Orion Group Holdings, Inc. — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended September 30, 2022. Orion provides specialty marine construction and dredging services and turnkey concrete construction, reported in Marine and Concrete segments. Amounts below are in U.S. dollars; financial statement amounts are converted to millions unless stated otherwise.
Financial performance and position
| Metric | Q3 2022 | Q3 2021 | Nine months 2022 | Nine months 2021 |
|---|---|---|---|---|
| Revenue | $182.6m | $139.9m | $552.1m | $439.1m |
| Gross profit / margin | $13.4m / 7.4% | $6.6m / 4.7% | $40.6m / 7.3% | $34.3m / 7.8% |
| Operating income (loss) | $1.1m | $(8.7)m | $(4.6)m | $(1.1)m |
| Net income (loss) | $0.2m | $(10.2)m | $(7.7)m | $(5.7)m |
| Basic and diluted EPS | $0.01 | $(0.33) | $(0.25) | $(0.19) |
- Q3 revenue rose 30.5% year over year; nine-month revenue rose 25.7%. Management attributed growth to new marine projects, greater concrete volume, and claims and unapproved change orders recognized for work primarily performed in earlier periods.
- Q3 Marine revenue was $76.1m and operating income was $5.2m, compared with a $5.0m operating loss a year earlier. Concrete revenue was $106.5m, but the segment recorded a $4.1m operating loss, compared with a $3.8m loss. For the nine months, Marine operating income was $9.6m and Concrete operating loss was $14.1m.
- Q3 gross margin improved year over year, with management citing claims/change orders, release of discretionary project bonuses, and increased dredging activity. Nine-month margin declined from 7.8% to 7.3%, reflecting concrete project costs and work mix, partly offset by claims/change orders.
- Cash from operations was $9.1m for the first nine months, versus $4.2m in 2021. Investing used $6.2m and financing used $12.5m. Capital expenditures were $10.6m. Cash declined $9.6m from year-end to $2.7m.
- At September 30, cash was $2.7m, working capital was $34.7m (versus $36.2m at year-end), and current assets and liabilities were $199.0m and $164.3m. Total debt carrying value was $30.7m; lease liabilities totaled $31.7m.
Material changes, outlook, and risks
- Backlog was $548.6m, down from $603.2m at June 30, 2022 and up from $572.8m a year earlier. Concrete backlog declined sequentially, which management linked to disciplined bidding and reduced exposure to underperforming projects. Remaining performance obligations were also reported at $548.6m; Orion expected to recognize $456.0m, or 83%, within 12 months.
- Quarterly results included a $3.4m net gain on equipment disposals. Nine-month disposal gains were $4.6m, compared with $9.8m in 2021, which included a $6.7m gain from the Tampa property sale. Claims and unapproved change orders included in contract assets were approximately $13.3m, primarily relating to two Marine customers.
- The March 2022 credit amendment waived certain covenant defaults and reduced the revolving commitment to $42.5m. At quarter-end, $30.0m was drawn, $1.7m of letters of credit was outstanding, and available borrowing capacity was $10.8m. The facility matures July 31, 2023. Orion reported covenant compliance and a 2.88:1 leverage ratio against a 3.00:1 maximum; a 1.25:1 minimum fixed-charge coverage covenant begins with the December 2022 quarter.
- Management said it expects adequate liquidity for at least the next 12 months and concluded substantial doubt about continuing as a going concern was not raised. Its forecast depends on sales and cost assumptions, working-capital improvement, capital spending, asset sales, collections of claims and unapproved change orders, and limiting ERP spending.
- No numerical earnings or revenue guidance was provided. Management described continuing demand in both markets, while noting potential delays from inflation, labor and supply-chain conditions, COVID-related disruption, oil-price volatility, and timing of customer awards. Fixed-price contracts also expose results to input costs and project execution.
- The 2020 Waymon L. Boyd vessel fire resulted in fatalities, injuries, and oil discharge. The filing says all related claims were settled within insurance limits; Orion had recognized $206.4m in total liabilities, including approximately $206.1m paid, and insurers had reimbursed $205.3m. Other proceedings were not expected by management to materially affect results.
Important facts for investors to verify
- Whether the recent revenue and margin improvement is sustainable without prior-period claims/change orders, asset-sale gains, or bonus releases; assess the remaining collection and approval risk on the $13.3m of claims and unapproved change orders.
- Concrete project execution and loss exposure, given the segment’s $14.1m nine-month operating loss and management’s reference to project write-downs and unabsorbed costs.
- Liquidity, covenant headroom, and refinancing plans ahead of the July 2023 credit-facility maturity, considering only $10.8m of reported borrowing availability and low cash.
- Backlog conversion, particularly the sequential backlog decline and the timing and profitability of pending bids. Backlog is not a guarantee of future revenue.
- Interest-rate disclosures: the filing gives a 6.88% quarterly weighted-average facility rate in the debt note and a 7.63% ending rate in its market-risk discussion; confirm the applicable rate and exposure.