OREANDA-NEWS. Orion Group Holdings, Inc. (NYSE:ORN) (the “Company”), a leading specialty construction company, today reported a net loss for the three months ended June 30, 2016, of $0.8 million ($0.03 diluted loss per share).  These results compare to a net loss of $1.8 million ($0.07 diluted loss per share) for the same period a year ago.

Consolidated Results for the Second Quarter of 2016

  • Second quarter 2016 contract revenue was $140.3 million, an increase of 63.0%, as compared to second quarter 2015 revenue of $86.1 million, primarily as a result of the addition of TAS Commercial Concrete (TAS), partially offset by slower production due to adverse weather in Texas, as well as the timing and mix of projects.
  • Gross profit for the second quarter 2016 was $16.9 million, or a gross profit margin of 12.1%, an increase of approximately $10.9 million as compared to the second quarter 2015.
  • Selling, General and Administrative (SG&A) expenses for the second quarter 2016 were $16.9 million as compared to $8.8 million in the prior year period, an increase of $8.1 million, or 92.1%. The increase in SG&A is primarily attributable to the addition of TAS as well as one-time expenses related to management structure changes.
  • Second quarter 2016 EBITDA was $8.9 million, representing a 6.4% EBITDA margin which compares to second quarter 2015 pro forma EBITDA of $7.0 million, or a 5.1% EBITDA margin (EBITDA and EBITDA margin are non-GAAP measures, defined on Page 3 of this release; reconciliation tables are provided on pages 7-8).
  • Backlog of work under contract as of June 30, 2016, was approximately $368 million, excluding approximately $101 million of work on which the Company is the apparent low bidder, or has been awarded subsequent to the end of the second quarter.

"This week marks one year since we announced the largest acquisition in our Company’s history," said Mark Stauffer, Orion Group Holding Inc.’s President and Chief Executive Officer.  "My confidence in both the Commercial Concrete Construction (CCC) and Heavy Civil Marine Construction (HCMC) segments remains strong.  Looking at the second quarter, we experienced slightly slower productivity as a result of adverse weather in Texas, along with timing and mix of jobs in our HCMC segment.  As previously discussed, we elected to reduce the scope on one of the remaining troubled Tampa projects in order to bring this project to completion.  By doing this, although we incurred slightly lower margin than originally anticipated during the quarter, we brought closure to a job that likely would have experienced further customer delays and significantly higher costs to complete in the future.  Finally, we made further improvements to the Company's operating management structure, which resulted in one-time expenses during the second quarter.  I am pleased that we have materially completed the troubled Tampa projects and I believe we have laid the foundation for a strong future.  Our underlying businesses fundamentals are not only sound, but we believe are primed for continued improvement, and we remain confident in our full year outlook."

Heavy Civil Marine Construction Segment

  • Second quarter 2016 contract revenue was $80.0 million, a decrease of $6.1 million, or 7.1%, from the prior year period. The decrease is primarily attributable to the timing and mix of jobs, including the material completion of the troubled Tampa projects.
  • Second quarter 2016 operating loss was $1.2 million, an improvement of $1.5 million compared to the prior year period.
  • Second quarter 2016 EBITDA was $5.3 million, representing a 6.7% EBITDA margin which compares to second quarter 2015 EBITDA of $4.0 million, or 4.7% EBITDA margin (EBITDA and EBITDA margin are non-GAAP measures, defined on Page 3 of this release; reconciliation tables are provided on pages 7-8).
  • Backlog of work under contract as of June 30, 2016, was $166 million, which compares with backlog under contract at June 30, 2015 of $223 million.  Additionally, the Company is the apparent low bidder, or has been awarded subsequent to the end of the quarter approximately $55 million of work.

