Business context and reporting period
Orion Marine Group, Inc. (the registrant named in this filing) filed this unaudited Form 10-Q for the quarter and six months ended June 30, 2013. The company provides marine construction services and reports one operating segment. Results are not necessarily indicative of full-year performance.
Financial performance
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Contract revenue | $84.1 million | $67.1 million | $159.1 million | $118.0 million |
| Gross profit (loss) | $7.8 million | $(0.2) million | $13.7 million | $(3.0) million |
| Gross margin | 9.3% | (0.3)% | 8.6% | (2.6)% |
| Operating income (loss) | $0.005 million | $(7.7) million | $(1.9) million | $(17.6) million |
| Net income (loss) attributable to common stockholders | $0.2 million | $(5.4) million | $(0.9) million | $(11.8) million |
| Basic and diluted EPS | $0.01 | $(0.20) | $(0.03) | $(0.43) |
Cash flow and liquidity: First-half operating cash flow was $7.1 million, versus cash used of $1.6 million a year earlier. Investing cash outflow was $6.8 million, including $6.9 million of capital expenditures; financing cash outflow was $2.7 million. Cash fell $2.5 million from year-end to $40.6 million. Working capital was $59.8 million, compared with $55.8 million at December 31, 2012.
Debt: The balance sheet reports $9.3 million of current debt and no long-term debt; the debt note identifies this as a term loan secured by dredge assets, with quarterly principal payments of $389,000. No revolver borrowings were outstanding; letters of credit of $0.7 million left approximately $34.3 million available. The facility maturity was extended to June 30, 2014. The market-risk discussion inconsistently describes the $9.3 million as revolving-facility borrowings; verify the debt classification.
Material changes versus prior period
- Q2 revenue rose 25%; first-half revenue increased 34.8%. Management attributed growth to higher work volume, fewer gaps between projects, and improved equipment utilization.
- Gross margin recovered substantially from losses in the comparable 2012 periods, principally due to better equipment utilization and job cost savings. First-half SG&A increased 6.5%, partly reflecting West Construction acquisition-related overhead.
- Private-sector revenue share increased to 58% in Q2 and 53% for the first half, from 48% and 44%, respectively, in 2012.
- Backlog was $243.9 million at June 30, 2013, up from $184.1 million at December 31, 2012. Management cautions that projects can be canceled and backlog is not necessarily indicative of future results.
- Cash declined despite positive operating cash flow, while capital expenditures were materially lower than in the first half of 2012, which included the Tampa land and building purchase.
Outlook, risks and unusual items
Management described marine infrastructure demand and private-sector bid opportunities as strong and said it expected to fund working capital, fleet maintenance and debt service from operating cash flow for at least the next 12 months. No numerical revenue or earnings guidance was provided. Management cited continued uncertainty in US Army Corps of Engineers project lettings and pressure on dredging-asset utilization; its draft FY2014 budget showed a 2% overall decrease, though operations and maintenance funding was expected to increase.
Key operating risks include government funding and contract cancellations, fixed-price contract cost overruns, weather and customer delays, labor and equipment availability, and commodity-price exposure for fuel, steel and concrete. The company generally does not hedge commodity prices. It reported compliance with credit covenants and expected continued compliance in 2013. The facility prohibits consolidated net losses for two consecutive fiscal quarters under the stated covenant.
Q2 other income included a $271,000 reversal of the West Construction earnout liability after management concluded payment conditions would not be met. The company reported no identified goodwill impairment in the first half. Ordinary-course legal claims were not expected by management to have a material adverse effect; no material changes to previously disclosed risk factors were reported.
Investor facts to verify
- Reconcile the filing’s conflicting description of the $9.3 million debt as term-loan versus revolving-facility borrowing, and confirm its maturity and repayment terms.
- Assess whether improved utilization and gross margins can be sustained, particularly given uncertain federal dredging lettings.
- Review backlog composition, cancellation rights, project profitability estimates and the increased private-customer revenue concentration.
- Monitor receivable collection, retainage and contract billings; the filing notes claims and long-term receivables may affect results and liquidity if collection is unsuccessful.
- Confirm the impact of covenant requirements and facility renewal needs beyond the June 30, 2014 maturity.