Orion Group Holdings, Inc. (NYSE:ORN) Q1 2025 Earnings Call Transcript

Orion Group Holdings, Inc. (NYSE:ORN) Q1 2025 Earnings Call Transcript April 30, 2025

Operator: Good day and welcome to the Orion Group Holdings’ First Quarter 2025 Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Margaret Boyce, Investor Relations. Please go ahead.

Margaret Boyce: Thank you, Michael and thanks everyone for joining us today to discuss Orion Group Holdings’ first quarter 2025 financial results. We issued our earnings release after the market last night. It’s available in the Investor Relations section of our website at oriongroupholdingsinc.com. I am here today with Travis Boone, Chief Executive Officer and Scott Thanisch, Chief Financial Officer. On today’s call, management will provide prepared remarks and then we’ll open up the call for your questions. Before we begin, I’d like to remind you that today’s comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate, or other comparable words and phrases.

Statements that are not historical facts are forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-Q and 10-K. With that, I’ll turn the call over to Travis. Travis, please go ahead.

Travis Boone: Thank you, Margaret and good morning everyone and thank you for joining our first quarter 2025 conference call. I’ll start with an overview of our first quarter results and market update and then I’ll turn it over to Scott to cover our financial results. We are off to a strong start in 2025. For the first quarter, we reported revenue of $189 million and adjusted EBITDA of $8 million, which reflects the strength of our operating model and the successful execution of our strategic priorities. Before I talk about our business, I’d like to address some topics that have been causing market uncertainty over the past few months. Starting with some of the actions of the Trump administration to reduce government spending and to impose tariffs, the recent tariffs and steps taken to reduce the size of the federal government will not have a material impact on our results for 2025.

We were proactive in managing tariff risks starting last summer. After recently conducting a thorough evaluation of our business, we haven’t identified any material impacts based on what we know today. Additionally, we have not seen reductions in government spending have an impact on the domestic infrastructure projects that we are pursuing or delivering and there has been no pullback on the U.S. government’s China deterrence policy. Even though macroeconomic conditions remain somewhat fluid, certain policy directives from the Trump administration are clear and unwavering. Chief among them are a renewed focus on domestic industrial policy through reshoring U.S. manufacturing and shipbuilding and a strategic pivot to defense and economic investment in the Pacific over other geopolitical regions.

At the heart of Trump’s executive order, restoring America’s maritime dominance is the goal of revitalizing U.S. maritime power to promote national security and economic prosperity. This order will include grant programs for capital improvements to commercial shipyards and vessel repair facilities and dry docks, which are right in our wheelhouse. These key policy directives represent meaningful tailwinds for our business and we expect the full benefit will begin to materialize over the next couple of years. We have seen no pullback in our market opportunities. On the contrary, so far this year, we have secured almost $350 million in new wins, $161 million in marine and $188 million in concrete, which have started or are scheduled to start within the next few months.

These wins include projects across the full spectrum of Orion’s specialized capabilities, including marine facilities, dredging, bridges, large buildings and data centers. Our solid start to the year of project wins brings our backlog plus awarded work to $890 million. We will continue to focus on building profitable backlog from our strong pipeline of opportunities. Most of our marine wins in the first quarter were detailed in our press release in February. Marine projects are typically larger in size and take longer to close. We currently have four large pursuits in the pipeline, with decisions expected in the next couple of months, along with many more modest sized pursuits. I especially want to congratulate our concrete team for their strong start to the year with building backlog.

In the last several months, we have seen increased demand across our markets and continue to win repeat business with our world class partners. This quarter, we have won 5 data centers with our trusted partners that totaled $47 million, bringing our total number of data centers to 35 and more than $235 million that we have delivered. Demand in the data center market remains strong. And so far, we haven’t seen any signs of a slowdown. In fact, several hyperscalers have reaffirmed their commitment to investing in the AI revolution. Any pullback that we have seen is related to inability to obtain the power needed in certain locations. The new administration’s goal to reshort manufacturing should also support the growth of our concrete business over time.

