Orion Group Holdings (ORN) Q4 2024 Earnings Call Transcript

Executive Summary

Q4 2024 delivered solid execution: contract revenues rose 7.6% year-over-year to $216.9M, GAAP diluted EPS was $0.17, and Adjusted EBITDA increased 15.3% to $17.1M as gross margin expanded to 14.0%.
Backlog improved sequentially to $729.1M, and including awards subsequent to quarter-end reached $977.3M; book-to-bill was 1.18x on $994M of bids with a 25.7% win rate, indicating encouraging demand and disciplined bidding.
2025 guidance was initiated: revenue $800–$850M, Adjusted EBITDA $42–$46M, Adjusted EPS $0.11–$0.17, and CapEx $25–$35M; management emphasized margin improvement and backlog build ahead of a “transformational” 2026.
Strategic wins underpin the narrative: $211.7M of new awards announced in February (Marine $143.5M; Concrete $68.2M), plus additional JV preconstruction work not yet included in the total, strengthening visibility into 2025–2026.
Estimates context: S&P Global consensus could not be retrieved at this time; comparisons to Street estimates are unavailable due to data access limits (will update when available).

What Went Well and What Went Wrong

What Went Well
- Margin execution improved materially: Q4 gross margin reached 14.0% (+260 bps YoY) driven by higher-quality projects and improved execution; Adjusted EBITDA margin rose to 7.9% (+60 bps YoY).
- Backlog and awards momentum: year-end backlog was $729.1M (up vs Q3), and backlog plus awards was $977.3M; CEO: “we have built a cohesive organization that is focused on winning high-value, long-term projects with the right pricing”.
- Concrete turnaround gaining traction: Concrete delivered Q4 operating income of $2.5M and Adjusted EBITDA margin of 5.3%; CEO highlighted data centers (35 projects) and large-scale distribution work: “Orion Concrete is a great turnaround story”.
What Went Wrong
- SG&A elevated: Q4 SG&A rose to $21.6M (9.9% of revenue), reflecting higher compensation, business development, and legal costs.
- Full-year revenue below Q2-revised guidance: 2024 revenue finished at $796.4M versus the Q2 updated guidance of $850–$900M due to timing shifts (Pearl Harbor and other slippages); management stressed revenues moved “to the right” into 2025.
- Cash flow volatility vs prior year’s Q4: CFO noted operating cash flow was $13.4M in Q4 vs $45.7M in Q4 2023, driven by working capital timing; management expects variability by project cadence.

Transcript

Operator (participant)

Good day, and welcome to the Orion Group Holdings Fourth Quarter and Full Year 2024 Conference Call. All participants will be in a 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 a touch-tone phone. 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 (Head of Investor Relations)

Thank you, Operator, and thank you all for joining us today to discuss Orion Group Holdings fourth quarter and full year 2024 financial results. We issued our earnings release after market last night. It's available in the Investor Relations section of our website at oriongroupholdings.com. I'm here today with Travis Boone, Chief Executive Officer of Orion, 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'd now like to turn the call over to Travis. Travis, please go ahead.

Travis Boone (CEO)

Thank you, Margaret, and good morning, everyone. Thank you for joining our Fourth Quarter and Full Year 2024 Conference Call. I'll start with an overview of our Fourth Quarter results and market update, then I'll turn it over to Scott to cover our financial results. It has been an incredible two years since we put our strategic plan into action. I am proud to say we did what we said we would do, and our focus on business development and disciplined execution by our team is now delivering strong results. From the outset, our goal was to drive sustainable growth and profitability, enhance operational efficiency, and create long-term value for all our stakeholders. Today, we have not only met but exceeded those objectives in many areas. To summarize our full-year performance, revenue was up 12% to $796 million year-over-year. Gross profit improved 48% to $91 million.

Adjusted EBITDA increased 76%, and adjusted EBITDA margin was up 200 basis points to 5.3%. While we have made great progress, we are far from finished. We still have work ahead to reach the profitability and growth that Orion is capable of achieving. Throughout 2025, we will continue to emphasize executing with predictable excellence, and we will be focused on growing our backlog to realize our planned growth in 2026. Most importantly, we have set ourselves up to address the huge market opportunity in front of us. Over the past two years, we have assembled an outstanding team whose expertise, hard work, and commitment to safety have been the driving force behind our success. We appreciate all their efforts to make us a safer, stronger, and more profitable company.