Commercial Concrete Construction Segment

  • Second quarter 2016 contract revenue was $60.3 million, an increase of $9.9 million, or 19.5% from the prior year period.
  • Second quarter 2016 operating income was $1.5 million, a decrease of $0.5 million compared to the prior year period. The decrease is primarily attributable to amortization expense related to the acquisition of TAS.
  • Second quarter 2016 EBITDA was $3.6 million, representing a 6.0% EBITDA margin which compares to second quarter 2015 pro forma EBITDA of $3.0 million, or 5.9% EBITDA margin (EBITDA and EBITDA margin are non-GAAP measures, defined on Page 3 of this release; reconciliation tables are provided on pages 7-8).
  • Backlog of work under contract as of June 30, 2016, was $201 million, which is comparable with backlog under contract at June 30, 2015 of $174 million.  Additionally, the Company is the apparent low bidder, or has been awarded subsequent to the end of the quarter approximately $46 million of work.

Outlook

"As we begin the second half of the year, we are encouraged by the productivity of our operations and the sustained level of opportunities we see,” continued Mr. Stauffer.  “We continue to experience a high level of demand for all of the types of services we provide across both operating segments.  In the HCMC segment, we have materially wrapped up all of the remaining troubled Tampa projects.  With these projects behind us, we are confident that the new management team in Tampa has the tools and structure in place for profitable operations in the future," said Mr. Stauffer.

"Similar to market expectations provided in the prior quarter, the HCMC segment continues to see solid demand to help for the services needed to maintain and expand the infrastructure that facilitates the movement of goods and people on and over waterways.  As we monitor developments in the energy sector, we continue to see bid opportunities from our private sector energy-related customers as they expand their marine facilities associated with the storage, transportation and refining of domestically produced energy.  We continue to believe over the long term, we will see opportunities in this sector from petrochemical related customers, energy exporters, and liquefied natural gas (LNG) facilities.

In the CCC segment, demand for services also remains solid.  In the Houston market, we are seeing increasing demand for education, medical and retail space.  The Dallas market continues to be a source of growth, and continues to maintain peak backlog.  We believe strong demand overall for our CCC segment will continue in our current operating markets and support expansion plans for this business,” concluded Mr. Stauffer.
               
"Overall, we bid on approximately $760 million during the second quarter 2016 and were successful on approximately $123 million," said Chris DeAlmeida, Orion Group Holding's Vice President and Chief Financial Officer. "This resulted in a 0.88x times book-to-bill ratio for the quarter and a win rate of 16.2%. In the HCMC segment, we bid on approximately $362 million during the second quarter 2016 and were successful on $47 million. This resulted in a 0.59x times book-to-bill ratio for the quarter and a win rate of 13.0%.  The CCC segment also had healthy bid levels for the quarter, bidding on approximately $398 million in work while being awarded approximately $76 million.  This resulted in a 1.26x times book-to-bill ratio for the quarter and a win rate of 19.1%.  In total, we have approximately $725 million worth of bids outstanding, excluding approximately $101 million on which we are apparent low bidder or have been awarded subsequent to the end of the quarter, of which, approximately $55 million is in the HCMC segment and approximately $46 million is in the CCC segment."

"We are reiterating our full year 2016 revenue guidance of $625 - $675 million and earnings per share (EPS) guidance of $0.30 - $0.40.  Additionally, and as we stated last quarter, we are targeting $70 million of EBITDA for 2017," said Mr. DeAlmeida.

About Orion Group Holdings

Orion Group Holdings, Inc., a leading specialty construction company, provides services both on and off the water in the continental United States, Alaska, Canada and the Caribbean Basin through its heavy civil marine construction segment and its commercial concrete segment. The Company’s heavy civil marine construction segment services includes marine transportation, facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services.  Its commercial concrete segment provides turnkey concrete construction services including pour and finish, dirt work, layout, forming, rebar, and mesh across the light commercial, structural and other associated business areas.  The Company is headquartered in Houston, Texas with regional offices throughout its operating areas.

EBITDA and EBITDA Margin

This press release includes the financial measures “EBITDA” and “EBITDA margin."  These measurements are “non-GAAP financial measures” under rules of the Securities and Exchange Commission, including Regulation G.  The non-GAAP financial information may be determined or calculated differently by other companies. By reporting such non-GAAP financial information, the Company does not intend to give such information greater prominence than comparable and other GAAP financial information, which information is of equal or greater importance.

