Orion Group - Earnings Call - Q1 2025

Executive Summary

• Q1 2025 revenue grew 17.4% YoY to $188.7M, while GAAP diluted EPS was $(0.04); Adjusted EPS was $0.01 as Adjusted EBITDA doubled YoY to $8.2M, driven by strong Marine execution and seasonal Concrete softness that management expects to reverse as the year progresses.
• Results exceeded S&P Global consensus: revenue $188.7M vs $173.4M consensus* and EPS $0.01 vs $(0.09) consensus*, with four estimates contributing to each metric; management reiterated FY25 guidance (revenue $800–$850M; Adj. EBITDA $42–$46M; Adj. EPS $0.11–$0.17). Values retrieved from S&P Global.
• Backlog increased to $839.7M (vs $729.1M in Q4), with backlog plus post-quarter awards at $890.9M; YTD new awards reached $349M as bid metrics reflected a 39% win rate and 1.59x book-to-bill.
• Call commentary flagged favorable tailwinds from U.S. defense/shipbuilding and public infrastructure, proactive tariff mitigation (Buy America/contingencies), sustained AI/data center demand, and FY25 capex of $25–$35M to position for 2026 “transformational growth”.

What Went Well and What Went Wrong

• What Went Well

  • Marine segment profitability inflected: Marine operating margin 3.8% and Adjusted EBITDA margin 8.6% in Q1, supported by strong project execution (Hawaii, Grand Bahama).
  • New business momentum: $349M YTD awards ($161M Marine, $188M Concrete), backlog to $839.7M and backlog+awards to $890.9M; bid win rate 39% and 1.59x book-to-bill.
  • Management reiterated full-year guidance and highlighted robust demand catalysts (defense, shipbuilding, infrastructure, reshoring, data centers/AI). Quote: “We’re off to a strong start… revenue increased 17%… and Adjusted EBITDA doubled” — CEO Travis Boone.

• What Went Wrong

  • Concrete segment margin pressure: Q1 Concrete operating margin was (6.3)% (seasonal productivity and mix), with segment Adjusted EBITDA margin (4.4)%; management expects improvement through the year.
  • SG&A deleverage near-term: SG&A rose to $22.5M (12.0% of revenue) on incentive comp, legal, IT, and lease costs (temporary “bubble” during office consolidation).
  • Operating cash flow negative $3.4M in Q1 (timing/working capital) vs positive $13.4M in Q4; capex stepped up to $9.0M to support growth.

Transcript

Operator (participant)

Good day, and welcome to the Orion Group Holdings' First Quarter 2025 Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. 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 (Director of Investor Relations)

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'm 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 (President and CEO)

Thank you, Margaret, and good morning, everyone. Thank you for joining our First Quarter 2025 Conference Call. I'll start with an overview of our first quarter results and market update, then I'll turn it over to Scott to cover our financial results. We're 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 have not 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've seen increased demand across our markets and continue to win repeat business with our world-class partners. This quarter, we have won five data centers with our trusted partners that total $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 the inability to obtain the power needed in certain locations. The new administration's goal to reshore manufacturing should also support the growth of our concrete business over time. In addition to data centers, other concrete wins included a $17 million project with our partner, Oline 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 two of the Costco Distribution Center in South Florida. In summary, everyone at Orion is extremely excited about our future and 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 15th. You can find the details in your proxy materials and on our website. Scott, your turn at bat.

Scott Thanisch (Executive VP and CFO)

Thanks, Travis. Good morning, everyone. We're 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 -4.4%, compared with +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 may be some variability in our win rate from quarter-to-quarter. As of March 31st, 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 $-3.4 million of cash from operations compared to $-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 the 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 three down to one. 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-$850 million, with adjusted EBITDA in the range of $42-$46 million. This translates to a range of $0.11-$0.17 for adjusted EPS.

We are also maintaining our 2025 CapEx guidance in the range of $25 million-$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.

Operator (participant)

We will now begin the question-and-answer session. To ask a question, you may press star, then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star, then two. We ask that you limit yourselves to one question and one follow-up. At this time, we will pause momentarily to assemble our roster. The first question comes from Aaron Spychalla with Craig-Hallum. Please go ahead.

Aaron Spychalla (Research Analyst)

Yeah, 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're starting to see some traction. Are you still thinking late this year and into 2026 for awards there? Curious if it could be maybe sooner than that. If you could just frame the opportunity, what that could look like for you in the coming years?

Travis Boone (President and CEO)

Yeah, there's usually quite a bit of visibility, especially in some of these big federal contracts, Aaron. I don't expect that it will get sped up too much more than what we were thinking. Probably late this year, early next for it to be anything concrete there. Unless something changes with the administration or something like that, it's probably going to be in that time frame.

Aaron Spychalla (Research Analyst)

All right. Maybe can you talk about just kind of the size of that opportunity that you're 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 (President and CEO)

Sure. There's 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. There's 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 (Research Analyst)

All right. Thank you for that. Maybe 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 does not sound like you are seeing a slowdown there since early April or anything. 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 (President and CEO)

Sure. With our bidding activity and award activity, we have not seen much slowdown. That is not to say that continued uncertainty with what is going on might slow things down a little, but we are not seeing it yet. I guess, knock on wood, 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 (Executive VP and CFO)

On the margin questions, as we've had some pretty strong wins at the beginning of the year, we're going to see nice volume coming out of that business. Again, the operating leverage that we've kind of got built up into the business, I think, is going to help those margins improve considerably.

