Orion Marine Group, Inc. — Form 10-Q Summary
Period: Quarter and nine months ended September 30, 2015. The filing’s registrant is Orion Marine Group, Inc.; the request metadata names Orion Group Holdings Inc.
Business context
Orion provides heavy civil marine construction and, following its August 2015 acquisition of TAS, commercial concrete construction. The unaudited interim results are not necessarily indicative of full-year results. Amounts below are in millions of dollars unless noted otherwise.
Financial performance and position
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Contract revenue | $137.1 | $107.0 | $304.6 | $278.5 |
| Gross profit / margin | $8.3 / 6.0% | $12.9 / 12.1% | $22.8 / 7.5% | $26.4 / 9.5% |
| Operating income (loss) | ($6.2) | $5.0 | ($9.2) | $2.5 |
| Net income (loss) | ($7.4) | $3.0 | ($9.5) | $1.6 |
| Basic and diluted EPS | ($0.27) | $0.11 | ($0.35) | $0.06 |
- Margins and costs: Revenue growth reflected TAS, which contributed about $47.0 million in the nine-month period. Heavy marine revenue declined, while project cost estimate revisions at five Tampa-managed projects hurt results. SG&A rose to $14.5 million in Q3 and $32.0 million year to date, partly from TAS and acquisition-related costs.
- Cash flow: Operating activities used $2.6 million in the first nine months, versus $19.3 million provided in 2014. Investing activities used $125.2 million, including $112.0 million for TAS; financing activities provided $107.3 million. Capital expenditures were $13.6 million.
- Liquidity: Working capital was $97.4 million at September 30. Balance-sheet cash and equivalents were $17.2 million, with $1.1 million of restricted cash reported separately. The cash flow statement reports ending cash and equivalents of $18.3 million, including restricted cash.
- Debt: Total debt was approximately $147.3 million, versus $37.0 million at December 31, 2014, following acquisition financing and refinancing. The new facility includes a $135 million term loan and a $50 million revolver; $14.0 million was drawn on the revolver at quarter-end. Management reported $34.9 million of remaining borrowing availability after letters of credit. The weighted-average facility rate was 3.33%; swaps hedge rate variability on 50% of the term loan. Debt matures August 2020.
- Other balance-sheet items: Total assets were $504.4 million and stockholders’ equity was $225.3 million at September 30. Goodwill increased to $70.5 million, including $36.7 million from TAS. Intangible assets were $31.4 million on the balance sheet.
Material changes and unusual items
- TAS was acquired for approximately $112 million in cash on August 5, adding the commercial concrete segment. Purchase accounting remained preliminary. Acquisition-related goodwill was $36.7 million and identifiable intangibles were recorded.
- Management cited significant project cost adjustments in five Tampa-office marine projects as the principal cause of lower gross margins and losses. The company also recorded approximately $2.6 million of asset write-downs and a $1.3 million valuation allowance on certain state net operating loss carryforwards.
- At September 30, assets held for sale were $6.4 million. Treasury stock purchases during the nine months totaled 350,000 shares for $3.1 million.
Outlook, risks and contingencies
- Management described marine demand as strong and said the concrete segment was performing above initial expectations. It cited potential demand from ports, petrochemical and LNG facilities, infrastructure work, and Texas nonresidential construction.
- Management expected 2016 to be positive for commercial concrete, citing more than $460 million in bids outstanding and near-record backlog. September 30 backlog was $223.7 million for marine and $180.3 million for concrete. Backlog can be canceled and is not necessarily indicative of future revenue. No formal earnings or revenue guidance was provided.
- The company expected capital expenditures of approximately $23 million for 2015 and said operating cash flows should meet liquidity, working-capital and equipment needs for at least the next 12 months. It reported compliance with credit-facility covenants at September 30 and expected continued compliance.
- Key risks include fixed-price project cost overruns, weather and execution delays, commodity-price increases, labor and equipment availability, changes in government funding, contract cancellations, collection and retainage risk, and interest-rate exposure. The company also noted dependence of concrete operations on select suppliers.
- Ordinary-course legal proceedings were disclosed; management did not expect them, individually or collectively, to materially affect results, cash flows or financial condition. The filing reported no material changes to risk factors in the 2014 Form 10-K.
Important facts for investors to verify
- Whether the Tampa project cost revisions are confined to the identified projects, and how remaining contract estimates and margins develop.
- Final TAS purchase-price allocation, acquired-contract profitability, integration progress and the performance of the new concrete segment.
- Receivable and retainage collection: trade and retainage receivables totaled $138.7 million, including $32.5 million of retainage; $17.3 million of retainage was expected to be collected after September 30, 2016.
- Operating cash flow, revolver usage, debt service and covenant headroom as the company integrates TAS and funds capital expenditures.
- Whether the stated backlog converts to revenue and profit, given project timing and cancellation provisions.