美國
證券交易委員會
華盛頓特區20549
表格
(標記一個)
根據1934年證券交易所法案第13或15(d)條的季報告 |
截至2024年6月30日季度結束
或
|
到 ________ 天從發票日期計算，被視為商業合理。 ________
委員會文件號碼：
（依憑章程所載的完整登記名稱）
成立州份 | 稅務局雇主身份識別號碼 |
總執行辦公室地址 | ( 登記人電話號碼（包括區號） |
根據法案第12(b)條註冊的證券：
每個班級的標題 |
| 交易標的（s） |
| 註冊的每個交易所的名稱 |
請以勾選標記指示：（1）在過去12個月內（或需要報告的較短期間內）已提交1934年證券交易法第13或15(d)條所要求提交的所有報告；（2）在過去90天內一直受到該申報要求的影響：☑
請以勾選標記指示：是否申報人根據S-t規定第405條期間內（或需要提交報告的較短期間內）已電子提交所有互動數據檔案：
請勾選表示登記申報人是否屬於大型加速規模遞延申報者、加速規模遞延申報者、非加速規模遞延申報者、較小型申報公司或新興成長公司。請參閱《交易所法》規則120億2中對「大型加速規模遞延申報者」、「加速規模遞延申報者」、「較小型申報公司」和「新興成長公司」的定義：
大型迅速歸檔者☐ | |
非加速申報者 ☐ | 較小型報告公司 |
新興成長型公司 |
如果一家新興成長型企業，請勾選“是”表示註冊人選擇不使用根據證券交易所法第13(a)條所提供的任何新的或修改後的財務會計準則的延長過渡期來遵守。 ☐
標的標示是否是貝殼公司（如交易所法規第120億2督導的定義）：
在2023和2024年6月30日結束的三個和六個月中，有資產減損處理記錄。更新計算公司進行中的研究和開發資產（“IPR&D”）公平價值所使用的關鍵假設可能會改變公司未來短期內回收IPR&D資產的帶值估計。
Part
PART I.FINANCIAL INFORMATION
ITEM 1.FINANCIAL STATEMENTS
Orion Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Information)
| September 30, |
| December 31, | |||
2024 |
| 2023 | ||||
ASSETS |
| (Unaudited) |
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Current assets: |
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Cash and cash equivalents | $ | | $ | | ||
Accounts receivable: |
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Trade, net of allowance for credit losses of $ |
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Retainage |
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Income taxes receivable |
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Other current |
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Inventory |
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Contract assets |
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Prepaid expenses and other |
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Total current assets |
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Property and equipment, net of depreciation |
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Operating lease right-of-use assets, net of amortization | | | ||||
Financing lease right-of-use assets, net of amortization | | | ||||
Inventory, non-current |
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Deferred income tax asset | | | ||||
Other non-current |
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Total assets | $ | | $ | | ||
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Current debt, net of debt issuance costs | $ | | $ | | ||
Accounts payable: |
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Trade |
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Retainage |
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Accrued liabilities |
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Income taxes payable |
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Contract liabilities |
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Current portion of operating lease liabilities | | | ||||
Current portion of financing lease liabilities | | | ||||
Total current liabilities | | | ||||
Long-term debt, net of debt issuance costs |
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Operating lease liabilities | | | ||||
Financing lease liabilities | | | ||||
Other long-term liabilities |
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Deferred income tax liability |
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Total liabilities |
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Stockholders’ equity: |
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Preferred stock -- $ |
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Common stock -- $ |
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Treasury stock, |
| ( |
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Additional paid-in capital |
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Retained loss |
| ( |
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Total stockholders’ equity |
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Total liabilities and stockholders’ equity | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements
3
Orion Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Information)
(Unaudited)
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 |
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Contract revenues | $ | | $ | | $ | | $ | | |||||
Costs of contract revenues |
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Gross profit |
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Selling, general and administrative expenses |
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Amortization of intangible assets | — | | — | | |||||||||
Gain on disposal of assets, net |
| ( |
| ( |
| ( |
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Operating income (loss) |
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Other (expense) income: |
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Other income |
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Interest income |
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Interest expense |
| ( |
| ( |
| ( |
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Other expense, net |
| ( |
| ( |
| ( |
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Income (loss) before income taxes |
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| ( |
| ( |
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Income tax expense (benefit) |
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| ( |