I've always said that winning high-value, long-term projects with the right pricing is critical to driving profitability, and now we have better organization-wide discipline than it takes to successfully bid on large projects with the appropriate evaluation of risks and built-in contingencies. The contracts we were awarded throughout 2024 and the wins we announced in February reflect the quality, complexity, and diversity of the projects we can win. This gives us confidence that our backlog of quality projects will continue to grow. Our year-end backlog stood at $729 million, and over the past two years, our pipeline increased from $3 billion-$16 billion. The depth and breadth of these projects lets us be very selective and disciplined in the projects we choose to pursue. Orion has greatly improved its reputation in our markets, and we are attracting new partners as well as strengthening our position with long-standing relationships.

I can't emphasize enough how important it is to have the right partners with mutual trust to deliver complex projects. I credit a lot of the momentum to our focus on business development, which was a key initiative that we started two years ago. We now have experienced leaders who are driving our growth. The marine market has some very favorable tailwinds. We continue to see great developments for 2025 and beyond: infrastructure projects, port expansion and maintenance, coastal rehabilitation, and downstream energy projects. We see a strong pipeline of opportunities in the Atlantic and Gulf regions. In the Pacific, we see opportunities for large Navy projects toward the end of the year into next year. There are very few marine contractors that have the skill, experience, and the logistical capacity to work in the Pacific as we do.

Based on Orion Concrete's strong reputation, we have the name recognition that creates real currency in the marketplace. Concrete is no longer just a Texas concrete company. There are really no geographic limitations to where our concrete team can operate effectively with our reputation for quality work and our trusted relationships with tier-one contractors. Our reputation and partnerships are why we are building or have completed 35 data center projects to date for top hyperscalers and are building Costco's largest ever distribution center in Florida. We're winning work in multiple states with our best partners. These partnerships with world-class construction companies and our ability to deliver are important factors in most of our recent project wins. We just completed a 43-story high-rise project for Hanover Company, who gave us very positive reviews and have already awarded us their next project.

Another example is Laredo, Texas, which is the largest inland port on the border. Last year, we were awarded a large project, and based on our strong performance, we recently won two more projects in Laredo. We have established great partnerships, and this has led to significant repeat business, which is always our goal. We remain confident that we can continue to grow our concrete business. We see a lot of untapped market opportunity as well as projects that had been dormant and are now moving forward. Concrete is a great turnaround story. The business has found its footing, and it's really starting to move. This is what I envisioned when I took this job. I knew the issues were fixable. Now it's not just healthier; it's thriving.

Finally, we have fielded a lot of questions related to the new administration in D.C., mostly questions about tariffs and government spending pauses. We're not anticipating negative impacts to any projects or pursuits. Since the middle of last year, we were planning for potential steel tariffs during the bidding process and have mitigated our minimal exposure. We haven't had any projects impacted by government spending changes and don't anticipate changes to our pipeline or our opportunities. Additionally, the appetite for increased energy production in oil and gas will likely drive additional capital project opportunities in the Gulf. The political landscape is quite favorable for us to continue our plans for growth in the years ahead. Looking forward, our team is focused on making investments that will help us capture and deliver the large volume of projects in our pipeline of opportunities.

The key metric to watch this year is the increase in backlog. This will give an indication of future revenue. We expect to make continued progress, improving our financial performance and are focused on growing our backlog through the year. As we enter 2025, I am confident in our strong foundation, the exceptional capabilities of our people, and their total commitment to both quality and safe execution. As I've said before, we're planning to have a big year in 2026. I'll now turn it over to Scott to discuss our financial results. Scott.

Scott Thanisch (CFO)

Thanks, Travis. Good morning, everyone. Our fourth quarter was a strong contributor to our full-year results. Revenue increased 7.6% to $217 million. Adjusted EBITDA grew 15.3% to $17.1 million. We generated $13.4 million of cash flow from operations. As we indicated early in 2024, the Pearl Harbor and Grand Bahama projects ramped up in both the third and fourth quarters, driving improved second-half results. For the full year, we generated $41.9 million of adjusted EBITDA and adjusted EPS of $0.15 per share, squarely in our 2024 earnings guidance. While our full-year revenue of $796 million was lower than our expected revenue range, this was due to the timing of execution of projects, not softness in our markets. We continue to be excited about our growth opportunities, as evidenced by the significant increase in backlog plus jobs awarded so far this year.

