Orion Marine Group, Inc. — FY 2011 Form 10-K
Reporting period: Fiscal year ended December 31, 2011; filed March 6, 2012. The filing identifies the registrant as Orion Marine Group, Inc.
Business context and reporting period
Orion is a marine specialty contractor providing construction, dredging, maintenance, and related services across U.S. coastal regions and the Caribbean. It reports one operating segment. Government agencies accounted for 76% of 2011 revenue; the U.S. Army Corps of Engineers alone accounted for 24%.
Key financial metrics
| Metric | FY 2011 | FY 2010 |
|---|---|---|
| Contract revenue | $259.9 million | $353.1 million |
| Gross profit / margin | $10.2 million / 3.9% | $65.2 million / 18.5% |
| Operating income (loss) | $(19.3) million | $32.6 million |
| Net income (loss) | $(13.1) million | $21.9 million |
| Diluted EPS | $(0.49) | $0.81 |
| EBITDA (non-GAAP) | $2.9 million | $53.6 million |
| Cash from operating activities | $32.7 million | $13.8 million |
| Capital expenditures | $14.9 million | $29.1 million |
At year-end, cash was $39.0 million, working capital was $75.8 million, total assets were $283.1 million, and stockholders’ equity was $233.6 million. No credit-facility borrowings were outstanding at December 31, 2011. The company reported $164.5 million of contracted backlog, down from $194.5 million a year earlier, but up $18.4 million sequentially from September 30.
Material changes versus the prior comparable period
- Revenue declined 26.4%. Management cited delayed private-sector infrastructure projects, slower government project lettings, fewer awards amid aggressive bidding, project start delays, and gaps between projects.
- Gross profit fell 84.4%; margin declined to 3.9% from 18.5%. Management attributed the decline to pricing pressure, equipment underutilization, increased depreciation and dredge maintenance, idle crews, project mix, and higher self-insurance claim estimates.
- SG&A decreased 9.6% to $29.5 million, primarily from cost containment, workforce and overhead reductions, and lower bonus expense.
- Operating cash flow increased to $32.7 million, supported in part by lower receivables and contract underbillings as activity declined. Cash also rose from $23.2 million to $39.0 million.
- Federal, state, and local customers represented 76% of revenue versus 64% in 2010; private-sector revenue fell to 24% from 36%.
Fourth-quarter 2011 revenue was $55.3 million, operating loss was $7.5 million, net loss was $5.2 million, and loss per share was $0.19. Fourth-quarter 2010 revenue was $90.4 million, operating income was $4.5 million, net income was $3.0 million, and EPS was $0.11.
Outlook, risks, contingencies, and unusual items
- Outlook: Management expected economic and political uncertainty to continue through much of 2012, while arguing that infrastructure work was deferred rather than eliminated. It highlighted port expansion, coastal restoration, and dredging opportunities. No quantified revenue or earnings guidance was provided. Priorities included rebuilding backlog, pricing discipline, cost control, and maintaining the balance sheet.
- Credit facility and covenant: At December 31, the company failed its minimum 1.50:1 fixed-charge coverage covenant; lenders waived the breach. The company was in compliance with its leverage and net-worth covenants. The filing says $13 million of cash was to be set aside by March 31, 2012, while management sought an alternative and covenant relief.
- Subsequent borrowing: In January 2012, Orion borrowed $13 million under its revolving facility toward a $13.4 million Tampa-area property purchase. The facility provides $75 million of revolving and swingline capacity, with an additional $25 million subject to lender discretion.
- Claims and legal matters: The company recorded approximately $4.6 million of 2011 expense for its self-insured portion of liabilities, citing two non-fatal work accidents and increased injury claims. Year-end accrued self-insurance liabilities were $3.4 million. Management did not expect ordinary-course litigation, individually or in aggregate, to have a material adverse effect.
- Other key risks: Dependence on public funding and major customers; competitive bidding and fixed-price contract cost overruns; backlog cancellations and project delays; bonding capacity; weather and fuel-price exposure; environmental permitting and liability; and estimates used in percentage-of-completion accounting. Goodwill was $32.2 million and was not impaired in the 2011 test.
- Reporting controls: Management and the auditor concluded internal control over financial reporting was effective; the auditor issued unqualified opinions on the financial statements and internal controls.
Important facts for investors to verify
- Whether the $13 million cash set-aside requirement was satisfied or replaced, and the outcome of requested covenant relief or credit-facility amendments.
- Whether operating margins recover from the 3.9% gross margin, and whether utilization, equipment costs, and self-insurance expenses improve.
- Whether backlog converts to revenue as expected, given cancellations, government letting delays, and the short typical contract duration.
- Whether the January 2012 Tampa property purchase and borrowing affect liquidity, covenant compliance, or available borrowing capacity.
- The credit facility maturity date: the filing gives September 30, 2013 in its facility discussion but also refers to June 2013 elsewhere.
- How management’s cost estimates, unapproved change orders, claims, and receivable collections affect reported contract profit and cash flow.