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Net income (loss) | $ | | $ | ( | $ | ( | $ | ( | |||||
Basic net income (loss) per share | $ | | $ | ( | $ | ( | $ | ( | |||||
Diluted net income (loss) per share | $ | | $ | ( | $ | ( | $ | ( | |||||
Shares used to compute net income (loss) per share: |
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Basic |
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Diluted |
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The accompanying notes are an integral part of these condensed consolidated financial statements
4
Orion Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(In Thousands, Except Share and Per Share Information) (Unaudited)
| Common |
| Treasury |
| Additional |
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Stock | Stock |
| Paid-In |
| Retained | ||||||||||||||
Shares |
| Amount | Shares |
| Amount |
| Capital | Loss | Total | ||||||||||
Balance, December 31, 2023 | | $ | |
| ( | $ | ( | $ | | $ | ( | $ | | ||||||
Share-based compensation | — | — | — | — | | — | | ||||||||||||
Exercise of stock options | | — | — | — | | — | | ||||||||||||
Issuance of restricted stock | | | — | — | ( | — | — | ||||||||||||
Forfeiture of restricted stock | ( | — | — | — | — | — | — | ||||||||||||
Net loss |
| — | — | — | — | — | ( | ( | |||||||||||
Balance, March 31, 2024 | | $ | |
| ( | $ | ( | $ | | $ | ( | $ | | ||||||
Share-based compensation | — | — | — | — | | — | | ||||||||||||
Exercise of stock options | | — | — | — | | — | | ||||||||||||
Issuance of restricted stock | | | — | — | ( | — | — | ||||||||||||
Forfeiture of restricted stock | ( | — | — | — | — | — | — | ||||||||||||
Payments related to tax withholding for share-based compensation | ( | — | — | — | ( | — | ( | ||||||||||||
Net loss |
| — | — | — | — | — | ( | ( | |||||||||||
Balance, June 30, 2024 | | $ | |
| ( | $ | ( | $ | | $ | ( | $ | | ||||||
Stock-based compensation | — | — | — | — | | — | | ||||||||||||
Issuance of restricted stock | | — | — | — | — | — | — | ||||||||||||
Forfeiture of restricted stock | ( | — | — | — | — | — | — | ||||||||||||
Payments related to tax withholding for share-based compensation | ( | ( | — | — | ( | — | ( | ||||||||||||
Issuance of common stock | | | — | — | | — | | ||||||||||||
Net income |
| — | — | — | — | — | | | |||||||||||
Balance, September 30, 2024 | | $ | |
| ( | $ | ( | $ | | $ | ( | $ | | ||||||
| Common |
| Treasury |
| Additional |
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Stock | Stock |
| Paid-In |
| Retained | ||||||||||||||
Shares |
| Amount | Shares |
| Amount |
| Capital | Loss | Total | ||||||||||
Balance, December 31, 2022 | | $ | |
| ( | $ | ( | $ | | $ | ( | $ | | ||||||
Share-based compensation | — | — | — | — | | — | | ||||||||||||
Issuance of restricted stock | | | — | — | ( | — | — | ||||||||||||
Forfeiture of restricted stock | ( | — | — | — | — | — | — | ||||||||||||
Payments related to tax withholding for share-based compensation |
| ( |
| ( |
| — |
| — |
| ( |
| — |
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Net loss |
| — | — | — | — | — | ( | ( | |||||||||||
Balance, March 31, 2023 | | $ | |
| ( | $ | ( | $ | | $ | ( | $ | | ||||||
Share-based compensation |
| — |
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Issuance of restricted stock |
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Forfeiture of restricted stock |
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Payments related to tax withholding for share-based compensation | ( | — | — | — | ( | — | ( | ||||||||||||
Net loss |
| — |
| — |
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| — |
| — |
| ( |
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Balance, June 30, 2023 | | | ( | ( | | ( | | ||||||||||||
Stock-based compensation |
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Issuance of restricted stock |
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Forfeiture of restricted stock |
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Payments related to tax withholding for stock-based compensation | ( | — | — | — | ( | — | ( | ||||||||||||
Net loss |
| — |
| — |
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| — |
| — |
| ( |
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Balance, September 30, 2023 |
| | $ | |
| ( | $ | ( | $ | | $ | ( | $ | | |||||
The accompanying notes are an integral part of these condensed consolidated financial statements
5
Orion Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in Thousands)
(Unaudited)
Nine months ended September 30, | ||||||
| 2024 |
| 2023 | |||
Cash flows from operating activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Operating activities: |
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Depreciation and amortization |
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Amortization of ROU operating leases | | | ||||
Amortization of ROU finance leases | | | ||||
Write-off of debt issuance costs upon debt modification |
| — |
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Amortization of deferred debt issuance costs | | | ||||
Deferred income taxes |
| ( |
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Share-based compensation |
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Gain on disposal of assets, net |
| ( |
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Allowance for credit losses |
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Change in operating assets and liabilities: |
