Orion Group Q3 2024 Earnings Call Transcript

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Provided by Quartr
October 31, 2024

Key Takeaways

  • Strong Q3 results: Total revenue of $226.7 M and adjusted EBITDA of $15.2 M, up 62% year-over-year and exceeding first-half EBITDA by 59%, with full-year adjusted EBITDA now forecast at $40 M–$45 M versus $24 M in 2023.
  • Significant contract awards: Won $116 M in new contracts in October, including a $30.6 M trestle project for Portage Bay Bridge, an $8.5 M bulkhead repair in Houston, and an $18.2 M concrete subcontract for the Ritz-Carlton Residences in Texas.
  • Data center expansion: Completed or on 29 data center projects totaling $176 M, with 14 active pursuits and over 300,000 cubic yards of concrete placed, driven by strong contractor relationships and safety record.
  • Industry-leading safety: Achieved a TRIR of 0.70 versus the industry average of 2.40, backed by over 9,200 site observations and multiple safety awards from FTBA, ASCC, Liberty Mutual, and AGC.
  • Improved cash flow and liquidity: Generated $35.2 M in operating cash flow in Q3 compared to –$15.1 M last year, strengthened the balance sheet with a $26.5 M secondary offering, ending the quarter with $28.3 M in cash, $28 M in debt, and no revolver borrowings.
AI Generated. May Contain Errors.
Earnings Conference Call
Orion Group Q3 2024
00:00 / 00:00

There are 8 speakers on the call.

Operator

Morning, and welcome to the Orion Group Holdings Third Quarter 2024 Financial Results Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. This event is being recorded. I would now like to turn the conference over to Margaret Boyce, Investor Relations.

Operator

Please go ahead.

Speaker 1

Thank you, operator, and thank you all for joining us today to discuss Orion Group Holdings' 3rd quarter 2024 financial results. We issued our earnings release aftermarket last night. It's available on the Investor Relations section of our website at oriongroupholdingsinc.com. I'm here today with Travis Boone, Chief Executive Officer and Scott Vanish, Chief Financial Officer. On today's call, management will provide prepared remarks and then we'll open up the call for your questions.

Speaker 1

Before we begin, I'd 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 are forward looking statements. Our actual financial condition and 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 those forward looking statements are contained in our SEC filings, including our reports on Form 10 Q and 10 ks.

Speaker 1

With that, I'd now like to turn the call over to Travis. Travis, please go ahead.

Speaker 2

Thank you, Margaret. Good morning, everyone, and thank you for joining our Q3 2024 conference call. I'll start with an overview of our Q3 results and market update, and then I'll turn it over to Scott to cover our financial results. For the last few quarters, we said that we expected momentum to pick up strongly in the back half of this year and that did play out in the Q3. Total revenue came in at $226,700,000 and adjusted EBITDA was $15,200,000 a 62% improvement year over year.

Speaker 2

The $15,200,000 in adjusted EBITDA is higher than the 9 point $6,000,000 we reported in the entire first half of this year, in fact, 59% higher. Our top line growth was largely driven by the ramp up of our Pearl Harbor and Grand Bahama projects now that the project delays have been resolved. Also a number of projects that began during the summer contributed to the strong quarter. Our 3rd quarter results demonstrate the level of profitability our business can generate as we scale and grow. For the full year, we're on target to deliver adjusted EBITDA in the range of $40,000,000 to $45,000,000 for 2024, which would greatly exceed the $24,000,000 reported in 2023.

Speaker 2

We won $116,000,000 in new contract awards in October that will start in the Q4. Here's a few examples of our recent wins. First, Marine was awarded a $30,600,000 subcontract to Skanska USA to construct a temporary trestle for the Portage Bay Bridge project for the Washington State Department of Transportation. This work is expected to begin in the Q4 of 2024 with a construction duration of approximately 6 months for the first phase. We were also awarded an $8,500,000 contract for the Port of Houston's Turning Basin North Wharf 16 bulkhead repairs.

