Orion Marine Group, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2013. The company provides marine construction services across U.S. coastal regions, Canada and the Caribbean, and reports one operating segment.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Contract revenue | $89.0 million | $75.4 million | $248.1 million | $193.4 million |
| Gross profit / margin | $5.6 million / 6.3% | $4.9 million / 6.5% | $19.3 million / 7.8% | $1.8 million / 1.0% |
| Operating loss | $2.4 million | $2.3 million | $4.2 million | $19.9 million |
| Net loss attributable to common stockholders | $0.9 million | $1.6 million | $1.8 million | $13.4 million |
| Basic loss per share | $0.03 | $0.06 | $0.07 | $0.49 |
Q3 revenue rose 18% year over year, primarily from higher work volume and increased private-sector activity. Nine-month revenue increased 28.3%. Management attributed the substantial year-to-date gross-margin improvement to better equipment utilization and cost savings; the Q3 margin edged down from the prior-year quarter due to contract mix and differing site conditions. SG&A increased, mainly from overhead associated with the 2012 West Construction acquisition.
Cash flow and liquidity: Operating activities provided $2.1 million in the first nine months, versus $22.6 million a year earlier. Investing activities used $11.6 million, including $11.8 million of capital expenditures; financing activities used $2.5 million. Cash declined to $31.2 million from $43.1 million at year-end 2012. Working capital was $58.9 million.
Debt and capacity: Debt was $9.3 million at September 30, consisting of the term loan; no revolver borrowings were outstanding. The company reported approximately $34.3 million of revolver availability after letters of credit. The facility matures June 30, 2014; quarterly term-loan principal payments are $389,000. The company said it was compliant with financial covenants. Total assets were $305.1 million and total liabilities were $79.3 million.
Material changes and outlook
- Year-to-date results improved materially from 2012, when gaps between projects, weaker federal lettings and underutilized dredging assets depressed margins.
- Backlog was $216.4 million at September 30, 2013, compared with $184.1 million at December 31, 2012. Management cautioned that projects may be canceled and backlog is not necessarily indicative of future results.
- Management described bid opportunities as steady, particularly in the private sector, and cited infrastructure repair, ports, energy-related projects and coastal restoration as potential demand drivers. It characterized Army Corps of Engineers lettings and federal funding as inconsistent and uncertain.
- Management expected internally generated operating cash to cover working capital and fleet maintenance needs for at least 12 months, and considered cash adequate for general needs and debt service. No quantified revenue or earnings guidance was provided.
- Other income for the nine-month period included a $271,000 reversal of the West Construction earnout liability. Q3 tax benefit included an approximately $0.8 million benefit from reconciling the prior-year tax provision.
Risks, contingencies and notable disclosures
- Fixed-price contracts expose results to cost overruns, commodity-price inflation, weather and environmental restrictions, labor and equipment availability, and site conditions. The company generally does not hedge concrete, steel or fuel prices.
- Government contracts and funding are important to demand; the U.S. Army Corps of Engineers represented 13.7% of nine-month revenue. One private customer represented 11.9% of Q3 revenue.
- Contract assets—costs and estimated earnings in excess of billings—were $25.1 million; contract liabilities were $14.6 million. Changes in project estimates, claims and collection outcomes can affect revenue and liquidity.
- Retainage was $9.2 million, including $1.8 million expected to be collected beyond 2014. The company also reported $1.4 million of long-term receivables tied to collection litigation; management expected to prevail and recorded no allowance.
- Ordinary-course legal proceedings were not expected by management to have a material adverse effect. Self-insured claims accruals were $3.7 million. No material changes to previously disclosed risk factors were reported.
- Management said disclosure controls were effective and reported no material change in internal controls over financial reporting.
Investor verification points
- Reconcile the tax-rate disclosures: the notes report a 53.8% effective rate for the first nine months, while MD&A gives a 34.6% estimated annual rate.
- Check the debt and interest-rate descriptions: the filing identifies $9.3 million as term-loan debt and no revolver balance, while the market-risk section refers to $9.3 million of revolving borrowings and a 2.75% quarterly average rate; the debt note cites a 2.19% Eurodollar rate at quarter-end.
- Assess operating cash conversion, contract billings and collections, and whether backlog converts to profitable work given the low Q3 gross margin and project-estimate risks.
- Monitor the June 30, 2014 credit-facility maturity, covenant compliance, and the availability of surety bonding; the company reported more than $400 million of bonding capacity with about $100 million outstanding.