Orion Group Q1 2025 Earnings Call Transcript

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Provided by Quartr
April 30, 2025

There are 8 speakers on the call.

Operator

Good day, and welcome to the Orion Group Holdings First Quarter twenty twenty five Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note 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, Michael, and thanks everyone for joining us today to discuss Orion Group Holdings first quarter twenty twenty five financial results. We issued our earnings release after the market last night. It's available on the Investor Relations section of our website at oriangroupholdingsinc.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 these forward looking statements are contained in our SEC filings, including our reports on Form 10 Q and 10 ks.

Speaker 1

With that, I'll turn the call over to Travis. Travis, please go ahead.

Speaker 2

Thank you, Margaret, and good morning, everyone, and thank you for joining our first quarter twenty twenty five conference call. I'll start with an overview of our first quarter results and market update, and then I'll turn it over to Scott to cover our financial results. We're off to a strong start in 2025. For the first quarter, we reported revenue of $189,000,000 and adjusted EBITDA of $8,000,000 which reflects the strength of our operating model and the successful execution of our strategic priorities. Before I talk about our business, I'd like to address some topics that have been causing market uncertainty over the past few months.

Speaker 2

Starting with some of the actions of the Trump administration to reduce government spending and to impose tariffs. The recent tariffs and steps taken to reduce the size of the federal government will not have a material impact on our results for 2025. We were proactive in managing tariff risks starting last summer. After recently conducting a thorough evaluation of our business, we haven't identified any material impacts based on what we know today. Additionally, we have not seen reductions in government spending have an impact on the domestic infrastructure projects that we are pursuing or delivering, and there has been no pullback on the U.

Speaker 2

S. Government's China deterrence policy. Even though macroeconomic conditions remain somewhat fluid, certain policy directives from the Trump administration are clear and unwavering. Chief among them are a renewed focus on domestic industrial policy through reshoring U. S.

Speaker 2

Manufacturing and shipbuilding and a strategic pivot to defense and economic investment in The Pacific over other geopolitical regions. At the heart of Trump's executive order, restoring America's maritime dominance is the goal of revitalizing U. S. Maritime power to promote national security and economic prosperity. This order will include grant programs for capital improvements to commercial shipyards and vessel repair facilities and dry docks, which are right in our wheelhouse.

Speaker 2

These key policy directives represent meaningful tailwinds for our business, and we expect the full benefit will begin to materialize over the next couple of years. We have seen no pullback in our market opportunities. On the contrary, so far this year, we have secured almost $350,000,000 in new wins, dollars 161,000,000 in marine and $188,000,000 in concrete, which have started or are scheduled to start within the next few months. These wins include projects across the full spectrum of Orion specialized capabilities, including marine facilities, dredging, bridges, large buildings and data centers. Our solid start to the year of project wins brings our backlog plus awarded work to $890,000,000 We will continue to focus on building profitable backlog from our strong pipeline of opportunities.

Speaker 2

Most of our marine wins in the first quarter were detailed in our press release in February. Marine projects are typically larger in size and take longer to close. We currently have four large pursuits in the pipeline with decisions expected in the next couple of months, along with many more modest sized pursuits. I especially want to congratulate our Concrete team for their strong start to the year with building backlog. In the last several months, we've seen increased demand across our markets and continue to win repeat business with our world class partners.

Speaker 2

This quarter, we have won five data centers with our trusted partners that totaled $47,000,000 bringing our total number of data centers to 35 and more than $235,000,000 that we have delivered. Demand in the data center market remains strong. And so far, we haven't seen any signs of a slowdown. In fact, several hyperscalers have reaffirmed their commitment to investing in the AI revolution. Any pullback that we have seen is related to inability to obtain the power needed in certain locations.

Speaker 2

The new administration's goal to reshor manufacturing should also support the growth of our concrete business over time. In addition to data centers, other concrete wins included $17,000,000 projects with our partner O Line Construction for a multi story mixed use project, a $10,000,000 project with Durotech for a Houston school and a $24,000,000 award for phase two of the cost of distribution center in South Florida. In summary, everyone at Orion is extremely excited about our future in our markets. Our morale has never been higher and our business and operating model are well positioned to benefit from the current administration's agenda. With a talented, energized and collaborative team focused on delivering projects safely with predictable excellence, we are on a strong path for continued success.