Speaker 2

The start is slated for the Q4 of 2024 and will run through the middle of 2025. In our concrete business, we won an $18,200,000 subcontract to Harvey Builders for the Ritz Carlton Residences in The Woodlands, Texas. The project is expected to begin in the Q4 of 2024 and will extend approximately 2 years. Our Concrete business continues to win and deliver data center projects. We now have completed or are working on 29 separate data center projects.

Speaker 2

We have placed over 300,000 cubic yards of concrete for a total of $176,000,000 in revenue on these projects. We are currently working 14 active pursuits. Our strong relationships with key general contractors, our strong performance and our industry leading safety record are all contributing factors to our success on data center projects. We have recently received several industry safety awards including the Florida Transportation Builders Association Safety Excellence Award for the NASA Causeway Bridge Projects, 3 awards from the American Society of Concrete Contractors, the Liberty Mutual Insurance Company Gold Safety Award for outstanding safety performance, and 2 awards from the Associated General Contractors of Houston. These awards exemplify our commitment to safety across our business.

Speaker 2

Our teams have completed over 9,200 site observations so far this year to provide leading indicators and prevent incidents from occurring. Currently, our total recordable incident rate or TRIR is around 0.70 through October. The average TRIR in the construction industry is 2.40. We are proud of our performance on safety and we are committed to our people going home safely at the end of every day. We're actively pursuing several significant projects and are excited about the opportunities ahead.

Speaker 2

With our pipeline quadrupling from $3,000,000,000 last year, we're confident that our diverse markets will accelerate revenue growth. We see this project flow beginning to ramp up in 2025, but we expect 2026 will be the year when we see transformational growth. In preparation for the growth we see coming, we're focused on making investments in people and equipment that will help us capture and deliver the large volume of projects in our pipeline of opportunities. The recent hurricanes that hit the Southeast have been devastating to large numbers of people and businesses. Our condolences to all those impacted by these storms.

Speaker 2

We're fortunate to have had only a very minor impacts to our people, equipment and projects. We were able to resume work on our projects quickly and we have picked up several emergency repair projects in Florida. In closing, we are very healthy across our business. We are delivering at higher margins. We have dramatically improved our cash and liquidity position.

Speaker 2

We are profitable and we have a strong growth trajectory over the coming years. Our extraordinarily talented people are all united in their excitement and commitment to continuing to build our company and capturing the market opportunities ahead. Now I'll turn it over to Scott for a review of our financials. Scott?

Speaker 3

Thanks, Travis, and good morning, everyone. Our 3rd quarter generated strong results with revenue increasing 35% over last year to $226,700,000 and adjusted EBITDA increasing 62 percent to $15,200,000 As we indicated earlier this year, the Pearl Harbor and Grand Bahama projects ramped up in the 3rd quarter and we also had the start of one project that was slated for the 4th quarter accelerate into Q3. This combined to deliver results above our expectations for Q3. Like last quarter, our revenue mix continued to shift with marine revenue up 73% and concrete revenue decreasing 1%. As we've said, the Marine opportunity is immense and we're intensely focused on winning that work.

Speaker 3

Our Concrete segment was relatively flat on the top line, but we're winning our fair share of quality projects that meet our disciplined bidding standards of attractive margins. Consolidated 3rd quarter gross profit margin increased to $27,100,000 or 11.9 percent of revenue, up from $19,100,000 or 11.3 percent of revenue in the same period last year. The 60 basis point increase in consolidated gross margin was primarily due to improved pricing and execution in both segments. SG and A expenses were $20,800,000 up from $17,100,000 in the comparable period. As a percentage of total contract revenues, SG and A expenses decreased to 9.2 percent from 10.2%.

