid execution and demand for services in the concrete construction segment.
– Gross profit was $13.0 million, or a gross profit margin of 9.4%, as compared to gross profit of $14.7 million, or a gross profit margin of 11.3%. The decrease is primarily attributable to permitting delays which caused interruptions in the anticipated commencement of certain projects within the marine construction segment.
– Selling, General and Administrative (SG&A) expenses were $15.0 million, as compared to $15.5 million.
– EBITDA was $6.1 million, representing an 4.4% EBITDA margin which compares to EBITDA of $8.1 million, or a 6.2% EBITDA margin (EBITDA and EBITDA margin are non-GAAP measures, defined on Page 3 of this release; reconciliation tables are provided on Page 6).
“We were pleased with our market opportunities during the first quarter,” said Mark Stauffer, Orion Group Holdings’ President and Chief Executive Officer. “As we previously mentioned, during the first quarter we saw delays in customers obtaining their permits on certain marine construction segment projects, which prevented us from starting these projects due to delayed notices to proceed, and which affected the overall mix of our project work during the quarter. In recent weeks, we’ve seen some of our customers receive their permits and we anticipate more to follow, which will allow some of our delayed work to start. Ultimately, we are hopeful that project timing will normalize over the next few quarters. Our concrete construction segment continues to perform very well and it generated strong results in both the Houston and Dallas-Fort Worth markets. We have begun the integration process on our recently acquired commercial concrete construction company, Tony Bagliore Concrete, Inc. (“TBC”) located in Central Texas, which is a market we targeted for entry. We believe 2017 is off to a good start and we are encouraged by the steady demand for construction services throughout our operating footprint.”
Segment Results for First Quarter 2017 Compared to First Quarter 2016
Marine Construction Segment
– Contract revenues were $67.2 million, an increase of $4.8 million, or 7.6%. The increase is primarily attributable to improved operations in the Tampa office.
– Operating loss was $7.7 million, as compared to an operating loss of $3.1 million. Operating margin for first quarter 2017 was (11.5%), as compared to (5.0%). The change in operating loss is attributable to the timing and mix of projects, primarily associated with delays in customer permitting, which resulted in underutilized equipment and labor during the quarter.
– EBITDA was $(0.6) million, representing a (0.9)% EBITDA margin which compares to EBITDA of $4.4 million, or a 7.0% EBITDA margin (EBITDA and EBITDA margin are non-GAAP measures, defined on Page 3 of this release; reconciliation tables are provided on Page 7).
Concrete Construction Segment
– Contract revenues were $71.6 million, an increase of $4.4 million, or 6.5%. The increase is primarily the result of solid execution of operations and continued demand for services.
– Operating income was $6.2 million, an increase of $3.5 million. Operating income margin for first quarter 2017 was 8.7%, as compared to 4.0%. The increase is primarily the result of solid execution of operations and continued demand for services.
– EBITDA was $6.7 million, representing a 9.4% EBITDA margin which compares to EBITDA of $3.7 million, or a 5.6% EBITDA margin (EBITDA and EBITDA margin are non-GAAP measures, defined on Page 3 of this release; reconciliation tables are provided on Page 7).
Backlog
Backlog of work under contract as of March 31, 2017 was approximately $395 million, which compares with backlog under contract at March 31, 2016 of approximately $385 million. Of the March 31, 2017 ending backlog, approximately $238 million was attributable to the marine construction segment, while $157 million was attributable to the concrete construction segment. This does not include backlog from recently acquired TBC, which will be incorporated in future periods.
“During the first quarter, we bid on approximately $668 million of opportunities and were successful on approximately $100 million,” said Chris DeAlmeida, Orion Group Holdings’ Vice President and Chief Financial Officer. “This resulted in a 0.72 times book-to-bill ratio for the quarter and a win rate of 15.0%. In the marine construction segment, we bid on approximately $253 million during the first quarter 2017 and were successful on $25 million. This resulted in a 0.37 times book-to-bill ratio and a win rate of 9.9% for the quarter. The win rate in the quarter was affected by the timing of awards in addition to a significant amount of quoted work and low bid work, which we expect to be awarded. In the concrete construction segment, we bid on approximately $415 million in work while being awarded approximately $75 million. This resulted in a 1.04 times book-to-bill ratio and a win rate of 18.1% for the quarter.”
Mr. DeAlmeida continued, “We continued to see strong demand for our services during the first quarter. In total, we have approximately $863 million worth of bids outstanding, including approximately $41 million on which we are apparent low bidder, or have been awarded subsequent to the end of the first quarter, of which, approximately $32 million pertains to the marine construction segment and approximately $9 million is in the concrete construction segment.”
Outlook
“We continue to see solid market fundamentals and good bid opportunities in both our segments,” said Mr. Stauffer. “In addition to maintaining an elevated backlog, we’re pleased with our bid opportunities as we move into what is typically the seasonally stronger period for our businesses. We remain focused on our vision to become the leading specialty construction company meeting the needs of our customers in the infrastructure, industrial and building sectors while focusing on the creation of shareholder value.
“Our marine construction segment continues to see private sector demand from a broad range of customers requiring waterside infrastructure improvements. Our emphasis remains on effective execution on projects, improving dredge utilization and controlling costs in order to maximize profitability. Despite the permitting process interruptions encountered during the first quarter, our underlying marine construction segment fundamentals are sound. In the public sector, we continue to monitor local, state and federal opportunities and pursue appropriate projects and bid lettings from the USACOE and other agencies as they become available.”
Mr. Stauffer continued, “We anticipate demand for our concrete construction services to remain steady and are excited about the opportunity to extend the TAS brand into Central Texas with the recent acquisition of TBC. The integration of this acquisition is underway, which will serve as a platform for growth in this market, with established customer relationships and a dedicated workforce. Similar to the Houston and Dallas-Fort Worth markets, the Austin area population growth is consistently ranked among the highest for U.S. cities. Bid markets in our existing Houston and Dallas-Fort Worth markets continue to provide balanced opportunities for light commercial and structural projects. Our concrete construction segment remains focused on maintaining and expanding its market share with solid execution of projects.”
“As we look at the remainder of 2017, we continue to believe we will generate a significant improvement in EBITDA relative to 2016 driven by sustained bid opportunities, high level of backlog and a return to growth from our Tampa operations,” said Mr. DeAlmeida. “In April, we closed on the TBC transaction expanding our concrete construction footprint into the Central Texas market. We expect TBC to provide a platform for future growth. During this transition year however, we believe TBC will be neutral to slightly accretive to our 2017 earnings. We continue to expect to see full year 2017 EBITDA grow at least 40% as compared to the full year 2016. As we previously discussed, 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, 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.”
Please refer to the Company’s Annual Report on Form 10-K, filed on March 24, 2017, which is available on its website at www.oriongroupholdingsinc.com or at the SEC’s website at www.sec.gov, for additional and more detailed discussion of risk factors that could cause actual results to differ materially from our current expectations, estimates or forecasts.