Speaker 2

Before I turn the call over to Scott, I want to encourage stockholders to cast your votes and participate in our virtual annual meeting coming up on May 15. You can find the details in your proxy materials and on our website. Scott, you're turning back.

Speaker 3

Thanks, Travis, and good morning, everyone. We're pleased with our first quarter results and the progress made in growing our business. As Travis highlighted, consolidated revenue increased over 17% to $189,000,000 and adjusted EBITDA doubled to $8,200,000 In the first quarter, marine revenue was up over 19% and concrete revenue increased 13%. Our disciplined bidding standards and refined approach to business development contributed to the strong growth in both segments. Consolidated gross profit margin increased to $23,000,000 or 12.2% of revenue, up from 15,500,000 or 9.7% of revenue in the same period last year.

Speaker 3

The two fifty basis point increase in consolidated gross margin was driven by improvements in marine profitability, partially offset by lower concrete margins. SG and A expenses were $22,500,000 up from $19,000,000 in the comparable period. As a percentage of total contract revenues, SG and A expenses increased to 12% from 11.8%. Incentive compensation, legal, IT and operating lease expenses largely accounted for the increase in SG and A. While SG and A expenses have increased as we have invested in our growth, we expect to benefit from operating leverage as we continue to expand our top line.

Speaker 3

As a result, we expect SG and A as a percentage of revenue to improve in the near future. Turning to profitability. Adjusted net income was $300,000 or $01 per diluted share in the first quarter compared to an adjusted net loss of $3,600,000 or $0.11 per diluted share in the prior year period. First quarter net income included 1,700,000 or $05 per diluted share of adjusted items. GAAP net loss for the first quarter of twenty twenty five was $1,400,000 or $04 per diluted share.

Speaker 3

EBITDA for the first quarter increased to $6,300,000 while adjusted EBITDA grew to 8,200,000 Adjusted EBITDA margin improved 180 basis points to 4.3%, up from 2.5% last year. During the first quarter, adjusted EBITDA margin in the Marine segment was 8.6% compared to 0.9 last year. Adjusted EBITDA margin in our Concrete segment was negative 4.4% compared with positive 5.7% in the prior year period. Last year's first quarter exhibited unusually low marine margins due to project delays and unusually high concrete margins due to project write ups. This year's first quarter is more typical and in line with our expectations.

Speaker 3

Concrete experiences seasonally lower productivity in the first quarter, and we expect over the remainder of the year to see better margins in that business. As a reminder, as we continue to build scale in our business, our medium term goal is to generate adjusted EBITDA margins in the low double digits for Marine and high single digits for Concrete. Moving on to bidding metrics. In the first quarter, we bid on projects worth approximately $761,000,000 winning $299,000,000 This equated to a contract value weighted win rate of 39% and a book to bill ratio of one point five one point five nine times for the first quarter. We expect to see continued progress capturing our opportunities and growing our backlog.

Speaker 3

But given the timing of project wins, there may be some variability in our win rate from quarter to quarter. As of March 31, our backlog was $840,000,000 compared to $729,000,000 at the end of the prior quarter and $757,000,000 at the end of the first quarter last year. Breaking out our first quarter backlog by segment, $6.00 7,000,000 was related to our Marine segment and $232,000,000 was related to our Concrete segment. As Travis mentioned, we are off to a strong start in 2025 and our end of quarter backlog plus awards subsequent to quarter end is $891,000,000 Turning to cash flow. In the March, we reported negative $3,400,000 of cash from operations compared to negative $22,800,000 in the prior year quarter.

Speaker 3

Cash flow can vary from quarter to quarter due to the timing of project mobilizations and completions. We ended the March with $13,000,000 in cash. Total debt outstanding was $23,300,000 and we had no outstanding borrowings under our revolving credit facility at the end of the quarter. Beginning this year, we made the cutover from our legacy systems to our new IT systems and processes for our operations and back office. With the heavy lifting behind us, we are now working to fine tune these systems.

Speaker 3

This project was a key initiative to position the company for greater growth. By having our business segments on the same financial platform, we will have clear line of sight across the entire business. These tools will facilitate information sharing and offer valuable insights into the status of our projects, significantly enhancing our ability to monitor and manage operations in the field. As our operational enhancements take hold, we anticipate achieving greater efficiency, supporting ongoing business expansion, while capitalizing on the benefits of fixed cost leverage. We are also investing in our people and facilities.

