Orion Group Holdings, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023. Orion provides specialty marine construction and concrete services. Financial statement amounts below are in millions of dollars unless stated otherwise.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Contract revenue | $159.2 | $174.9 |
| Gross profit / margin | $5.8 / 3.7% | $12.8 / 7.3% |
| Operating loss | $(10.6) | $(2.9) |
| Net loss | $(12.6) | $(4.9) |
| Loss per share, basic and diluted | $(0.39) | $(0.16) |
| Cash from (used in) operating activities | $(3.0) | $10.1 |
| Capital expenditures | $1.9 | $3.5 |
Revenue fell 9.0% year over year. Management attributed the decline to weather and customer delays in both businesses and lower concrete revenue in central Texas. Gross margin fell to 3.7% from 7.3%: management said roughly half of the decline reflected Texas weather and reduced labor and equipment utilization, with the remainder largely due to write-downs while cleaning up low-margin projects. SG&A increased to $17.0 million from $16.2 million, and interest expense rose to $1.6 million from $0.7 million.
Marine revenue was $79.3 million, down 6.1%; the segment moved from $1.8 million operating income to a $6.1 million operating loss. Concrete revenue was $79.9 million, down 11.7%; its operating loss improved slightly to $4.6 million from $4.7 million.
Financial position and liquidity
At March 31, cash was $2.8 million, working capital was $21.8 million, and total assets were $344.2 million. Total debt was approximately $40.9 million gross ($40.0 million carrying value); the prior-year-end carrying value was $35.7 million. The existing revolver was $40.0 million drawn, with only about $1.0 million of availability after letters of credit. The facility’s weighted-average interest rate was about 10.2%. Operating cash outflow was $3.0 million, compared with $10.1 million of operating cash inflow a year earlier; cash declined by $0.9 million during the quarter to $2.8 million.
Management had previously concluded substantial doubt existed about the company’s ability to continue as a going concern, citing operating losses, limited cash and debt maturing July 31, 2023. After quarter-end, Orion entered a three-year, $103 million senior secured facility on May 15, 2023, comprising a $65 million asset-based revolver and a $38 million term loan. Management said the refinancing and other factors resolved the substantial doubt and provided adequate liquidity for at least 12 months. The new facility’s stated initial pricing is 30-day SOFR plus 5.5% on the revolver and plus 8.0% on the term loan, subject to a 4.0% SOFR floor. Orion also entered a $13 million equipment sale-leaseback.
Backlog, outlook and risks
Backlog was $467.4 million at March 31, up from $448.8 million at December 31, 2022, but below $604.1 million a year earlier. The company expected to recognize $441.1 million, or 94%, of remaining performance obligations within 12 months. Management reported $3.1 billion of quoted bids outstanding at quarter-end and said contracts exceeding $610 million had been awarded after quarter-end. Backlog and bid activity are not guarantees of future revenue.
A land sale contract signed April 26 covers approximately 341 acres in Harris County for about $36 million, with closing anticipated by September 29, 2023, subject to due diligence. Management cited weather, customer delays, project execution, labor and equipment availability, contract changes or cancellations, government funding, and prices of concrete, steel and fuel as risks. Many contracts are fixed-price, and the company generally does not hedge commodity price exposure. It also disclosed customer and supplier concentration risks; one private customer represented 10.9% of Q1 revenue and 10.9% of current receivables at quarter-end. Management said routine legal proceedings were not expected to have a material effect. No material risk-factor changes were reported from the 2022 Form 10-K.
Most important facts for investors to verify
- Whether the May 15 refinancing provides sufficient borrowing availability and covenant headroom, and the resulting interest and fee burden.
- Whether the planned $36 million land sale closes on expected terms and timing.
- Whether post-quarter contract awards convert into backlog and revenue, and whether backlog conversion and margins improve.
- Whether project write-downs, weather and customer delays continue to pressure segment profitability and operating cash flow.
- Collection timing for retainage and claims/change orders; retainage was $52.9 million and contract assets included about $12.6 million of claims and unapproved change orders.