Speaker 3

SG and A dollars increased due to compensation, business development and legal expense, in addition to some one time cost of process improvement initiatives. Turning to profitability. Adjusted net income was $5,600,000 or $0.16 per diluted share in the 3rd quarter, compared to adjusted net income of $1,000,000 or $0.03 per diluted share in the prior year period. The 3rd quarter net income included $1,400,000 or about $0.04 per diluted share of adjusted items and GAAP net income for the Q3 of 2024 was $4,300,000 or $0.12 per diluted share. EBITDA for the 3rd quarter was $13,500,000 and adjusted EBITDA was $15,200,000 Our adjusted EBITDA margin was 6.7%, up from 5.6% last year.

Speaker 3

During the Q3, adjusted EBITDA margin in the Marine segment was 8.2% compared to 9% last year and adjusted EBITDA margin in our Concrete segment was 4.3%, up from 2.4% in the Q3 last year. As a reminder, our goal is to generate adjusted EBITDA margins in the low double digits for our marine business and the high single digits for our Concrete segment. We've been pleased with the progress of our Concrete segment since they returned to EBITDA profitability last year. Everything starts with winning the right jobs with good margins. With this better starting point, our project teams have implemented new field practices focused on delivering projects to the customer more efficiently and at better than bid margins.

Speaker 3

Our Marine segment executed well in the quarter as well with significant increases in activity on our largest projects. Moving on to bidding metrics. In the 3rd quarter, we bid on approximately $1,200,000,000 worth of opportunities, of which we won $159,000,000 in the quarter. This resulted in a contract value weighted win rate of 13.4 percent and a book to bill ratio of 0.7 times for the quarter. As of September 30, our backlog was $690,500,000 compared to $758,400,000 at June 30, 2024 and $877,500,000 at September 30, 2023.

Speaker 3

Breaking out our Q3 backlog, dollars 537,000,000 was in our Marine segment and $153,500,000 was in our Concrete segment. Turning to cash flow. The business generated $35,200,000 of cash flow from operations during the Q3 compared to negative cash flow from operations of $15,100,000 in 2023. This huge delta was mainly due to the reversal of working capital on the Hawaii project, which required a cash investment at the start of the project and is now generating cash. We saw most of this reversal in Q3 and Hawaii will continue producing cash going forward.

Speaker 3

During the quarter, we took steps to strengthen our balance sheet by raising 26 $500,000 in a secondary offering. We are now better capitalized and we'll use the proceeds for general corporate purposes, working capital and the continued repayment of indebtedness under our credit agreement. We will also be making investments in equipment going forward needed to optimize the demand opportunity ahead. We ended the 3rd quarter with $28,300,000 in cash. Total debt outstanding was $28,000,000 and we had no outstanding borrowings under our revolving credit facility at the end of the quarter.

Speaker 3

Our sale of the East West Jones property did not close in September as anticipated due to a delay in the buyer's due diligence. We remain engaged with this buyer and other interested parties. With declining interest rates, we believe we can turn this valuable asset into cash for growing our business. And our stronger balance sheet and liquidity gives us more flexibility and time to strike the right deal. For the full year 2024, we are on target to deliver revenue in the range of $850,000,000 to $900,000,000 and expected adjusted EBITDA in the range of $40,000,000 to $45,000,000 With the additional shares from our secondary offering, this translates to a range of negative $0.10 to positive $0.04 for GAAP EPS and $0.11 to $0.22 for adjusted EPS.

Speaker 3

As we prepare for 2025, we've already executed some important initiatives that will enhance our company's efficiency and productivity. During the Q3, we hired a leader for our newly created procurement group. This individual will serve the whole company by achieving economies of scale through more efficient and coordinated procurement of materials and resources. Over the last few quarters, we've been implementing new IT tools and processes for our operations and our back office. These tools will share information and provide insight into the progress of our projects, improving our ability to effectively manage these projects on the ground.