In addition to data centers, other concrete wins included $17 million projects with our partner, O-Line Construction, for a multi-story mixed-use project, a $10 million project with Durotech for a Houston school, and a $24 million award for Phase 2 of the Costco distribution center in South Florida. In summary, everyone at Orion is extremely excited about our future in our markets. Our morale has never been higher, and our business and operating model are well positioned to benefit from the current administration’s agenda. With a talented, energized and collaborative team focused on delivering projects safely with predictable excellence, we are on a strong path for continued success. Before I turn the call over to Scott, I want to encourage stockholders to cast your votes and participate in our virtual annual meeting coming up on May 15.

You can find the details in your proxy materials and in our website. Scott, your turn is back.

Scott Thanisch: Thanks, Travis and good morning everyone. We are pleased with our first quarter results and the progress made in growing our business. As Travis highlighted, consolidated revenue increased over 17% to $189 million and adjusted EBITDA doubled to $8.2 million. In the first quarter, marine revenue was up over 19% and concrete revenue increased 13%. Our disciplined bidding standards and refined approach to business development contributed to the strong growth in both segments. Consolidated gross profit margin increased to $23 million or 12.2% of revenue, up from 15.5 million, or 9.7% of revenue in the same period last year. The 250 basis point increase in consolidated gross margin was driven by improvements in marine profitability, partially offset by lower concrete margins.

SG&A expenses were $22.5 million, up from $19 million in the comparable period. As a percentage of total contract revenues, SG&A expenses increased to 12% from 11.8%. Incentive compensation, legal, IT, and operating lease expenses largely accounted for the increase in SG&A. While SG&A expenses have increased as we have invested in our growth, we expect to benefit from operating leverage as we continue to expand our top line. As a result, we expect SG&A as a percentage of revenue to improve in the near future. Turning to profitability, adjusted net income was $300,000 or $0.01 per diluted share in the first quarter compared to an adjusted net loss of $3.6 million or $0.11 per diluted share in the prior year period. First quarter net income included $1.7 million, or $0.05 per diluted share of adjusted items.

GAAP net loss for the first quarter of 2025 was $1.4 million, or $0.04 per diluted share. EBITDA for the first quarter increased to $6.3 million, while adjusted EBITDA grew to $8.2 million. Adjusted EBITDA margin improved 180 basis points to 4.3%, up from 2.5% last year. During the first quarter, adjusted EBITDA margin in the Marine segment was 8.6%, compared to 0.9% last year. Adjusted EBITDA margin in our Concrete segment was negative 4.4%, compared with positive 5.7% in the prior year period. Last year’s first quarter exhibited unusually low marine margins due to project delays and unusually high concrete margins due to project write-ups. This year’s first quarter is more typical and in line with our expectations. Concrete experiences seasonally lower productivity in the first quarter, and we expect over the remainder of the year to see better margins in that business.

As a reminder, as we continue to build scale in our business, our medium-term goal is to generate adjusted EBITDA margins in the low double-digits for marine and high single-digits for concrete. Moving on to bidding metrics, in the first quarter, we bid on projects worth approximately $761 million, winning $299 million. This equated to a contract value-weighted win rate of 39% and a book-to-bill ratio of 1.59x for the first quarter. We expect to see continued progress capturing our opportunities and growing our backlog, but given the timing of project wins, there maybe some variability in our win rate from quarter to quarter. As of March 31, our backlog was $840 million compared to $729 million at the end of the prior quarter and $757 million at the end of the first quarter last year.

Breaking out our first quarter backlog by segment, $607 million was related to our Marine segment and $232 million was related to our Concrete segment. As Travis mentioned, we are off to a strong start in 2025 and our end-of-quarter backlog plus awards subsequent to quarter end is $891 million. Turning to cash flow, in the March quarter, we reported negative $3.4 million of cash from operations compared to negative $22.8 million in the prior year quarter. Cash flow can vary from quarter to quarter due to the timing of project mobilizations and completions. We ended the March quarter with $13 million in cash. Total debt outstanding was $23.3 million and we had no outstanding borrowings under our revolving credit facility at the end of the quarter.