Speaker 3

We are currently in the process of consolidating our Houston area offices from three down to one. In late June, we will co locate our marine, concrete and shared services teams in an office building that was constructed by our Concrete segment in the East River mixed use development near Downtown Houston. During the first quarter, we incurred about $400,000 of incremental lease expense during our finish out of this facility. The leases of our vacated facilities will end during the third quarter, resulting in the elimination of this bubble cost and lower ongoing facility cost. Looking forward, we are excited by our improving performance and expanding pipeline.

Speaker 3

As Travis mentioned, a key indicator of the continued execution of our strategic plan will be our backlog growth in 2025, which will include winning projects for delivery in 2025 and beyond. Our first quarter performance was aligned to our expectations, and we are reiterating our guidance for the full year 2025. We expect revenue to be in the range of 800,000,000 to $850,000,000 with adjusted EBITDA in the range of $42,000,000 to $46,000,000 This translates to a range of $0.11 to $0.17 for adjusted EPS. We are also maintaining our 2025 CapEx guidance in the range of $25,000,000 to $35,000,000 as we invest for the opportunities ahead. In closing, our first quarter performance reflects the strength of our business model, the discipline of our execution and the dedication of our team.

Speaker 3

With a solid foundation in place and a clear strategy for growth, we are well positioned to capitalize on the exciting opportunities ahead. We remain heads down on execution to drive sustainable value for our shareholders, and we look forward to sharing our progress next quarter. We'll open up the call for your questions. Go ahead, Michael.

Operator

We will now begin the question and answer session. And the first question comes from Aaron Spiella with Craig Hallum. Please go ahead.

Speaker 4

Yes. Good morning Travis and Scott. Thanks for taking the questions. For me, on the defense side of things, seeing some good movement on defense spending, shipbuilding, some of these RFPs do seem like they're starting to see some traction. Are you still thinking late this year and into 2026 for awards there?

Speaker 4

Curious if it could be sooner than that. And then if you could just frame the opportunity, what that could look like for you in the coming years.

Speaker 2

Yes. There's usually quite a bit of visibility, especially in some of these big federal contracts, Aaron. So I don't expect that it will get sped up too much more than what we were thinking probably late this year, early next for to be anything concrete there unless something changes with the administration or something like that, it's probably going to be in that timeframe.

Speaker 4

All right. And then just maybe kind of can you talk about the just kind of the size of that opportunity that you're seeing potential multiple RFPs, just any other color you could provide there on how that maybe looks for you in the coming years?

Speaker 2

Sure. There's a couple of project pursuits that we are working on for later this year, kind of into early next year, size in the, like, let's call it $500,000,000 range. And there's a couple of them kind of in the hopper now with expectations that a few more will get hot in the next couple of months.

Speaker 4

All right. Thank you for that. And then maybe just on concrete, good to see strong order activity in the quarter. Can you just talk about the outlook for that business for the rest of this year? It doesn't sound like you're seeing a slowdown there since early April or anything.

Speaker 4

So if you could elaborate on that. And then just speak to kind of confidence in the margin expansion goals that you've kind of laid out there.

Speaker 2

Sure. We haven't with our bidding activity and award activity, we haven't seen much slowdown. That's not to say that continued uncertainty with what's going on might slow things down a little, but we're not seeing it yet. So I guess, on wood, we don't we're hopeful that there's not going to be a change in the activity we've been seeing over the first quarter.

Speaker 3

And on the margin question, as we've had some pretty strong wins at the beginning of the year, we're going to see nice volume coming out of that business. And again, the operating leverage that we've kind of got built up into the business, I think, is going to help those margins improve considerably.

Speaker 4

All right. Thanks. And then maybe one last for me. Just on the private downstream energy markets, it seems like we're starting to see some traction there too, activity starting to pick up. Just curious if you're seeing that and kind of the outlook there?

Speaker 2

Yes. Think what we've seen is kind of increased bullishness by some of the petrochem clients that have been maybe a little more reserved over the past administration, just being a little more bullish about their plans to move forward with projects. So we're optimistic that a fair amount of activity is going to happen. I think everybody is watching the global oil prices and things like that, that could impact some of those projects moving forward. But I do think that we're going to see more activity happening here in the near future.