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Accounts receivable |
| ( |
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Income tax receivable |
| ( |
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Inventory |
| ( |
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Prepaid expenses and other |
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Contract assets |
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Accounts payable |
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Accrued liabilities |
| ( |
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Operating lease liabilities | ( | ( | ||||
Income tax payable |
| ( |
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Contract liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Proceeds from sale of property and equipment |
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Purchase of property and equipment |
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Net cash (used in) provided by investing activities |
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Cash flows from financing activities: |
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Borrowings on credit |
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Payments made on borrowings on credit |
| ( |
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Payments made on term loan | ( | — | ||||
Proceeds from failed sale-leaseback arrangements | — | | ||||
Payments made on failed sale-leaseback arrangements | ( | — | ||||
Proceeds from sale-leaseback financing | — | | ||||
Loan costs from Credit Agreement and prior credit facility |
| ( |
| ( | ||
Payments of finance lease liabilities | ( | ( | ||||
Proceeds from issuance of common stock | | — | ||||
Payments related to tax withholding for share-based compensation | ( | ( | ||||
Exercise of stock options |
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Net cash provided by financing activities |
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Net change in cash, cash equivalents and restricted cash |
| ( |
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Cash, cash equivalents and restricted cash at beginning of period |
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Cash, cash equivalents and restricted cash at end of period | $ | | $ | | ||
Supplemental disclosures of cash flow information: |
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Cash paid during the period for: |
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Interest | $ | | $ | | ||
Taxes, net of refunds | $ | | $ | | ||
The accompanying notes are an integral part of these condensed consolidated financial statements
6
Orion Group Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Tabular Amounts in Thousands, Except Share and per Share Amounts)
(Unaudited)
1.Description of Business and Basis of Presentation
Description of Business
Orion Group Holdings, Inc. and subsidiaries (hereafter collectively referred to as the “Company”), is a leading specialty construction company serving the infrastructure, industrial, and building sectors, providing services both on and off the water in the continental United States, Alaska, Hawaii, Canada and the Caribbean Basin through our marine segment and our concrete segment. Our marine segment provides construction and dredging services including marine transportation facility construction, marine pipeline construction, marine environmental structures construction, dredging of waterways, channels and ports, environmental dredging, design, and specialty services related to marine construction, fabrication, and dredging. Our concrete segment provides turnkey concrete construction services including concrete surface place and finish, site preparation, layout, forming, and rebar placement for large commercial, structural and other associated business areas. We are headquartered in Houston, Texas with regional offices throughout our operating areas.
Although we describe the business in this report in terms of the services the Company provides, its base of customers and the areas in which it operates, the Company has determined that its operations currently comprise
The tools used by the chief operating decision maker (“CODM”) to allocate resources and assess performance are based on
In making this determination, the Company considered the similar economic characteristics of its operations that comprise its marine segment. For the marine segment, the methods used, and the internal processes employed, to deliver marine construction services are similar throughout the segment, including standardized estimating, project controls and project management. This segment has the same customers with similar funding drivers and are subject to similar regulatory regimes driven through Federal agencies such as the U.S. Army Corps of Engineers, U.S. Fish and Wildlife Service, U.S. Environmental Protection Agency and U.S. Occupational Safety and Health Administration (“OSHA”), among others. Additionally, the segment is driven by macro-economic considerations including the level of import/export seaborne transportation, development of energy-related infrastructure, cruise line expansion and operations, marine bridge infrastructure development, waterway pipeline crossings and the maintenance of waterways. These considerations, and others, are key catalysts for future prospects and are similar across the segment.