Beginning this year, we made the cutover from our legacy systems to our new IT systems and processes for our operations and back office. With the heavy lifting behind us, we are now working to fine tune these systems. This project was a key initiative to position the company for greater growth. By having our business segments on the same financial platform, we will have clear line of sight across the entire business. These tools will facilitate information sharing and offer valuable insights into status of our projects, significantly enhancing our ability to monitor and manage operations in the field. As our operational enhancements take hold, we anticipate achieving greater efficiency, supporting ongoing business expansion while capitalizing on the benefits of fixed cost leverage.

We are also investing in our people and facilities. We are currently in the process of consolidating our Houston area offices from 3 down to 1. In late June, we will co-locate our marine, concrete and shared services teams in an office building that was constructed by our Concrete segment in the East River mixed use development near Downtown Houston. During the first quarter, we incurred about $400,000 of incremental lease expense during our finish out of this facility. The leases of our vacated facilities will end during the third quarter, resulting in the elimination of this bubble cost and lower ongoing facility cost. Looking forward, we are excited by our improving performance in expanding pipeline. As Travis mentioned, a key indicator of the continued execution of our strategic plan will be our backlog growth in 2025, which will include winning projects for delivery in 2025 and beyond.

Our first quarter performance was aligned to our expectations and we are reiterating our guidance for the full year 2025. We expect revenue to be in the range of $800 million to $850 million, with adjusted EBITDA in the range of $42 million to $46 million. This translates to a range of $0.11 to $0.17 for adjusted EPS. We are also maintaining our 2025 CapEx guidance in the range of $25 million to $35 million as we invest for the opportunities ahead. In closing, our first quarter performance reflects the strength of our business model, the discipline of our execution, and the dedication of our team. With a solid foundation in place and a clear strategy for growth, we are well positioned to capitalize on the exciting opportunities ahead. We remain heads down on execution to drive sustainable value for our shareholders and we look forward to sharing our progress next quarter.

We’ll open up the call for your questions. Go ahead, Michael.

Q&A Session

Operator: [Operator Instructions] And the first question comes from Aaron Spychalla with Craig-Hallum. Please go ahead.

Aaron Spychalla: Yes. Good morning, Travis and Scott. Thanks for taking the questions. First for me, on the defense side of things, seeing some good movement on defense spending, shipbuilding, some of these RFPs do seem like they are starting to see some traction. Are you still thinking late this year and into 2026 for awards there? Curious if it could be sooner than that. And then if you could just frame the opportunity, what that could look like for you in the coming years.

Travis Boone: Yes. There is usually quite a bit of visibility, especially in some of these big Federal contracts, Aaron. So, I don’t expect that it will get sped up too much more than what we were thinking probably late this year, and early next year for to be anything concrete there. Unless something changes with the administration or something like that, it’s probably going to be – are going to be in that timeframe.

Aaron Spychalla: Alright. And then just maybe kind of, can you talk about the, just kind of the size of that opportunity that you are seeing, potential, multiple RFPs, just any other color you could provide there on how that maybe looks for you in the coming years?

Travis Boone: Sure. There is a couple of project pursuits that we are working on for later this year, kind of into early next year. Size in the, let’s call it $500 million range. And there is a couple of them kind of in the hopper now with expectations that a few more will get hot in the next couple of months.

Aaron Spychalla: Alright. Thank you for that. And then you just on concrete, good to see strong order activity in the quarter, can you just talk about the outlook for that business for the rest of this year? It doesn’t sound like you are seeing a slowdown there since early April or anything, so if you could elaborate on that and then just speak to kind of confidence in the margin expansion goals that you have kind of laid out there.

Travis Boone: Sure. We haven’t with our bidding activity and award activity, we haven’t seen much slowdown. That’s not to say that continued uncertainty with what’s going on might slow things down a little, but we are not seeing it yet. So, I guess knock on wood, we don’t – we are hopeful that there is not going to be a change in the activity we have been seeing over the first quarter.

Scott Thanisch: And on the margin question, as we have had some pretty strong winds at the beginning of the year, we are going to see nice blowing coming out of that business. And again, the operating leverage that we have kind of got built up into the business, I think it’s going to help those margins improve considerably.

