Orion Group Holdings, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021. Orion is a specialty contractor with marine construction and dredging operations and a Texas-focused concrete construction segment.
Financial performance
| Metric | 2021 | 2020 |
|---|---|---|
| Revenue | $601.4 million | $709.9 million |
| Gross profit / margin | $41.0 million / 6.8% | $84.7 million / 11.9% |
| Operating income (loss) / margin | $(9.3) million / (1.5)% | $26.6 million / 3.7% |
| Net income (loss) | $(14.6) million | $20.2 million |
| Basic and diluted EPS | $(0.47) | $0.67 |
| Operating cash flow | $0.1 million | $46.0 million |
| Capital expenditures | $17.0 million | $14.7 million |
- Revenue fell 15.3% year over year. Marine revenue declined 32.0% to $263.9 million; concrete revenue rose 4.9% to $337.4 million.
- Marine operating income was $5.8 million, down from $29.8 million. Concrete recorded an operating loss of $15.1 million, versus a $3.2 million loss.
- Lower activity and equipment and labor utilization reduced gross profit; weaker project performance and margins also hurt concrete results. SG&A fell 7.5% to $60.2 million, but rose to 10.0% of revenue.
- Reported operating results included $11.4 million of net gains on asset disposals, including a $6.7 million gain from the Tampa property sale. Interest expense was $5.1 million and included $2.1 million associated with extinguishing the term loan and related swap.
Liquidity, debt and backlog
- At year-end, cash was $12.3 million, working capital was $36.2 million (down from $54.8 million), and debt was approximately $39.4 million, principally revolving-credit borrowings. The revolver had $9.3 million of availability before the subsequent amendment; availability under the amended terms is not clearly stated in the filing text.
- Operating cash flow was nearly zero, as $8.2 million of cash from net income after noncash adjustments was largely offset by working-capital outflows. Investing activities provided $10.6 million, including $27.2 million in property and equipment sale proceeds; financing activities provided $0.006 million.
- The credit facility was due July 2023. In March 2022, the company obtained a covenant waiver for year-end 2021, reset the revolver commitment to $42.5 million, and agreed to temporary financial tests, including minimum EBITDA requirements for Q1 and Q2 2022. Leverage and fixed-charge coverage tests were scheduled to resume in Q3 and Q4 2022, respectively.
- Year-end backlog was $590.0 million: $376.9 million marine and $213.1 million concrete, up from $439.5 million at year-end 2020. Management expected to recognize $454.5 million, or 77%, within the next 12 months. Backlog is not a guarantee of revenue or profit.
- Bonding capacity was at least $750 million, with approximately $110 million of projects bonded.
Outlook, risks and unusual items
- Management provided no quantified 2022 revenue or earnings guidance. It expressed a positive long-term view based on U.S. marine infrastructure needs, port and coastal work, Texas population and business growth, and potential federal infrastructure spending. It also cautioned that COVID-related impacts could delay project awards and disrupt supply and labor.
- Key risks include fixed-price contract cost overruns, project timing and cancellations, reduced equipment utilization, commodity and labor cost inflation, weather and environmental restrictions, customer payment and collection timing, and dependence on bonding and credit availability. Variable-rate debt creates interest-rate exposure; management estimated a 100-basis-point increase would raise annual interest expense by about $0.4 million at year-end debt levels.
- The August 2020 dredge fire caused five crew-member deaths, injuries, vessel loss and an oil discharge. The company recorded $206.7 million of related liabilities, including amounts paid and claims accruals. After year-end, the remaining claims were settled; insurers had reimbursed $189.6 million, with some reimbursement still pending. The company stated claims were settled within insurance coverage limits.
- The CEO became interim CFO after the CFO’s October 2021 departure. Management and KPMG reported effective internal controls; the financial statement audit opinion was unqualified. KPMG identified estimated costs to complete certain marine fixed-price contracts as a critical audit matter.
Important facts for investors to verify
- Current borrowing availability, compliance with the amended credit covenants, and the company’s refinancing plans before the July 2023 facility maturity.
- Whether backlog converts to profitable work, particularly given the 2021 margin decline and project-cost estimation uncertainty.
- Concrete-segment project performance and the causes of its $15.1 million operating loss.
- Cash generation and working-capital trends, including collection of retainage and insurance reimbursements related to the dredge incident.
- The impact of project delays, supply and labor constraints, and commodity prices on 2022 results; the filing provides no quantified earnings outlook.