For the concrete segment, the Company also considered the similar economic characteristics of these operations. The methods used, and the internal processes employed, to deliver concrete construction services are similar throughout the segment, including standardized estimating, project controls and project management. The projects of this segment are subject to similar regulatory regimes such as OSHA. Additionally, this segment is driven by macro-economic considerations, including movements in population, commercial real estate development, institutional funding and expansion, and recreational development,
7
specifically in metropolitan areas of Texas. These considerations, and others, are key catalysts for current operations and future prospects and are similar across the segment.
Basis of Presentation
The accompanying condensed consolidated financial statements and financial information included herein have been prepared pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. Readers of this report should also read the Company’s consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (“2023 Form 10-K”) as well as Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations also included in its 2023 Form 10-K.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal recurring nature. Interim results of operations for the three and nine months ended September 30, 2024 are not necessarily indicative of the results realizable for the year ending December 31, 2024.
In connection with preparing consolidated financial statements for each annual and interim reporting period, the Company is required to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Substantial doubt exists when conditions and events, considered in aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the date that the consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans and actions that have not been fully implemented as of the date that the financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both: (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued; and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.
The assessment of the liquidity and going concern requires the Company to make estimates of future activity and judgments about whether the Company is compliant with financial covenant calculations under its debt and other agreements and has adequate liquidity to operate (See Note 9). Significant assumptions used in the Company's forecasted model of liquidity include forecasted sales, costs, our ability to manage spending on capital expenditures, our ability to complete certain asset sales, collect claims and unapproved change order revenue and improve working capital. Based on an assessment of these factors, management believes that the Company will have adequate liquidity for its operations for at least the next 12 months.
8
2.Summary of Significant Accounting Policies
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates, judgments and assumptions are continually evaluated based on available information and experience; however, actual amounts could differ from those estimates.
On an ongoing basis, the Company evaluates the significant accounting policies used to prepare its consolidated financial statements, including, but not limited to, those related to:
| ● | Revenue recognition from construction contracts; |
| ● | The recording of accounts receivable and allowance for credit losses; |
| ● | The carrying value of property, plant and equipment; |
| ● | Leases; |
| ● | Share-based compensation; |
| ● | Income taxes; and |
| ● | Self-insurance. |
Revenue Recognition
The Company’s revenue is derived from contracts to provide marine construction, dredging, turnkey concrete services, and other specialty services. The Company’s projects are typically brief in duration, but occasionally, span a period of over one year. The Company determines the appropriate accounting treatment for each contract before work begins and, subject to qualifications discussed in the next paragraph, records contract revenue over time.
Performance obligations are promises in a contract to transfer distinct goods or services to the customer and are the unit of account under Topic 606. Each of the Company’s contracts and related change orders typically represent a single performance obligation because the Company provides an integrated service and individual goods and services are not separately identifiable. Revenue is recognized over time because control of the promised goods and services are continuously transferred to the customer over the life of the contract. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the stand-alone selling price of each distinct good or service. Progress is measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract. This method is used because management considers contract costs incurred to be the best available measure of progress on these contracts. Contract costs include all direct costs, such as material and labor, and those indirect costs incurred that are related to contract performance such as payroll taxes and insurance. General and administrative costs are charged to expense as incurred. Upfront costs, such as costs to mobilize personnel and equipment prior to satisfying a performance obligation are capitalized and amortized over the contract performance period.
Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and reported revenue and are recognized in the period in
9
which the revisions are determined. The effect of changes in estimates of contract revenue or contract costs is recognized as an adjustment to recognized revenue on a cumulative catch-up basis to match contract progress with revenue recognition. When the Company anticipates a loss on a contract that is not yet complete, it recognizes the entire loss in the period in which such losses are determined. Revenue is recorded net of any sales taxes collected and paid on behalf of the customer, if applicable.
Contract revenue is derived from the original contract price as modified by agreed-upon change orders and estimates of variable consideration related to incentive fees and change orders or claims for which price has not yet been agreed by the customer. The Company estimates variable consideration based on its assessment of the most likely amount to which it expects to be entitled. Variable consideration is included in the estimated recognition of revenue to the extent it is probable that a significant reversal of cumulative recognized revenue will not occur. A determination that the collection of a claim is probable is based upon the Company’s evaluation of its compliance with the terms of the contract and the extent to which the Company performed in accordance therewith but does not guarantee collection in full.