Aaron Spychalla: Alright. Thanks. And then maybe one last for me, just on the private downstream energy markets, it seems like we are starting to see some traction there too, activities starting to pick up, just curious if you are seeing that and kind of the outlook there.

Travis Boone: Yes. I think what we have seen is kind of increased bullishness by some of the petrochem clients that have been maybe a little more reserved over the past administration, just being a little more bullish about their plans to move forward with projects. So, we are optimistic that the fair amount of activity is going to – it’s going to happen. I think everybody is watching the global oil prices and things like that, that could impact some of those projects moving forward. But I do think that we are going to see more activity happening here in the near future.

Aaron Spychalla: Alright. Thanks for taking the questions. And I will turn it over.

Operator: And your next question comes from Julio Romero with Sidoti & Company. Please go ahead.

Julio Romero: Thanks. Hey. Good morning Travis and Scott. Hope all is well.

Travis Boone: Good morning Julio.

Julio Romero: Hey. So, can you maybe speak to the margins posted in the Marine segment, I know, Scott, you mentioned that this quarter’s margins for both segments are more typical of the first quarter, but nonetheless in marine, just really strong segment margins, can you speak to the drivers there and can the margin strength continue in the quarters ahead, even as we have kind of lumpier quarter-to-quarter sales?

Travis Boone: Yes. Thanks Julio. And you are right, we do have varying performance quarter-to-quarter as the project mix changes as you roll through the quarters. And this was a particularly strong quarter on a number of projects in the marine business. And so that’s why you see somewhat elevated margins there. We do think that these are margins that the marine business can achieve on a regular basis, but probably is a high point for the kind of current year. But we will see continued growth in that business and similar to the concrete business, the growth will drive some further margin improvement. Within this quarter, we had really good performance on Hawaii, on Grand Bahamas shipyard, which are two of our larger projects. And so those are more impactful to the results.

Julio Romero: Got it. That’s very helpful. And then it sounds like you have been very proactive in tariff mitigation strategies. Just given your exposure to public work, to government contracts, can you talk a bit about how your contracts are structured? How you are differentiated as a specialty contractor, especially on the marine side, and if that allows you any competitive advantages in this uncertain operating environment?

Travis Boone: On the tariff front, we do a fair amount of work with the Federal government, as well as other government agencies that require either by-America or a by-American that is either U.S. steel or our allies. So, that helps a lot with the tariff, the tariff question. On other projects where we are more free to buy steel from other locations, as I have said in my comments, we have been pretty careful starting last summer when started thinking Trump might win this thing and everybody knows Trump equals tariffs. So, we were preparing for that and we had contingency in place for projects that we were bidding that had foreign steel and things like that. So, we were making sure we were prepared for the scenario that we are seeing in front of us now. What was the second part of your question, Julio?

Julio Romero: Just thinking about you guys on a competitive basis, how you are a little – any factors that might have some differentiation versus competitors and competitive behavior in this environment?

Scott Thanisch: Well, I think probably our most significant competitive damage in this particular arena is our strong supplier relationships. And we are a key customer of a number of steel suppliers who we have strong relationships with and an important part of their business. So, we are in constant dialogue with them and we have in the past gotten our best pricing from our best partners.

Julio Romero: Really helpful. Thanks for the color.

Travis Boone: Thanks Julio.

Operator: And your next question comes from Brent Thielman with D.A. Davidson. Please go ahead.

Brent Thielman: Hey. Great. Thanks. Good morning.

Travis Boone: Good morning Brent.

Brent Thielman: I guess I just wanted to ask a little more around concrete this quarter and the loss. I know there are some seasonal factors that play into this, but just wanted to understand the moving pieces around that. And then does the outlook contemplate a return to profitability here going forward?

Scott Thanisch: Yes. So, as you said, we have typically lower results in the first quarter of the concrete business. As in Texas, there is less workable days during that timeframe. And so that is kind of what you see in the results. And so there is just natural seasonal improvements that you will see in quarters going forward that can help concrete margins as the revenue comes up and their utilization of their indirects goes up. And so as we kind of progress through the year, we will see our concrete business get back to profitability over the course of the year. And although we haven’t really given segment specific guidance, this is all kind of aligned to our top line guidance of 42 to 46. So, we feel comfortable that the concrete business is on track for our expectations for this year.

