Orion Group Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; unaudited. Orion provides specialty marine construction and dredging services and turnkey concrete construction through its Marine and Concrete segments.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Contract revenue | $174.9 million | $153.3 million |
| Gross profit / margin | $12.8 million / 7.3% | $15.5 million / 10.1% |
| Operating income (loss) | ($2.9 million) | $2.1 million |
| Net income (loss) | ($4.9 million) | $0.9 million |
| Basic and diluted EPS | ($0.16) | $0.03 |
| Cash provided by operating activities | $10.1 million | $9.1 million |
- Marine revenue rose 17.1% to $84.5 million; segment operating income declined to $1.8 million from $2.8 million.
- Concrete revenue rose 11.4% to $90.5 million, but its operating loss widened to $4.7 million from $0.8 million.
- Cash and cash equivalents were $6.7 million at quarter-end, down from $12.3 million at year-end. Working capital was $32.7 million, versus $36.2 million.
- Total debt was $28.1 million net of issuance costs ($28.6 million principal), down from $39.4 million. Revolver borrowings were $27.4 million; available borrowing capacity was $13.4 million after letters of credit. The facility’s weighted-average rate was 4.73%.
- Capital expenditures were $3.5 million. Cash used in financing activities was $12.8 million, primarily reflecting $11.7 million of credit-facility repayments and $0.5 million of amendment costs.
Changes and operating drivers
- Revenue increased 14.1%, primarily from new large Marine jobs awarded in the second half of 2021 and higher Concrete light-commercial production.
- Gross margin fell to 7.3% from 10.1%. Management cited Concrete project write-downs, lower dredging volume, and a less favorable work mix. Concrete results also reflected unabsorbed indirect costs and additional project-management labor.
- SG&A increased 10.5% to $16.2 million, mainly due to consulting fees related to the management transition and higher property taxes; SG&A declined as a share of revenue.
- Backlog was $604.1 million, up from $590.0 million at December 31, 2021. Approximately 82% was expected to be recognized within 12 months. The company reported $2.1 billion of quoted bids outstanding, with $112 million either awarded or at which it was apparent low bidder subsequent to quarter-end.
Outlook, risks and notable items
- Management stated it expected adequate liquidity for at least 12 months and concluded substantial doubt about the company’s ability to continue as a going concern was not raised. This assessment depends on assumptions including sales, costs, capital spending, and working-capital improvement.
- No specific earnings or revenue guidance was provided. Management described long-term opportunities in marine infrastructure, ports, dredging, energy-related projects, Texas commercial construction, and potential federal infrastructure spending.
- Near-term uncertainties include inflation and commodity prices, labor availability, supply-chain disruption, COVID-related absenteeism or project delays, timing of contract awards, customer cancellations, and volatility in energy markets. Many contracts are fixed-price; the company generally does not hedge commodity costs.
- On March 1, 2022, a credit-agreement amendment waived certain covenant defaults, reduced the revolving commitment to $42.5 million, and imposed temporary covenant requirements and an anti-cash-hoarding provision. Orion reported compliance with financial covenants at March 31; the facility matures July 31, 2023.
- The company recorded $1.3 million of income-tax expense despite a pretax loss; management attributed the effective tax rate primarily to valuation-allowance changes, state taxes, and nondeductible items.
- The 2020 dredge fire resulted in five crew-member deaths, injuries, and lawsuits. The filing says all claims arising from the incident had been settled within insurance limits; approximately $0.5 million remained accrued for outstanding claims. The company reported $206.5 million in total liabilities recognized over the incident, approximately $206.0 million paid, and $203.9 million reimbursed by insurers to date.
- After quarter-end, CEO and interim CFO Mark Stauffer departed on April 6. Chairman Austin Shanfelter became interim CEO and CFO while a search proceeds. The company expected approximately $1.1 million of separation-related expense, primarily in Q2.
Key facts for investors to verify
- Whether Concrete project write-downs and reduced margins persist, and how execution affects profitability of the expanded backlog.
- Liquidity, revolver availability, covenant headroom, and the company’s ability to meet the amended credit terms and refinance or repay debt before maturity.
- Conversion of backlog and quoted bids into awarded work, revenue, and cash collections; backlog is an estimate and is not necessarily indicative of future results.
- Effects of inflation, labor and supply constraints, project delays, and fixed-price contract exposure on costs and margins.
- Completion of the CEO/CFO transition and the timing and amount of separation-related costs.
- Cash collection of receivables and retainage, including $43.5 million of retainage at quarter-end, and resolution of claims and unapproved change orders.