Assets and liabilities derived from contracts with customers include the following:
| ● | Accounts Receivable: Trade, net of allowance - Represent amounts billed and currently due from customers and are stated at their estimated net realizable value. |
| ● | Accounts Receivable: Retainage - Represent amounts which have not been billed to or paid by customers due to retainage provisions in construction contracts, which amounts generally become payable upon contract completion and acceptance by the customer. |
| ● | Contract Assets - Represent revenues recognized in excess of amounts billed, which management believes will be billed and collected within one year of the completion of the contract and are recorded as a current asset, until such amounts are either received or written off. |
| ● | Contract Liabilities - Represent billings in excess of revenues recognized and are recorded as a current liability, until the underlying obligation has been performed or discharged. |
Classification of Current Assets and Liabilities
The Company includes in current assets and liabilities amounts realizable and payable in the next twelve months.
Cash and Cash Equivalents and Restricted Cash
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At times, cash held by financial institutions may exceed federally insured limits. The Company has not historically sustained losses on its cash balances in excess of federally insured limits. Cash equivalents at September 30, 2024 and December 31, 2023 consisted primarily of overnight bank deposits.
Risk Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk principally consist of accounts receivable.
A significant portion of the Company’s revenue base depends on its ability to continue to obtain federal, state and local governmental contracts, and indirectly, on the amount of funding available to these agencies for new
10
and current governmental projects. Therefore, a portion of the Company’s operations is dependent upon the level and timing of government funding. Statutory mechanics’ liens provide the Company high priority in the event of lien foreclosures following financial difficulties of private owners, thus minimizing credit risk with private customers.
Accounts Receivable
Accounts receivable are stated at the historical carrying value, net of allowances for credit losses. The Company had significant investments in billed and unbilled receivables as of September 30, 2024 and December 31, 2023. Billed receivables represent amounts billed upon the completion of small contracts and progress billings on large contracts in accordance with contract terms and milestone achievements. Unbilled receivables on contracts represent recoverable costs and accrued profits that are not yet capable of being billed under the terms of the applicable contracts. Revenue associated with these billings is recorded net of any sales tax, if applicable.
In establishing an allowance for credit losses, the Company evaluates its contract receivables and contract assets and thoroughly reviews historical collection experience, the financial condition of its customers, billing disputes and other factors. The Company writes off potentially uncollectible accounts receivable against the allowance for credit losses if it is determined that the amounts will not be collected or if a settlement with respect to a disputed receivable is reached for an amount that is less than its carrying value. As of September 30, 2024 and December 31, 2023, the Company had recorded an allowance for credit losses of $
Balances billed to customers but not paid pursuant to retainage provisions in construction contracts generally become payable upon contract completion and acceptance by the owner. Retainage at September 30, 2024 totaled $
From time to time, the Company negotiates change orders and claims with its customers. Unsuccessful negotiations of claims could result in a change to contract revenue that is less than amounts previously recorded, which could result in the recording of a loss in the amount of the shortfall. Successful claims negotiations could result in the recovery of previously recorded losses. Significant losses on receivables could adversely affect the Company’s financial position, results of operations and overall liquidity.
Advertising Costs
The Company primarily obtains contracts through the open bid process, and therefore advertising costs are not a significant component of expense. Advertising costs are expensed as incurred.
Environmental Costs
Costs related to environmental remediation are charged to expense. Other environmental costs are also charged to expense unless they increase the value of the property and/or provide future economic benefits, in which event the costs are capitalized. Environmental liabilities, if any, are recognized when the liability is considered probable and the amount can be reasonably estimated. The Company did not recognize any environmental liabilities as of September 30, 2024 or December 31, 2023.
Fair Value Measurements
The Company evaluates and presents certain amounts included in the accompanying consolidated financial statements at “fair value” in accordance with U.S. GAAP, which requires the Company to base its estimates on
11
assumptions that market participants, in an orderly transaction, would use to price an asset or liability, and to establish a hierarchy that prioritizes the information used to determine fair value. Refer to Note 7 for more information regarding fair value determination.
The Company generally applies fair value valuation techniques on a non-recurring basis associated with (1) valuing assets and liabilities acquired in connection with business combinations and other transactions; (2) valuing potential impairment loss related to long-lived assets; and (3) valuing potential impairment loss related to goodwill and indefinite-lived intangible assets.