Brent Thielman: Okay. Yes. And I guess the follow-up, I mean at least in the last couple of years, you have been sort of more back half heavy on revenue and earnings and EBITDA. Is that the expectation this year as we are thinking about, ramping execution on this book of business?

Scott Thanisch: Yes. That’s right. I mean if you just kind of take the 42 to 46 and subtract the first quarter, you can see that the remaining three quarters are going to have a higher average. And that’s a typical pattern for us. And as well, as we continue to grow the business, there is just a natural up into the right movement of our top line over time. So, as we move through the year and you will see bigger quarters and more profitable quarters, and that’s all kind of aligned to where we see the year finishing out.

Brent Thielman: Got it. Maybe just one last one, if I could sneak it in. you have got some pretty sizable pursuits you talked about on the Federal side and what you have already booked in terms of backlog thus far. Is the balance sheet in capital position in the place you want it to be in order to support getting those, that sort of work going forward?

Scott Thanisch: Yes. That’s a great question. As I mentioned, we had no draws on our revolver at the end of the quarter, the capacity on that is, it’s an ABL, so it ranges up and down, but $40 million to $60 million of capacity generally. So, we do feel like we have got the dry powder we need to take on projects, mobilize and kind of fund project cash flow. And as for kind of just further growth of the business, we are in constant dialogue with financing partners and our lender is always stands ready to help, as they say. As we look to acquire equipment, we expect that we could potentially borrow some more money to do that. We think that those will be high ROIC investments.

Brent Thielman: Great. Thanks Scott.

Scott Thanisch: Thanks Ben.

Operator: [Operator Instructions] The next question comes from Liam Burke with B. Riley FBR. Please go ahead.

Liam Burke: Thank you. Good morning Travis. Good morning Scott.

Travis Boone: Good morning Liam.

Liam Burke: I guess, Scott, the operating cash flow or negative cash flow was $2.4 million versus $22 million last year. Understanding that first quarter is typically a weaker cash flow quarter and there is variability based on project flow. But is this the trend when you are considering you had 17% sales growth, and much better operating cash flow? Is this a trend that we could expect as you balance through the four quarters of this year?

Scott Thanisch: In terms of increasing cash flow as our top line increases, absolutely. We – the improvement on a year-over-year basis, it’s probably a little larger this quarter because the first quarter was somewhat adversely affected in cash flow from investment in the Hawaii project. But yes, we expect to continue to see improving cash flow. And over the course of this year, we expect our cash flow will turn positive.

Liam Burke: Okay. Great. You talked about tariffs, government regulation not affecting the revenue or the bidding process. You talked about existing supplier relations being stable. When I look at input costs and eventually your pre-buying or pre-investment is going to run its course, do you anticipate any kind of pressure on input costs as we go through the year or into next year?

Travis Boone: I mean we will be – as we bid projects, we will be bidding, we do expect costs to increase on steel and other products that we are buying. And as prices increase and as we bid projects, we are bidding that the higher costs in there. So, there will be – bids will increase across the board. But as far as our risk goes associated with the increasing costs, our approach to mitigating the risk is not going to change. We are either going to have a contingency in place, or manage it in other ways to protect ourselves.

Liam Burke: Great. Thank you, Travis. Thank you, Scott.

Travis Boone: Thanks Liam.

Operator: This concludes our question-and-answer session. I would like to turn the conference back over to Travis Boone, CEO for any closing remarks.

Travis Boone: Thanks. I would like to close the call by thanking our team for working safe every day. They are working out in the elements, in the mud, in the rain and the wind and the dirt, and they work really hard and without them doing their jobs every day, we couldn’t do ours. So, really appreciate our teams out in the field working every day. Really appreciate our partners and clients for great relationships and continued trust and also thank our investors for their support of our business. Thank you. Have a good day.

Operator: The conference is now concluded. Thank you for attending today’s presentation. You may now disconnect.