Orion Marine Group, Inc. — Form 10-Q Summary
Reporting period: Quarter and nine months ended September 30, 2014. The filing identifies the registrant as Orion Marine Group, Inc. and describes one reportable segment: heavy civil marine construction and related services.
Financial results
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Contract revenue | $107.0 million | $89.0 million | $278.5 million | $248.1 million |
| Gross profit / margin | $12.9 million / 12.1% | $5.6 million / 6.3% | $26.4 million / 9.5% | $19.3 million / 7.8% |
| Operating income (loss) | $5.0 million | ($2.4 million) | $2.5 million | ($4.2 million) |
| Net income (loss) attributable to common stockholders | $3.0 million | ($0.9 million) | $1.6 million | ($1.8 million) |
| Diluted earnings (loss) per share | $0.11 | ($0.03) | $0.06 | ($0.07) |
- For the first nine months, operating cash flow was $19.3 million, versus $2.1 million in 2013. Investing cash outflow was $39.9 million, including $18.1 million of capital expenditures, a roughly $22 million land purchase and a $3.5 million dry-dock purchase. Financing provided $25.6 million; cash increased $5.0 million to $45.9 million.
- At September 30, cash was $45.9 million and working capital was $44.0 million. Total debt was $33.4 million: $26.0 million outstanding on the revolver and $7.4 million on the term loan. Revolver availability was approximately $7.9 million after letters of credit.
- Total assets were $346.5 million and stockholders’ equity was $231.3 million. The current ratio was approximately 1.46, based on reported current assets and liabilities.
Changes and operating performance
- Q3 revenue rose about 20% year over year; nine-month revenue rose about 12%. Management attributed the quarterly increase to higher asset utilization while executing a record backlog.
- Q3 gross margin improved to 12.1% from 6.3%, which management attributed to utilization and project execution. SG&A was nearly flat year over year in Q3.
- Private-sector customers generated 60% of Q3 revenue and 59% of nine-month revenue. One private customer accounted for 11.5% of Q3 revenue. At quarter-end, one private customer represented 25.8% of receivables and a local port authority 10.2%.
- Backlog was $242.0 million at September 30, compared with $247.3 million at December 31, 2013. Management cautioned that backlog may be canceled or modified and is not necessarily indicative of future results.
Outlook, risks and notable items
- Management expected solid Q4 results and a profitable full year, without providing numeric earnings or revenue guidance. It cited a strong project pipeline and demand opportunities in marine infrastructure, petrochemical and energy-related projects, port expansion, dredging and coastal rehabilitation.
- Management said it expected operating cash generation to fund liquidity needs, working capital and fleet investment for at least 12 months, and expected covenant compliance through the credit facility’s June 30, 2015 maturity. The company reported covenant compliance at September 30.
- The credit agreement includes fixed-charge coverage and leverage tests, plus a covenant barring a consolidated net loss over any four consecutive quarters beginning with Q3 2014. The facility is secured by company assets and guaranteed by subsidiaries.
- Key risks include government funding and budget constraints, project delays or cancellations, fixed-price contract cost overruns, weather and labor availability, commodity-price increases, customer concentration, claims and collection uncertainty, and interest-rate exposure. The company generally does not hedge commodity prices.
- Self-insurance liabilities included $7.6 million of incurred-but-not-reported claims. The company reported ordinary-course legal matters and said it did not expect them to have a material adverse effect. No material changes to previously disclosed risk factors were reported.
- In October 2014, the board authorized repurchases of up to $40 million of common shares over a five-year program; purchases depend on market conditions and capital needs.
Important facts for investors to verify
- Whether the improved margins and profitability persist as the current backlog is completed and replaced.
- Project-level cost estimates, unbilled contract balances and collection of retainage; costs and estimated earnings in excess of billings were $38.7 million at quarter-end.
- Liquidity and refinancing plans before the credit facility matures in June 2015, including the limited $7.9 million revolver availability and covenant headroom.
- Whether cash generation can support fleet spending and the newly authorized share-repurchase program without weakening liquidity.
- Exposure to major customers, government funding, fixed-price cost inflation, and the concentration of receivables in a private customer and a port authority.