Speaker 4

All right. Thanks for taking the questions. I'll turn it over.

Operator

And your next question comes from Julio Romero with Sidoti and Company. Please go ahead.

Speaker 5

Thanks. Hey, good morning, Travis and Scott. Hope all is well.

Speaker 2

Good morning, Julio.

Speaker 5

Hey. So can you maybe speak to the margins posted in the Marine segment? I know, Scott, you mentioned that this quarter's margins for both segments are more typical of a first quarter, but nonetheless, in Marine, just really strong segment margins. Can you speak to the drivers there? And can the margin strength continue in the quarters ahead even as we have kind of lumpier quarter to quarter sales?

Speaker 3

Yes. Thanks, Aliyah. And you're right. We do have varying performance quarter to quarter as the project mix changes you roll through the quarters. And this was a particularly strong quarter on a number of projects in the Marine business.

Speaker 3

And so that's why you see somewhat elevated margins there. We do think that these are margins that the Marine business can achieve on a regular basis, but probably is a high point for the kind of current year. But we will see continued growth in that business. And similar to the Concrete business, the growth will drive some further margin improvement. Within this quarter, we had really good performance on Hawaii on Grand Bahamas Shipyard, which are two of our larger projects.

Speaker 3

And so those are more impactful to the results.

Speaker 5

Got it. That's very helpful. And it sounds like you've been very proactive in tariff mitigation strategies. Just given your exposure to public work to government contracts, can you talk a bit about how your contracts are structured? How you're differentiated as a specialty contractor, especially on the marine side?

Speaker 5

And if that allows you any competitive advantages in this uncertain operating environment?

Speaker 2

On the tariff front, we do a fair amount of work with the federal government as well as other government agencies that require either Buy America or Buy American that is either U. S. Steel or our allies. So that helps a lot with the tariff question. On other projects where we're more free to buy steel from other locations.

Speaker 2

As I said in my comments, we've been pretty careful starting last summer when started thinking Trump might win this thing and everybody knows Trump equals tariffs. So we were preparing for that. And we had contingency in place for projects that we were bidding that had foreign steel and things like that. So we were making sure we were prepared for the scenario that we're seeing in front of us now. What was the second part of your question, Julio?

Speaker 5

Just thinking about you guys on a competitive basis, how you're a little any factors that might have some differentiation versus competitors and competitive behavior in this environment?

Speaker 3

Well, I think probably our most significant competitive advantage in this particular arena is our strong supplier relationships. And we are a key customer of a number of steel suppliers who we have strong relationships with and an important part of their business. So we're in constant dialogue with them. And we have, in the past gotten our best pricing from our best partners.

Speaker 5

Really helpful. Thanks for the color.

Speaker 2

Thanks, Julio.

Operator

And your next question comes from Brent Thielman with D. A. Davidson. Please go ahead.

Speaker 6

Great, thanks. Good morning. Good morning, Brent. I guess, I just wanted to ask a little more around concrete this quarter and the loss. I know there's some seasonal factors that play into this, but just wanted to understand the moving pieces around that.

Speaker 6

And then does the outlook contemplate a return to profitability here going forward?

Speaker 3

Yes. So as you said, we have typically lower results in the first quarter with the concrete business. As in Texas, there's less workable days during that time frame. And so that is kind of what you see in the results. And so there's just a natural seasonal improvements that you'll see in quarters going forward that can help concrete margins as their revenue comes up and their utilization of their indirects goes up.

Speaker 3

And so as we kind of progress through the year, we'll see our Concrete business get back to profitability over the course of the year. And although we haven't really given segment specific guidance, this is all kind of aligned to our top line guidance of 42% to 46%. So we feel comfortable that the Concrete business is on track for our expectations for this year.

Speaker 7

Okay.

Speaker 6

Yes. And I guess the follow-up. At least in the last couple of years, you've been sort of more back half heavy on revenue and earnings and EBITDA. Is that the expectation this year as we're thinking about ramping execution on this book of business?

Speaker 3

Yes, that's right. I mean, if you just kind of take the 42% to 46 and subtract the first quarter, you're going to see that the remaining three quarters, you're going to have a higher average. And that's a typical pattern for us. And as well, as we continue to grow the business, there's just a natural up into the right movement of our top line over time. So as we move through the year, you'll see bigger quarters and more profitable quarters, and that's all kind of aligned to where we see the year finishing out.

