Orion Group Holdings, Inc. — Q1 2021 Form 10-Q
Business context and period: Specialty construction company operating marine and concrete segments. This unaudited report covers the three months ended March 31, 2021; comparisons are with Q1 2020 unless otherwise stated. Financial amounts below are in millions of dollars unless noted.
Key financial metrics
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Contract revenue | $153.3 | $166.6 |
| Gross profit / margin | $15.5 / 10.1% | $19.8 / 11.9% |
| Operating income / margin | $2.1 / 1.3% | $4.4 / 2.6% |
| Net income / diluted EPS | $0.9 / $0.03 | $2.7 / $0.09 |
| Cash from operating activities | $9.1 | $15.5 |
| Capital expenditures | $1.6 | $2.8 |
| Cash and cash equivalents at period end | $4.6 | $1.6 at Dec. 31, 2020 |
| Debt at period end | $28.9 principal; $28.0 carrying value | $35.1 principal at Dec. 31, 2020 |
| Working capital | $60.7 | $54.8 at Dec. 31, 2020 |
| Backlog | $364.8 | $591.9 at Mar. 31, 2020 |
Q1 revenue declined 8.0%, while gross profit fell 21.8%. The marine segment generated $72.1 million of revenue, down 16.1%, and recorded an operating loss below $0.1 million versus $2.9 million of operating income. Concrete revenue increased 0.6% to $81.2 million, and operating income rose 36.7% to $2.1 million. Interest expense was $1.0 million, compared with $1.4 million in Q1 2020.
Material changes and cash, debt, and liquidity
- Management attributed lower revenue and margin primarily to severe Texas winter weather that halted much activity for seven to ten days, reducing equipment and labor utilization, along with marine project timing and mix.
- Operating cash flow decreased to $9.1 million. Investing activities provided $0.8 million, including $2.0 million of asset-sale proceeds; financing activities used $6.8 million. Cash increased $3.1 million during the quarter.
- At March 31, the company reported approximately $68.3 million of borrowing capacity. The main revolving line had $48.3 million available after $1.7 million of letters of credit; a separate $20 million 364-day facility had no borrowings and was due to mature June 7, 2021.
- The term loan was $28.9 million, at a 2.38% rate; the weighted-average rate on the credit facility was 2.48%. The company reported compliance with all financial covenants. Credit facilities are secured by company assets.
- Remaining performance obligations were approximately $364.8 million; management expected to recognize $328.6 million, or 90%, over the next 12 months. Backlog was down from $439.5 million at December 31, 2020. The company also reported $1.9 billion of quoted bids, with $134 million identified as apparent low bidder or awarded after quarter-end.
Outlook, risks, contingencies, and unusual items
- No quantified full-year earnings or revenue guidance was provided. Management said it expected cash, operating cash flow, and borrowing availability to meet general business and debt-service needs for at least the next 12 months, and expressed optimism about longer-term market opportunities.
- COVID-19, disrupted supply chains, delayed project awards, government funding levels, customer cancellations, project execution, weather, labor and equipment availability, and fixed-price exposure to concrete, steel, and fuel costs may affect results. Marine outlook also faces uncertainty in cruise-line spending and energy-project timing; concrete project releases could be delayed.
- The August 2020 dredge fire killed five crewmembers, injured others, and led to oil discharge. As of March 31, 2021, the company had recognized $72.2 million in total obligations to date, including $18.0 million paid and approximately $54.2 million accrued; insurers had reimbursed $17.1 million and assumed defense costs. The filing says the proceeding remains complex and the balance of claims could not yet be accrued; ultimate exposure and insurance adequacy remain uncertain. The court’s April 8, 2021 order barred further claims after the deadline.
- Net gains on asset disposals were $1.6 million versus $1.0 million a year earlier, supporting reported operating income. Insurance claims liabilities were $59.2 million, with $54.9 million of insurance claims receivable. One private customer represented 10.6% of current receivables.
- Management reported effective disclosure controls, no material change in internal control during the quarter, and no material change to previously disclosed risk factors. The filing notes a clerical correction that reduced reported March 2020 backlog by $17.6 million.
Important facts for investors to verify
- Developments in the dredge-fire litigation, potential additional losses, insurance coverage and recoveries, and timing of insurer payments.
- Whether the $20 million 364-day credit facility was renewed, replaced, or repaid before its June 7, 2021 maturity, and the company’s subsequent borrowing availability and covenant headroom.
- Backlog conversion, bid awards, and whether the reported $134 million of apparent-low-bid or subsequent awards materialized; backlog is not a guarantee of future revenue.
- Subsequent trends in marine utilization and margins, concrete profitability, winter-weather recovery, and cash conversion.
- Collection and recoverability of retainage, contract assets, claims, and insurance receivables, including the concentration in one private customer.