Speaker 3

We've also been migrating our business segments to the same financial platform, which will greatly improve our line of sight across the entire business. This implementation is largely complete and now in the testing phase with a handful of projects. We plan to go live in January so that we can start the new year on our new systems. We are prepared and excited for 2025 and plan to provide our outlook for the year when we report our year end results in March. With that, we'll open up the call for questions.

Operator

We will now begin the question and answer Our first question will come from Aaron Spahalla with Craig Hallum. You may now go ahead.

Speaker 4

Yes. Good morning, Travis and Scott. Thanks for taking the questions. Maybe first for me, can you just kind of give a little bit more detail on the bidding environment? Backlog was down

Speaker 3

a little quarter over quarter.

Speaker 4

I know you've talked about exiting the year with higher backlog. It sounds like you're starting to see the bidding activity pick up here, funding start to hit the market, but I was just hoping you could elaborate a little bit on that.

Speaker 2

Good morning, Aaron. Yes, so the bidding environment has been strong. I wouldn't say it's hot, but it's strong, been holding steady. As you can tell from our backlog, we've been keeping a fairly backlog fairly steady backlog throughout the year. We've got several big pursuits that look like they're lining up for the Q1 for awards.

Speaker 2

So it's looking like a fairly steady year. And then, like I said, quite a few lined up for 2025. So generally good and getting stronger.

Speaker 4

All right. Thanks for that. And then just maybe on the Navy in particular, can you give us an update there on just how you're thinking about that opportunity progressing? What that can look like for you here in the coming years?

Speaker 2

Sure. Still very bullish about maybe opportunities in the Pacific. Lots of big opportunities out there that we're lining up for. A year ago, we thought there would be a couple of big pursuits with the Navy in 2025. It looks like with the way congressional funding rolled out, some of those will be probably later in 2025.

Speaker 2

So as far as big Navy opportunities, I think there while there's like I said, still very bullish about the opportunity over the next 5 years or more. The big opportunities that we're looking at will likely be late in 'twenty five for pursuits.

Speaker 4

All right, understood. And then just maybe last for me on CapEx. Can you kind of talk about the outlook there as you look to kind of bring in more equipment to capitalize on this opportunity? How are thinking about it for this year and as we look towards 2025 as well?

Speaker 3

Yes. We've been looking at ways in which we could acquire some of the equipment that we think will drive our growth in the future and have our eyes on a few items. I think if we can find ways to complete those transactions in the very near term. We're going to be looking for ways to do that. We've got a strong balance sheet and good liquidity right now to make those investments.

Speaker 3

So we anticipate that we're going to be increasing our CapEx spending going into next year as a result of that drive to kind of prepare for growth.

Speaker 4

All right. Understood. Thanks for the color. I'll turn it over.

Speaker 3

Thanks, Aaron.

Operator

Our next question will come from Julio Romero with Sidoti and Co. You may now go ahead.

Speaker 5

Great. Thanks. Hey, good morning, Travis It's Scott. Good morning, Julio. Maybe to start on hey, good morning.

Speaker 5

On the concrete side, specifically data centers, you mentioned you completed or are working on 29 separate data center projects. Maybe if you could help us frame that figure a bit, is that 29 projects kind of post COVID to date, year to date and maybe any frame of reference of how does that compare to prior periods?

Speaker 2

Yes, that's a total number that we've worked on over the last probably 5 years or so. A large number of them though have been in the last couple of years. And this year, we've been busy and working on more than ever. So it's been a pretty rapid increase starting kind of last year. I don't know the exact number honestly for this year, but it's been quite a few of them.

Speaker 2

Some of them have been very large, some of them down the smaller side. We've got, I think, 14 active pursuits right now. Most of those are in North Texas, but there's also several in other states outside of Texas, where we're going with key partners who have asked us to follow them into other states. So the environment on the data center side of things is pretty hot. You may remember, I think, 3 months ago, I said that we were at 24.