Speaker 6

Got it. Maybe just one last one, if I could sneak it in. You've got some pretty sizable pursuits. You talked about in the federal side and what you've already booked in terms of backlog thus far. Is the balance sheet and capital position in a place you want it to be in order to support getting those that sort of work going forward?

Speaker 3

Yes, great question. As I mentioned, we had no draws on our revolver at the end of the quarter. The capacity on that is it's an ABL, so it ranges up and down, but 40,000,000 to $60,000,000 of capacity generally. So we do feel like we've got the dry powder we need to take on projects, mobilize and kind of fund project cash flow. As for kind of just further growth of the business, we're in constant dialogue with financing partners and our lender is always stands ready to help, as they say.

Speaker 3

As we look to acquire equipment, we expect that we could potentially borrow some more money to do that. We think that those will be high ROIC investments.

Speaker 7

Okay, great. Thanks, guys.

Speaker 3

Thanks Brent.

Operator

The next question comes from Liam Burke with B. Riley FBR. Please go ahead.

Speaker 7

Thank you. Good morning Travis. Good morning Scott. Good morning, Andrew. Guess, Scott, the operating cash flow or negative cash flow was $2,400,000 versus 22,000,000 last year.

Speaker 7

Understanding that first quarter is typically a weaker cash flow quarter and there's variability based on project flow. But is this a trend when you're considering you had 17% sales growth and much better operating cash flow, is this a trend that we could expect as you balance the through the April of this year?

Speaker 3

In terms of increasing cash flow as our top line increases, absolutely. We the improvement on a year over year basis is probably a little larger this quarter because the first quarter was somewhat adversely affected in cash flow from investment in the Hawaii project. But yes, we expect to continue to see improving cash flow. And over the course of this year, we expect our cash flow will turn off.

Speaker 7

Okay, great. You talked about tariffs, government regulation not affecting the revenue or the bidding process. You talked about existing supplier relations being stable. When I look at input costs and eventually your pre buying or pre investment is going to run its course, do you anticipate any kind of pressure on input costs as we go through the year or into next year?

Speaker 2

I mean, we'll be as we bid projects, we'll be bidding we do expect costs to increase on steel and other products that we're buying. And as prices increase and as we bid projects, we're bidding the higher costs in there. So there will be bids will increase across the board. But as far as our risk goes associated with increasing costs, our approach to mitigating the risk is not going to change. We're either going to have a contingency in place or manage it in other ways to protect ourselves.

Speaker 7

Great. Thank you, Travis. Thank you, Scott.

Speaker 3

Thanks, Lee.

Operator

This concludes our question and answer session. I would like to turn the conference back over to Travis Boone, CEO, for any closing remarks.

Speaker 2

Thanks. I'd like to close the call by thanking our team for working safe every day. They're working out in the elements, in the mud and the rain and the wind and the dirt, And they work really hard. And without them doing their jobs every day, we couldn't do ours. So really appreciate our teams out in the field working every day.

Speaker 2

Really appreciate our partners and clients for great relationships and continued trust and also thank our investors for their support of our business. Thank you. Have a good day.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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Key Takeaways

  • Orion reported $189 million in Q1 revenue (+17% y-o-y) and $8.2 million in adjusted EBITDA (2× last year), lifting consolidated gross margin to 12.2%.
  • Management noted recent tariffs and federal spending cuts won’t materially affect 2025, while Trump administration policies on reshoring U.S. manufacturing and maritime dominance are seen as meaningful tailwinds.
  • Q1 project awards totaled nearly $350 million, bringing backlog plus awarded work to $890 million, with multiple ~$500 million marine and defense pursuits expected to close later this year.
  • The Marine segment delivered an 8.6% adjusted EBITDA margin in Q1, while Concrete’s –4.4% reflects seasonal headwinds and is forecast to improve through the remainder of the year toward high-single-digit targets.
  • Orion reaffirmed full-year 2025 targets of $800–850 million revenue, $42–46 million adjusted EBITDA, and $25–35 million CapEx, supported by new IT systems and a Houston office consolidation to boost efficiency.
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Earnings Conference Call
Orion Group Q1 2025
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