In the fourth quarter, marine revenue was up 6.5%, and concrete revenue increased 9.8%. As Travis mentioned, today, our concrete business is now healthy and growing after implementing our disciplined bidding standards and refined business development approach. While we see our concrete opportunity expanding, our opportunity in marine continues to be immense and will be the major driver in the growth ahead. Consolidated fourth-quarter gross profit margin increased to $30.3 million, or 14% of revenue, up from $23 million, or 11.4% of revenue in the same period last year. The 260 basis point increase in consolidated gross margins reflects both improved pricing and improved execution in both segments. SG&A expenses were $21.6 million, up from $17.2 million in the comparable period. As a percentage of total contract revenues, SG&A expenses increased to 9.9% from 8.5%.

Compensation, IT implementations, business development spending, and legal expense largely accounted for the increase in SG&A expenses. Turning to profitability, adjusted net income was $6.4 million, or $0.16 per diluted share in the fourth quarter, compared to adjusted net income of $2.3 million, or $0.07 per diluted share in the prior year period. The fourth quarter net income included $400,000, or $0.01 per diluted loss per share of adjusted items. GAAP net income for the fourth quarter of 2024 was $6.8 million, or $0.17 per diluted share. EBITDA for the fourth quarter increased to $14.9 million, and adjusted EBITDA grew to $17.1 million. Adjusted EBITDA margin improved 60 basis points to 7.9%, up from 7.3% last year.

During the fourth quarter, adjusted EBITDA margin in the marine segment was 9.2% compared to 8.4% last year, and adjusted EBITDA margin in our concrete segment was 5.3%, consistent with the prior year period. 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 the marine segment and high single digits for our concrete segment. Moving on to bidding metrics, in the fourth quarter, we bid on approximately $994 million worth of opportunities, of which we won $256 million. This resulted in a contract value-weighted win rate of 25.7% and a book-to-bill ratio of 1.18 times in the fourth quarter.

We expect to continue to see progress capturing our opportunities, and given the timing of project wins in particular quarters, there may be some variability in our win rate from one quarter to the next. As of December 31st, our backlog was $729.1 million compared to $690.5 million at the end of the prior quarter and $762.2 million at the end of the prior year. Breaking out our fourth-quarter backlog, $582.8 million was related to our marine segment, and another $146.3 million was related to our concrete segment. As Travis mentioned, we are off to a strong start in 2025, and our end-of-year backlog plus awards so far this year is $977 million, up 16% over the prior year. The business generated $13.4 million of cash flow from operations during the fourth quarter compared to $45.7 million in the fourth quarter of 2023.

Looking at the full year, cash flow from operations in 2024 was $12.7 million compared to $17.2 million in the prior year. Cash flow can vary from quarter to quarter due to the timing of project mobilization and completion. We ended the fourth quarter with $28.3 million in cash. Total debt outstanding was $23.2 million, ending in a net cash position for the second consecutive quarter. We had no outstanding borrowings under our revolving credit facility at the end of the quarter. On March 4th, we executed an amendment to our credit agreement with White Oak. This amendment reduces our term loan and revolver pricing by 50 basis points, provides greater operational and administrative flexibility, including less restrictive financial covenants, and extends the maturity date of our agreement to May 15th of 2028.

These improvements were possible because our lenders recognize our enhanced credit profile as we continue to execute our strategic plan. Over the last several months, we have made considerable progress on our ERP initiatives. Beginning in January, we have started using our new IT tools and processes for our operations and back office. As a reminder, we have been implementing new project management systems and new procurement tools. We've also been migrating our business segments to be on the same financial platform, which will give us a clear line of sight across our entire business. These tools will share information and provide insight into the progress of our projects, which will greatly improve our oversight and effective management of our projects on the ground.

As our operational improvements gain traction, we expect to generate efficiencies that will enable the continued growth of our business while benefiting from operating leverage in our fixed cost. Looking forward, we're excited by our improving performance and expanding pipeline. As Travis mentioned, a key indicator of our continued execution of our strategic plan will be our backlog growth in 2025, which will include winning projects for delivery in 2025 and beyond. For the full year 2025, we expect revenue to be in the range of $800 million-$850 million, with adjusted EBITDA in the range of $42 million-$46 million. This translates to a range of $0.11-$0.17 for adjusted EPS. We'll also make investments to prepare for the growth ahead.