Orion Group Holdings defines EBITDA as net income before net interest expense, income taxes, depreciation and amortization.  EBITDA margin is calculated by dividing EBITDA for the period by contract revenues for the period.  The GAAP financial measure that is most directly comparable to EBITDA is net income, while the GAAP financial measure that is most directly comparable to EBITDA margin is operating margin, which represents operating income divided by contract revenues.  EBITDA and EBITDA margin are used internally to evaluate current operating expense, operating efficiency, and operating profitability on a variable cost basis, by excluding the depreciation and amortization expenses, primarily related to capital expenditures and acquisitions, and net interest and tax expenses.  Additionally, EBITDA and EBITDA margin provide useful information regarding the Company's ability to meet future debt repayment requirements and working capital requirements while providing an overall evaluation of the Company's financial condition.  In addition, EBITDA is used internally for incentive compensation purposes.  The Company includes EBITDA and EBITDA margin to provide transparency to investors as they are commonly used by investors and others in assessing performance.  EBITDA and EBITDA margin have certain limitations as analytical tools and should not be used as a substitute for operating margin, net income, cash flows, or other data prepared in accordance with generally accepted accounting principles in the United States, or as a measure of the Company's profitability or liquidity.

Backlog

Backlog consists of projects under contract that have either (a) not been started, or (b) are in progress and not yet complete, and the Company cannot guarantee that the revenue projected in its backlog will be realized, or, if realized, will result in earnings.  Backlog can fluctuate from period to period due to the timing and execution of contracts.  Given the typical duration of the Company's projects, which generally range from three to nine months, the Company's backlog at any point in time usually represents only a portion of the revenue it expects to realize during a twelve-month period.

Orion Group Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
(In thousands, except share and per share information)
 
  Three months ended June 30,   Six months ended June 30,
  2016 2015   2016 2015
  Unaudited Unaudited   Unaudited Unaudited
Contract revenues $   140,301     $   86,091         269,924       167,546    
Costs of contract revenues   123,355       80,066         238,267       153,065    
Gross profit   16,946       6,025         31,657       14,481    
Selling, general and administrative expenses   16,899       8,794         32,437       17,486    
Gain from sale of assets, net   (234 )     (57 )       (606 )     (100 )  
Operating income (loss) from operations   281       (2,712 )       (174 )     (2,905 )  
Other (expense) income          
Other income   9           —         22           —    
Interest income       —       4         1       17    
Interest expense   (1,600 )     (252 )       (3,117 )     (490 )  
Other expense, net   (1,591 )     (248 )       (3,094 )     (473 )  
Loss before income taxes   (1,310 )     (2,960 )       (3,268 )     (3,378 )  
Income tax benefit   (502 )     (1,115 )       (1,252 )     (1,276 )  
Net loss attributable to Orion   (808 )     (1,845 )       (2,016 )     (2,102 )  
           
Basic loss per share $   (0.03 )   $   (0.07 )     $   (0.07 )   $   (0.08 )  
Diluted loss per share $   (0.03 )   $   (0.07 )     $   (0.07 )   $   (0.08 )  
Shares used to compute loss per share          
Basic   27,464,683       27,352,523         27,383,748       27,478,514    
Diluted   27,464,683       27,352,523         27,383,748       27,478,514    
Orion Group Holdings, Inc. and Subsidiaries
Selected Results of Operations
(In thousands, except share and per share information)
 
  Three months ended
June 30,		 Six months ended
June 30,
  2016 2015 2016 2015
Heavy Civil Marine Construction        
  Contract revenues(1) $ 79,966   $ 86,091   $ 142,381   $ 167,546  
  Operating loss(1)   (1,212 )    (2,712 )    (4,354 )    (2,905 ) 
         
Commercial Concrete Construction        
  Contract revenues(1) $ 60,335   $ 50,474   $ 127,543   $ 108,384  
  Operating income(1)   1,493      2,017      4,180      5,571   

(1) The Company has included the pro forma impact of the acquisition of TAS in our operating results for the three and six months ended June 30, 2015.