Speaker 2

So there's been 5 of those added in the last few months. So it's been quite heavy active on the data center side. And again, the size ranges vary pretty significantly. Some are small and some are very large.

Speaker 5

Got it. That's very helpful there. And then I wanted to ask about the really impressive cash flow you did in Q3. Scott, I think you mentioned much of that was due to Hawaii generating cash and that Hawaii cash generation should continue in 4Q. So just given that expectation, how do you kind of how should we be thinking about cash flow for Orion overall to shake out in the Q4?

Speaker 3

Yes. We did have a great cash flow quarter and it's kind of lined up the timing on some of that Hawaii revenue as well. So I think that we're going to continue to see cash thrown off of the Hawaii project. We won't see a 4th quarter cash generation at the same levels in the 3rd quarter, but still generating nice cash flow on the operating line as we finish out the year.

Speaker 5

Okay. Excellent. And then just last one for me would be kind of staying on cash for cash a little bit. Is you have a bolster balance sheet, you generated really strong cash and you talked about earlier about some CapEx deployment for your growth plans. If you could just give us a quick kind of refresher on how you're thinking about capital allocation overall, kind of growth versus debt repayment versus other in the near term and kind of just size it up for us there?

Speaker 3

Yes. So obviously, with the stronger balance sheet that we have after the secondary offering and the strong cash flow that we've achieved in the Q3, we're thinking about the ways that we ought to be structuring our capital going forward. Our net debt right now is 0. So we have options that we can think about the ways that we move forward. We do think that with our improved credit position and stronger balance sheet that we've got a pretty good hand to play as we talk to our existing lender about how we modify the agreement to move forward to make it better suited to give us the flexibility we need for growth.

Speaker 3

We see a lot of opportunity to potentially put money into equipment in the near future, and I think that that's going to be able to drive the top line and earnings faster. So we want to generate internally the cash flow that we need to drive those investments and that's our primary focus.

Speaker 5

Excellent. Well, thank you for all the color and I'll pass it along.

Speaker 2

Thanks, Julian.

Operator

Our next question will come from Min Cho with B. Riley Securities. You may now go ahead.

Speaker 6

Hi, good morning, Travis and Scott.

Speaker 5

Good morning, Min.

Speaker 6

So just a question on potential impact from the hurricanes. Can you talk about any positive or negative impacts on your business? I know you talked about some emergency work in Florida post the hurricane, but I'm assuming that's more kind of 4Q. Wondering if there's any negative impact to your concrete margins specifically?

Speaker 2

No, we don't anticipate. I mean, we were the last hurricane kind of was teed up on Tampa and then made a slight turn to the South, which was fortuitous for our business. So we were spared major impacts to our yard and our equipment and our people quite frankly and our projects. So there was a few days of kind of shutdown while in preparation for the storm and then after the storm was over, we were able to get right back to work and pretty minimal impact. We had a some little bit of roof damage in our yard and I mean it was very minor type damage that we had.

Speaker 2

They even meet our insurance deductible range. I mean, pretty minor stuff. So we were very fortunate to escape 2 major storms pretty well. And again, people able to get it right back to work. And so it was good for us.

Speaker 2

And then there were some damage to some of our customers' facilities in the specifically in the Tampa Bay area that we've been helping them with and kind of jumping in to help them. None of them are huge major projects, but able to help our customers in time of need is important to us.

Speaker 6

Okay. That's good to hear. Just wondering, I mean, it sounds like you're kind of reiterating your pipeline of opportunities around $13,000,000,000 but just want to make sure that was still the case. And if you're seeing kind of any increased opportunities, especially on the data center work?

Speaker 2

Definitely, the data center work is it's like every day there's more coming in. The data center work is definitely, as I said earlier, pretty hot and continuing to pick up. As far as our pipeline goes, it's definitely holding strong. I don't think that number is, but it's in the Yes, dollars 13,000,000,000 $14,000,000,000 range. So lots of good opportunities lined up for the next couple of years.

