Orion Group Holdings, Inc. — Q3 2021 Form 10-Q
Unaudited results for the quarter and nine months ended September 30, 2021. Orion provides specialty marine construction and dredging services, and turnkey concrete construction services.
Financial performance
Amounts below are in millions of dollars except per-share data and percentages.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $139.9 | $189.4 | $439.1 | $539.8 |
| Gross profit / margin | $6.6 / 4.7% | $22.5 / 11.9% | $34.3 / 7.8% | $63.0 / 11.7% |
| Operating income (loss) | $(8.7) | $13.1 | $(1.1) | $21.5 |
| Net income (loss) | $(10.2) | $11.8 | $(5.7) | $16.6 |
| Diluted earnings (loss) per share | $(0.33) | $0.39 | $(0.19) | $0.55 |
Q3 revenue fell 26.1% year over year; nine-month revenue declined 18.7%. Lower marine activity and weaker project execution and margins drove gross-margin compression and losses. Q3 marine revenue fell 51.5%, while concrete revenue rose 11.3%; both segments reported operating losses. For the nine months, marine revenue declined 34.3% and operating income fell to $6.5 million from $21.6 million; concrete revenue was nearly flat, but its operating loss widened to $7.6 million from $0.1 million.
Cash flow, balance sheet and liquidity
- Nine-month operating cash flow was $4.2 million, down from $38.4 million in 2020. Capital expenditures were $11.6 million, implying approximately $(7.4) million of operating cash flow less capex.
- Cash was $0.9 million at September 30, 2021. Working capital was $49.2 million, versus $54.8 million at year-end 2020.
- Total debt was $19.4 million, versus $33.9 million at December 31, 2020. The term loan was fully repaid in Q2; $19.0 million remained drawn on the revolving facility. Available revolver capacity was $29.3 million after letters of credit. The facility matures July 2023; the company reported compliance with its financial covenants.
- Total assets were $368.4 million and stockholders’ equity was $156.7 million. Management stated it expects to meet internal liquidity and working-capital needs for at least the next 12 months.
Material changes and unusual items
- Marine revenue was lower because large projects active in the prior-year quarter were not repeated or replaced; reduced labor and equipment utilization left indirect costs under-recovered. Concrete results were affected by weather, COVID-related execution inefficiencies and cost overruns on a project.
- A February 2021 Texas winter storm shut down much of the state for seven to ten days and contributed to lower nine-month revenue and margins.
- The Tampa property sale generated a $6.7 million gain and contributed to $25.6 million of property-sale proceeds in the first nine months. The term-loan and swap extinguishment generated $2.1 million of interest expense, including a $1.3 million swap termination loss and $0.8 million of unamortized debt costs.
- Q3 backlog was $572.8 million, up from $394.4 million at June 30, primarily on marine awards. The company reported $2.0 billion of quoted bids outstanding; $103 million was apparent low bidder on or awarded subsequent to quarter-end. It expected to recognize $432.0 million of remaining performance obligations in the next 12 months. Backlog is not necessarily indicative of future results.
Outlook, risks and contingencies
The filing gives no specific revenue or earnings guidance. Management cited continuing marine and Texas concrete market opportunities, including potential public infrastructure work, but noted that award timing remains uncertain. COVID-19-related supply-chain disruption, project delays, government funding levels, customer cancellations, commodity-price inflation, labor availability and fixed-price contract execution may affect performance. Management noted concerns about cruise-sector spending and oil-price-related timing of marine energy projects.
Claims related to the August 2020 Waymon L. Boyd dredge fire remain a material contingency. At September 30, 2021, Orion had recognized approximately $102.1 million of total liabilities related to the incident, including $39.6 million paid and $62.4 million accrued; insurers had reimbursed $37.8 million. The company believes insurance coverage is adequate, but stated it is too early to establish accruals for the balance of claims. A trial was scheduled for March 21, 2022. Separately, insurance-claim receivables were $63.9 million and insurance-claim liabilities were $67.4 million. The company reported no material changes to previously disclosed risk factors.
Important facts for investors to verify
- Whether marine activity and project utilization recover, and whether backlog converts to revenue on expected timing and margins.
- Whether concrete project execution, weather-related delays and cost overruns improve.
- Liquidity and working-capital needs given low cash, weaker operating cash flow and revolver reliance.
- Ultimate exposure, insurance recoveries and accrual adequacy for the dredge-fire litigation and related claims.
- Effects of input-cost inflation, labor and equipment availability, public funding and COVID-related disruptions on fixed-price contracts.
- One-time effects of the Tampa asset sale and debt/swap extinguishment when assessing recurring earnings and cash generation.