Orion Group Holdings, Inc. and Subsidiaries
EBITDA and EBITDA Margin Reconciliations
(In Thousands, except margin data)
 
  Three months ended
June 30,		   Six months ended
June 30,
  2016 2015 (3)   2016 2015 (3)
  Unaudited Unaudited   Unaudited Unaudited
Operating income (loss) $ 281   $     (695 )   $   (174 )   $ 2,666  
Other income   9        6        22       15   
Depreciation and amortization   8,653        7,682       17,203       15,570  
EBITDA(1) $ 8,943   $     6,993     $   17,051     $ 18,251  
Operating income (loss) margin(2)   0.2 %      (0.5 )%      (0.1 )%     1.0 % 
Impact of depreciation and amortization   6.2 %      5.6 %      6.4 %     5.6 % 
EBITDA margin(1)   6.4 %      5.1 %      6.3 %     6.6 % 

(1) EBITDA is a non-GAAP measure that represents earnings before interest, taxes, depreciation and amortization. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by contract revenues.

(2) Operating margin is calculated by dividing operating income (loss), plus other income, by contract revenues.

(3) The Company has included the pro forma impact of the acquisition of TAS in our operating results for the three and six months ended June 30, 2015.

Orion Group Holdings, Inc. and Subsidiaries
EBITDA and EBITDA Margin Reconciliations by Segment
(In Thousands, except margin data)
 
  Heavy Civil Marine Construction
  Three months ended
June 30,		 Six months ended
June 30,
  2016 2015 (3) 2016 2015 (3)
  Unaudited Unaudited   Unaudited Unaudited
Operating loss $   (1,212 )   $   (2,712 )         (4,354 )   (2,905 )
Other income   1,361       1,505           3,824      3,027  
Depreciation and amortization   5,176       5,209           10,243      10,654  
EBITDA(1) $   5,325     $   4,002     $ 9,713   $ 10,776  
Operating income (loss) margin(2)   0.2 %     (1.4 )%         (0.4 )%  —  
Impact of depreciation and amortization   6.5 %     6.1 %         7.2 %    6.4 % 
EBITDA margin(1)   6.7 %     4.7 %         6.8 %    6.4 % 
  Commercial Concrete Construction
  Three months ended
June 30,		 Six months ended
June 30,
  2016 2015 (3) 2016 2015 (3)
  Unaudited Unaudited Unaudited Unaudited
Operating income $ 1,493   $ 2,017   $ 4,180   $ 5,571  
Other expense     (1,352 )     (1,499 )     (3,802 )      (3,012 )
Depreciation and amortization     3,477       2,473       6,960       4,916  
EBITDA(1) $ 3,618   $ 2,991   $ 7,338   $ 7,475  
Operating income margin(2)     0.2 %      1.0 %     0.3 %      2.4 % 
Impact of depreciation and amortization     5.8 %      4.9 %      5.5 %      4.5 % 
EBITDA margin(1)     6.0 %      5.9 %      5.8 %      6.9 % 

(1) EBITDA is a non-GAAP measure that represents earnings before interest, taxes, depreciation and amortization. EBITDA margin is a non-GAAP measure calculated by dividing EBITDA by contract revenues.

(2) Operating margin is calculated by dividing operating income (loss), plus other income, by contract revenues.

(3) The Company has included the pro forma impact of the acquisition of TAS in our operating results for the three and six months ended June 30, 2015.

Orion Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, except share and per share information)
 