Speaker 6

Okay, perfect. And then just a final question on kind of your SG and A outlook. It sounds like you're definitely investing in equipment through CapEx and you mentioned investing in people as well. Any guidance in terms of what we should expect in 4Q as a percentage of revenue or in dollars and looking out into 2025 as well?

Speaker 3

Yes. We expect the dollar figure in the Q4 to be kind of similar to what it was in the Q3 as we complete our investments in systems and process changes. It should be at about that level. And then going into next year, then we'll give you a little more guidance then as to what that looks like.

Speaker 6

All right. Thank you.

Speaker 2

Thanks, Ben.

Operator

Our next question will come from Jason Ursaehner with Bumshoe Holdings. You may now go ahead.

Speaker 7

Good morning. Thanks for taking my question. It was just a rough end of the World Series last night, had James Earl Jones recently passed away in September and just got me thinking about Field of Dreams and that famous speech. It's like the growth will come, Travis. They're going to come to the Gulf, the Pacific, reasons they can't even fathom, turn up to your doorstep, give you the money.

Speaker 7

But so being serious, it doesn't

Speaker 2

seem It doesn't seem right.

Operator

Yes. Well, it doesn't seem

Speaker 7

like there's any contention on the demand side longer term, which I think is pretty rare and desirable, I would say, in this market. But so the real question kind of seems to be coming down to execution and credibility and the ability to do the jobs, the people, the equipment, the bidding expertise. So assuming you can capture the market opportunities that are ahead for the next year, the next decade, it sounds like maybe even longer. I guess what's still giving you the confidence sitting here today? Or what is your confidence level that that's going to translate into some of the profitability metrics and margin expectations that you previously laid out or maybe will be laying out particularly in the Marine segment?

Speaker 2

My confidence is unchanged. If anything, it's higher than it was a year ago. So really confident about the market and our ability to capture it and our ability to capitalize and kind of continue to improve our margins and performance as we scale our business and grow. So we're headed for some really great things. I think this the one thing that is I think from the investor side, there's some concern when we have a year like this one where there's some things didn't quite go our way, but everything played out like we said it would, right?

Speaker 2

We've been saying from the beginning of the year, it's going to be slow, a slow first half and a really big second half. And that's exactly how things are playing out. And construction is a bit of a lumpy business. And but we're going to take as take things as they come and capitalize on every opportunity we can and minimize the downside every opportunity we can. So I think we're feeling really good about things going forward and looking forward to building this company into what it can be and kind of capitalizing on the potential.

Speaker 3

Yes. And this is a different company than it was 2 years ago. And the investments that we've made in improving the operational performance and improving our ability to go win work and drive business, I think it's really starting to pay off and bear fruit. And we're just excited to see that continue.

Speaker 7

And just maybe to remind, what have you guys communicated in terms of potential margin expectation on the Marine segment at a certain scale? I'm trying to go back at some of the quarters, what kind of what was the target level there?

Speaker 3

Yes. The target levels that we've talked about, the low double digit EBITDA margins for the Marine business, We see that as being kind of at the scale where we expect to be over $1,000,000,000 in revenue in the near future. So once you kind of get to that level and size and you get the operating leverage from spreading our fixed costs over more projects, then that's when we'll see those margins.

Speaker 7

Awesome. All right. Well, thanks very much and congrats on a nice quarter.

Speaker 2

Thanks, Jason.

Operator

It appears there are no further questions. This concludes our question and answer session. I would like to turn the conference back over to Travis Boone for any closing remarks.

Speaker 2

Thanks. Thank you all for joining our call today. I want to take this time to thank our employees for all their hard work and spending working a lot of hours out in the elements and enduring a lot of different factors, including weather and other things. So thanks to our employees for everything they do every day. And thanks to all of our stockholders for believing in us and having confidence in what we can do.

Speaker 2

We look forward to speaking with all of you guys again next quarter.

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