Orion Marine Group, Inc. — FY2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. The filing identifies the registrant as Orion Marine Group, Inc. (NYSE: ORN); the 2015 results include its newly acquired commercial concrete construction business.
Business context
Orion operates heavy civil marine construction and commercial concrete construction businesses. Its marine work includes ports, dredging, pipelines, bridges and coastal restoration; its concrete business principally serves commercial and institutional projects in Texas. In August 2015, Orion acquired TAS for approximately $112 million in cash, adding the commercial concrete segment.
Financial performance
| Metric | FY2015 | FY2014 |
|---|---|---|
| Contract revenue | $466.5 million | $385.8 million |
| Gross profit / margin | $40.2 million / 8.6% | $44.6 million / 11.6% |
| Operating income (loss) | $(7.5) million | $9.9 million |
| Net income (loss) | $(8.1) million | $6.9 million |
| EPS, diluted | $(0.29) | $0.25 |
| EBITDA, non-GAAP | $20.6 million | $34.2 million |
| Cash from operating activities | $25.2 million | $11.9 million |
- Revenue grew 20.9%, largely due to $119.4 million from TAS. Marine segment revenue fell $38.7 million, with management citing Tampa-project writedowns and weather-related Gulf Coast start delays.
- Marine segment revenue was $347.1 million and operating loss was $13.7 million. Commercial concrete contributed $119.4 million revenue and $6.1 million operating income; it was not present in the prior-year comparison.
- Annual SG&A rose to $47.7 million, or 10.2% of revenue, from $34.7 million, or 9.0%. Gross margin deterioration and higher overhead contributed to the operating loss.
- Fourth-quarter 2015 revenue was $161.9 million, gross profit $17.4 million, operating income $1.7 million and net income $1.4 million. Quarterly results were uneven, with the third quarter reporting a $7.4 million net loss.
Cash, debt and liquidity
- At year-end, cash was $1.3 million, working capital $74.8 million, total assets $465.5 million and stockholders’ equity $227.7 million. Cash declined from $38.9 million a year earlier.
- Total debt was $110.6 million, including a $106.6 million term loan and $4.0 million revolver balance. The Regions facility matures August 2020; the reported weighted-average interest rate was 3.16%. Approximately $44.9 million of revolver availability remained at year-end.
- After year-end, Orion drew $22.0 million on its revolving facility for working capital. Operating cash flow improved, but investing used $128.8 million, primarily reflecting the TAS acquisition; financing provided $66.1 million.
- Capital expenditures were $20.8 million. Contractual obligations totaled $142.2 million, including $110.6 million of debt and $31.6 million of operating leases.
- Orion was in compliance with financial covenants at December 31, but management was monitoring tighter leverage limits due to step-downs in 2016 and thereafter and had discussed possible options with its lead bank.
Changes, outlook and notable items
- Year-end backlog totaled $357.6 million: marine backlog was $194.3 million, down 10.0% year over year; commercial concrete backlog was $163.3 million, up 12.3%. Backlog may be canceled and is not a guarantee of future revenue or profit.
- Management described marine demand as steady and commercial concrete opportunities as robust, expecting 2016 to be positive for the concrete segment. It cited port expansion, infrastructure needs, energy-related projects and Texas population growth as potential demand drivers. No quantified earnings or revenue guidance was provided.
- Orion recorded a net loss and marine project writedowns; it also recognized approximately $2.6 million of impairment losses on underutilized assets and classified $6.4 million of assets as held for sale.
- The company repurchased 350,000 shares for $3.1 million during 2015. It stated it did not intend to pay dividends for the foreseeable future, and its credit facility restricts cash dividends.
- Goodwill was $66.0 million. The annual impairment test found no impairment, though the marine reporting unit’s estimated fair value exceeded carrying value by only 1.0%, making the estimate sensitive to assumptions.
- Management and the auditor reported effective internal controls and the auditor issued unqualified opinions. However, the assessment and audit excluded TAS, which represented 31.3% of assets and 25.6% of consolidated revenue; TAS was to be included in the 2016 assessment.
- Orion disclosed ordinary-course litigation but reported no material legal proceedings. Key risks include fixed-price contract cost overruns, government funding and award timing, project cancellations, weather, commodity and labor costs, environmental restrictions, insurance claims, customer collections, debt service and covenant compliance.
Important facts for investors to verify
- Track marine project performance and whether Tampa-related losses or other cost-estimate revisions recur.
- Review 2016 covenant calculations, the effect of leverage-ratio step-downs, and any credit agreement amendment; also assess the impact of the post-year-end $22 million revolver draw.
- Evaluate conversion of backlog into profitable work, especially the marine backlog decline and the cancellation terms of awarded projects.
- Check TAS integration, segment margins and the completion of purchase-accounting estimates; note that acquired-business controls were excluded from the 2015 assessment.
- Monitor cash generation, receivable and retainage collections, debt reduction, asset-sale proceeds, and goodwill valuation assumptions.