    June 30,
 2016		 December 31,
 2015
    Unaudited Audited
ASSETS      
Current assets:      
Cash and cash equivalents   $ 1,512   $ 1,345  
Accounts receivable:      
Trade, net of allowance of $0 and $0, respectively     68,599     72,358  
Retainage     34,994     21,040  
Other     3,592     5,313  
Income taxes receivable     83     83  
Inventory     5,395     4,867  
Deferred tax asset     3,108     3,108  
Costs and estimated earnings in excess of billings on uncompleted contracts     48,401     59,608  
Assets held for sale     6,375     6,375  
Prepaid expenses and other     3,766     4,627  
Total current assets     175,825     178,724  
Property and equipment, net     164,384     165,989  
Accounts receivable, non-current     765     222  
Retainage, non-current     4,337     14,393  
Inventory, non-current     4,911     6,218  
Goodwill     66,351     65,982  
Intangible assets, net of amortization     25,676     29,319  
Other noncurrent     1,085   $ 615  
Total assets   $ 443,334   $ 461,462  
LIABILITIES AND STOCKHOLDERS’ EQUITY      
Current liabilities:      
Current debt, net of debt issuance costs   $ 21,365   $ 12,004  
Accounts payable:      
Trade     41,533     52,719  
Retainage     1,002     1,671  
Accrued liabilities     15,998     22,149  
Taxes payable     507     813  
Billings in excess of costs and estimated earnings on uncompleted contracts     27,039     28,484  
Total current liabilities     107,444     117,840  
Long term debt, net of debt issuance costs     88,356     94,605  
Other long-term liabilities     2,216     1,813  
Deferred income taxes     18,165     19,345  
Interest rate swap liability     1,242     145  
Total liabilities     217,423     233,748  
Commitments and contingencies      
Stockholders’ equity:      
Preferred stock - $0.01 par value, 10,000,000 authorized, none issued   —   —  
Common stock - $0.01 par value, 50,000,000 authorized, 28,393,898 and 27,992,589  issued; 27,682,667 and 27,281,358 outstanding at June 30, 2016 and December 31, 2015, respectively     279     279  
Treasury stock, 711,231 shares, at cost     (6,540 )    (6,540 ) 
Accumulated other comprehensive loss     (1,242 )    (145 ) 
Additional paid-in capital     170,046     168,736  
Retained earnings     63,368     65,384  
Total stockholders’ equity     225,911     227,714  
Total liabilities and stockholders’ equity   $ 443,334   $ 461,462  
Orion Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(In Thousands)
 
    Six months ended June 30,
    2016 2015
Cash flows from operating activities   Unaudited Unaudited
Net loss   $   (2,016 )   $   (2,102 )  
Adjustments to reconcile net loss to net cash provided by operating activities:      
Depreciation and amortization     17,203       10,654    
Deferred financing cost amortization     620           —    
Bad debt expense         —       11    
Deferred income taxes     (1,180 )     (1,160 )  
Stock-based compensation     1,302       1,315    
Loss on sale of property and equipment     (606 )     (100 )  
Change in operating assets and liabilities, net of effects of acquisitions      
Accounts receivable     1,037       (11,135 )  
Income tax receivable         —       233    
Inventory     779       (97 )  
Prepaid expenses and other     861       356    
Costs and estimated earnings in excess of billings on uncompleted contracts     11,207       (932 )  
Accounts payable     (11,857 )     6,282    
Accrued liabilities     (5,469 )     (946 )  
Income tax payable     (306 )     (730 )  
Billings in excess of costs and estimated earnings on uncompleted contracts     (1,444 )     (4,792 )  
Deferred revenue         —       (34 )  
Net cash provided by (used in) operating activities     10,131       (3,177 )  
Cash flows from investing activities:      
Proceeds from sale of property and equipment     888       166    
Contributions to CSV life insurance     (471 )         —    
TAS acquisition adjustment     (369 )         —    
Purchase of property and equipment     (12,513 )     (7,533 )  
Net cash used in investing activities     (12,465 )     (7,367 )  
Cash flows from financing activities:      
Borrowings from Credit Facility     32,000           —    
Payments made on borrowings from Credit Facility     (29,021 )     (4,541 )  
Loan costs from Credit Facility     (486 )         —    
Exercise of stock options     8       28    
Purchase of shares into treasury         —       (3,101 )  
Net cash provided by (used in) financing activities     2,501       (7,614 )  
Net change in cash and cash equivalents     167       (18,158 )  
Cash and cash equivalents at beginning of period     1,345       38,893    
Cash and cash equivalents at end of period   $   1,512     $   20,735    
Supplemental disclosures of cash flow information:      
Cash paid during the period for:      
Interest   $   2,588     $   490    
Taxes (net of refunds)   $   235     $   434