We expect 2025 CapEx to be in the range of $25 million-$35 million as we acquire equipment we will use to take advantage of our large pipeline of opportunity. As an organization seeking to establish a firm foundation for future growth, a lot of the heavy lifting is behind us. While there is still more to do, we're looking forward to more progress in 2025, and we're very excited for the years ahead. Now I'll open up the call for your questions.

Operator (participant)

We will now begin the question and answer session. To ask a question, you may press star then one on your touch-tone phone. 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. At this time, we will pause momentarily to assemble our roster. The first question today comes from Aaron Spychalla with Craig-Hallum Capital Group. Please go ahead.

Aaron Spychalla (Analyst)

Yeah, good morning, Travis and Scott. Thanks for taking the questions. First, for me, can you just give some color on kind of the revenue shortfall in the fourth quarter versus guidance, some of the impacting items there? Then just talk about confidence and visibility you have into the 2025 guidance given backlog and kind of recent order activity. Also, if you could touch on, you talked about an extension timing of the marine segment. Just want to confirm that that's just typical timing and you're not really seeing much project extensions there as well. Thanks.

Travis Boone (CEO)

Good morning, Aaron. Sure. Starting off with the question on revenue, I'd say we've been saying kind of from day one, we've been focused on profitability and really getting the business healthy and the revenue based on the pipeline that we have in front of us, the revenue would come. We've been really focused on getting the business healthy, getting the business profitable, and the revenue will come. As far as kind of the shortfall last year, we started talking early in the year about a couple of major projects that there were some slippages primarily on our Hawaii project. Some of the revenue that we thought was going to come in last year ended up slipping into this year from 2024 into 2025, to be clear. There were some things slid to the right.

Not all of it came in last year like we were thinking that it would initially. Nothing vanished. It just moved a little to the right into this year. We are still feeling confident about 2025, feeling good about what we have going and the opportunities in the future that are going to lead to bigger growth in 2026. As we said, we are going to be really focused on building our backlog this year, which will turn into revenue in 2026.

Aaron Spychalla (Analyst)

All right. Thanks for that. Maybe second, on the pipeline expansion to $16 billion, can you just kind of talk about some of the key drivers of expansion there and then maybe just touch on the bidding environment, how that's been with just some of the broader noise in the market? Obviously, good profitability this quarter, but just if you could touch on that, that'd be great.

Travis Boone (CEO)

Operator (participant)

Once again, if you would like to ask a question, please press star then one to be joined into the question queue. There are no further questions at this time, which 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 (CEO)

Thank you all again for joining our call. We continue to be appreciative of our teams, and we are working hard every day out in the elements to deliver and for our clients, and work safely and get home safe at the end of every day. Thank you all for joining, and look forward to a strong year, and have a good day.

Operator (participant)

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

Orion Group - Earnings Call - Q4 2024

Executive Summary

What Went Well and What Went Wrong

Transcript

Operator (participant)

Margaret Boyce (Head of Investor Relations)

Travis Boone (CEO)

Scott Thanisch (CFO)

Operator (participant)

Aaron Spychalla (Analyst)

Travis Boone (CEO)

Aaron Spychalla (Analyst)

Travis Boone (CEO)

Scott Thanisch (CFO)

Aaron Spychalla (Analyst)

Travis Boone (CEO)

Aaron Spychalla (Analyst)

Travis Boone (CEO)

Scott Thanisch (CFO)

Operator (participant)

Julio Romero (Analyst)

Travis Boone (CEO)

Scott Thanisch (CFO)

Julio Romero (Analyst)

Scott Thanisch (CFO)

Julio Romero (Analyst)

Scott Thanisch (CFO)

Julio Romero (Analyst)

Travis Boone (CEO)

Scott Thanisch (CFO)

Julio Romero (Analyst)

Scott Thanisch (CFO)

Travis Boone (CEO)

Operator (participant)

Brent Thielmann (Analyst)

Scott Thanisch (CFO)

Brent Thielmann (Analyst)

Scott Thanisch (CFO)

Brent Thielmann (Analyst)

Travis Boone (CEO)

Brent Thielmann (Analyst)

Travis Boone (CEO)

Scott Thanisch (CFO)

Brent Thielmann (Analyst)

Scott Thanisch (CFO)

Brent Thielmann (Analyst)

Scott Thanisch (CFO)

Travis Boone (CEO)

Operator (participant)

Travis Boone (CEO)

Operator (participant)