Aaron Spychalla (Research Analyst)

All right. Thanks. Maybe one last for me, just on the private downstream energy markets. It seems like we're starting to see some traction there too, activity starting to pick up. Just curious if you're seeing that and kind of the outlook there.

Travis Boone (President and CEO)

Yeah, I think what we've 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. We are optimistic that a fair amount of activity is going to happen. I think everybody's watching the global oil prices and things like that, that could impact some of those projects moving forward. I do think that we're going to see more activity happening here in the near future.

Aaron Spychalla (Research Analyst)

All right. Thanks for taking the questions. I'll turn it over.

Operator (participant)

Your next question comes from Julio Romero with Sidoti & Company. Please go ahead.

Julio Romero (Equity Research Analyst)

Thanks. Hey, good morning, Travis and Scott. Hope all is well.

Travis Boone (President and CEO)

Morning, Julio. I'm with you.

Julio Romero (Equity Research Analyst)

Hey. 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 a 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?

Scott Thanisch (Executive VP and CFO)

Yeah, thanks, Julio. You're right. We do have varying performance quarter-to-quarter as the project mix changes as you roll through the quarters. This was a particularly strong quarter on a number of projects in the marine business. That is 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 it probably is a high point for the kind of current year. We will see continued growth in that business. 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. Those are more impactful to the results.

Julio Romero (Equity Research Analyst)

Got it. That's very helpful. It sounds like you've 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're 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 (President and CEO)

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

Julio Romero (Equity Research Analyst)

Just thinking about you guys on a competitive basis, how you're a little any factors that might have some differentiation versus competitors and competitive behavior in this environment.

Scott Thanisch (Executive VP and CFO)

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

Julio Romero (Equity Research Analyst)

Really helpful. Thanks for the color.

Travis Boone (President and CEO)

Thanks, Julio.

Operator (participant)

Your next question comes from Brent Thielman with D.A. Davidson. Please go ahead.

Brent Thielman (Managing Director and Senior Research Analyst)

Great. Thanks. Good morning.

Travis Boone (President and CEO)

Morning, Brent.

Brent Thielman (Managing Director and Senior Research Analyst)

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. Does the outlook contemplate a return to profitability here going forward?

Scott Thanisch (Executive VP and CFO)

Yeah. As you said, we have typically lower results in the first quarter of the concrete business. As in Texas, there's less workable days during that time frame. That is kind of what you see in the results. There is just a natural seasonal improvement that you'll see in quarters going forward that can help concrete margins as their revenue comes up and their utilization of their indirects goes up. As we kind of progress through the year, we'll see our concrete business get back to profitability over the course of the year. Although we haven't really given segment-specific guidance, this is all kind of aligned to our top-line guidance of $42 million-$46 million. We feel comfortable that the concrete business is on track for our expectations for this year.

Brent Thielman (Managing Director and Senior Research Analyst)

Okay. Yeah. I guess the follow-up, I mean, at least in the last couple of years, you've been sort of more back half heavy on revenue and earnings and EBITDA. Is that the expectation this year as we're thinking about ramping execution on this book of business?

Scott Thanisch (Executive VP and CFO)

Yeah, that's right. I mean, if you just kind of take the $42-$46 million and subtract the first quarter, you're going to see that the remaining three quarters are going to have a higher average. That is a typical pattern for us. As we continue to grow the business, there's just a natural up and to the right movement of our top line over time. As we move through the year, you'll see bigger quarters and more profitable quarters. That is all kind of aligned to where we see the year finishing out.

Brent Thielman (Managing Director and Senior Research Analyst)

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

Scott Thanisch (Executive VP and CFO)

Yeah, that's a great question. As I mentioned, we had no draws on our revolver at the end of the quarter. Capacity on that, it's an ABL, so it ranges up and down, but $40 million-$60 million of capacity generally. We do feel like we've got the dry powder we need to take on projects, mobilize, and kind of fund project cash flow. As for kind of just further growth of the business, we're in constant dialogue with financing partners. Our lender 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 (Managing Director and Senior Research Analyst)

Okay. Great. Thanks, guys.

Travis Boone (President and CEO)

Thanks, Brent.

Operator (participant)

Again, if you have a question, please press Star, then one. The next question comes from Liam Burke with B. Riley FBR. Please go ahead.

Liam Burke (Managing Director)

Thank you. Good morning, Travis. Good morning, Scott.

Travis Boone (President and CEO)

Morning, Liam.

Liam Burke (Managing Director)

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's variability based on project flow. Is this a trend when you're 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 (Executive VP and CFO)

In terms of increasing cash flow as our top line increases, absolutely. The improvement on a year-over-year basis is probably a little larger this quarter because the first quarter was somewhat adversely affected in cash flow from investment in the Hawaii project. Yeah, we expect to continue to see improving cash flow. Over the course of this year, we expect our cash flow will turn positive.

Liam Burke (Managing Director)

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 (President and CEO)

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

Liam Burke (Managing Director)

Great. Thank you, Travis. Thank you, Scott.

Travis Boone (President and CEO)

Thanks, Liam.

Operator (participant)

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 (President and CEO)

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

Operator (participant)

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.