Orion Marine Group, Inc. — FY 2012 Form 10-K
Reporting period: Fiscal year ended December 31, 2012; filed March 6, 2013. The filing describes a marine construction and dredging contractor serving public and private customers. The company operates as one reportable segment.
Financial performance and liquidity
| Metric | FY 2012 | FY 2011 |
|---|---|---|
| Revenue | $292.0 million | $259.9 million |
| Gross profit / margin | $14.4 million / 5.0% | $10.2 million / 3.9% |
| Operating loss | $14.2 million | $19.3 million |
| Net loss | $11.9 million; $0.44 per share | $13.1 million; $0.49 per share |
| Cash from operations | $24.4 million | $32.7 million |
| Capital expenditures | $24.6 million | $14.9 million |
| Cash and cash equivalents at year-end | $43.1 million | $39.0 million |
| Total debt at year-end | $12.6 million | None |
| Working capital at year-end | $55.8 million | $75.8 million |
FY 2012 EBITDA, a non-GAAP measure, was $5.8 million versus $2.9 million in 2011. Investing activities used $33.3 million, including $24.6 million of capital expenditures and $9.0 million for the West Construction acquisition. Financing activities provided $12.9 million. The company reported approximately $31.5 million of revolver availability at year-end and said it was in compliance with its financial covenants.
Changes versus prior year
- Revenue rose 12.4%, with private-sector revenue increasing to 51% of total from 24%; public-sector revenue fell to 49% from 76%.
- Gross margin improved to 5.0% from 3.9%, which management attributed mainly to better equipment utilization and project mix. Management also cited a strategy of increasing volume amid lower job margins.
- The annual net loss narrowed, but results remained loss-making. Fourth-quarter revenue was $98.6 million, operating income was $5.7 million, and net income was $1.5 million, compared with fourth-quarter 2011 revenue of $55.3 million and a net loss of $5.2 million.
- Year-end backlog increased 11.9% to $184.1 million from $164.5 million. Backlog can be canceled and is not necessarily indicative of future results.
- The company acquired substantially all West Construction assets in Alaska for $9.0 million in cash, with a contingent earnout of up to $1.0 million. It also bought Tampa-area land and buildings for approximately $13.7 million.
Outlook, risks, and unusual items
Management described its 2013 outlook as optimistic, citing a strong project-tracking pipeline, private-sector construction and refurbishment opportunities, state-funded bridge work, and port projects. It also warned that U.S. Army Corps of Engineers project lettings remained inconsistent, pressuring dredging-asset utilization. Management’s stated priorities were maintaining backlog and pricing discipline, controlling operating costs, and preserving the balance sheet. No numerical revenue or earnings guidance is provided.
- The credit facility, including the term loan and revolving components, was scheduled to mature June 30, 2013. The company had $12.6 million outstanding at year-end; the facility was secured by company assets and included a covenant barring net losses for two consecutive fiscal quarters. The filing says the company expected to meet its liquidity needs for at least 12 months, but does not specify a refinancing outcome.
- Fixed-price contracts, percentage-of-completion accounting, cost-to-complete estimates, change orders, and customer claims can cause earnings volatility or reversals of previously recognized revenue and profit.
- Key business risks include government funding and customer concentration, competitive pricing, project delays or cancellations, bonding capacity, skilled-labor availability, weather, fuel and materials costs, environmental regulation, and potential uninsured or self-insured claims. The Army Corps of Engineers accounted for 16.7% of 2012 revenue.
- The company recorded a $1.8 million net loss on asset sales; the notes report a $2.0 million impairment loss on underutilized assets classified as held for sale. It also recorded $3.6 million of expense in 2012 for its self-insured portion of personal-injury liabilities, and year-end self-insured claim accruals were $3.8 million.
- Goodwill was $34.8 million, with no impairment identified in the 2012 test. The independent auditor issued unqualified opinions on the financial statements and internal control over financial reporting.
Important facts for investors to verify
- Whether the credit facility was refinanced, extended, or repaid by its June 30, 2013 maturity, and whether covenant compliance continued.
- Whether the higher backlog converted into revenue at sustainable margins, given the company’s volume strategy and history of underutilized equipment.
- Collection of receivables and unbilled contract balances, particularly as trade receivables rose and private customers represented 73% of year-end receivables.
- Actual cash generation after capital spending, acquisition costs, and scheduled debt payments; operating cash flow declined year over year.
- Developments in personal-injury claims, environmental or other litigation, and the adequacy of related reserves and insurance coverage.
- Integration and performance of the Alaska acquisition, including any earnout payment, and the disposition and realized value of assets held for sale.