Inventory
Current inventory consists of parts and small equipment held for use in the ordinary course of business and is valued at the lower of cost (using historical average cost) or net realizable value and is relieved as utilized. Where shipping and handling costs are incurred by the Company, these charges are included in inventory and charged to cost of contract revenue upon use. Non-current inventory consists of spare parts (including engines, cutters and gears) that require special order or long-lead times for manufacture or fabrication but must be kept on hand to reduce downtime and is valued at the lower of cost (using historical average cost) or net realizable value.
Property and Equipment
Property and equipment are recorded at cost. Ordinary maintenance and repairs that do not improve or extend the useful life of the asset are expensed as incurred. Major renewals and betterments of equipment are capitalized and depreciated generally over to
When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in results of operations for the respective period.
Depreciation is computed using the straight-line method over the estimated useful lives of the related assets for financial statement purposes, as follows:
Automobiles and trucks |
| |
Buildings and improvements |
| |
Construction equipment |
| |
Vessels and other equipment |
| |
Office equipment |
|
The Company generally uses accelerated depreciation methods for tax purposes where beneficial.
Dry-docking costs are capitalized and amortized using the straight-line method over a period ranging from to
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used
12
is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment loss is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or the fair value, less the costs to sell, and are no longer depreciated. There were
Leases
Management determines if a contract is or contains a lease at inception of the contract or modification of the contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.
Finance and operating lease right-of-use (“ROU”) assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The expected lease term includes options to extend or terminate the lease when it is reasonably certain the Company will exercise such option. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term.
The Company’s lease arrangements have lease and non-lease components. Leases with an expected term of 12 months or less are not accounted for on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.
The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
See Note 17 for more information regarding leases.
Share-Based Compensation
The Company recognizes compensation expense for equity awards over the vesting period based on the fair value of these awards at the date of grant. The computed fair value of these awards is recognized as a non-cash cost over the period the employee provides services, which is typically the vesting period of the award. The fair value of restricted stock grants and restricted stock units is equivalent to the fair value of the stock issued on the date of grant and is measured as the closing price of the stock on the date of grant.
Employee Stock Purchase Plan (“ESPP”) compensation fair value is determined using the Black Scholes Merton Option Pricing model, using a six-month expected term to conform with the six-month ESPP offering period.
Compensation expense is recognized only for share-based payments expected to vest. See Note 14 for further discussion of the Company’s share-based compensation plan.
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Income Taxes
The Company determines its consolidated income tax provision using the asset and liability method prescribed by U.S. GAAP, which requires the recognition of income tax expense for the amount of taxes payable or refundable for the current period and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. The Company must make significant assumptions, judgments and estimates to determine its current provision for income taxes, its deferred tax assets and liabilities, and any valuation allowance to be recorded against any deferred tax asset. The current provision for income tax is based upon the current tax laws and the Company’s interpretation of these laws, as well as the probable outcomes of any tax audits. The value of any net deferred tax asset depends upon estimates of the amount and category of future taxable income reduced by the amount of any tax benefits that the Company does not expect to realize. Actual operating results and the underlying amount and category of income in future years could render current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate, thus impacting the Company’s financial position and results of operations. The Company computes deferred income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the liability method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740, Income Taxes which prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on its consolidated tax return. The Company evaluates and records any uncertain tax positions based on the amount that management deems is more likely than not to be sustained upon examination and ultimate settlement with the tax authorities in the tax jurisdictions in which it operates.
See Note 11 for additional discussion of income taxes.
Insurance Coverage
The Company maintains insurance coverage for its business and operations. Insurance related to property, equipment, automobile, general liability, and a portion of workers’ compensation is provided through traditional policies, subject to a deductible or deductibles. A portion of the Company’s workers’ compensation exposure is covered through a mutual association, which is subject to supplemental calls.
The marine segment maintains
If a claim arises and a potential insurance recovery is probable, the impending gain is recognized separately from the related loss. The recovery will only be recognized up to the amount of the loss once the recovery of the claim is deemed probable and any excess gain will fall under contingency accounting and will only be recognized once it is realized. The Company does not net insurance recoveries against the related claim liability
14
as the amount of the claim liability is determined without consideration of the anticipated insurance recoveries from third parties.
Separately, the Company’s marine segment employee health care is paid for by general assets of the Company and currently administered by a third party. The administrator has purchased appropriate stop-loss coverage. Losses on these policies up to the deductible amounts are accrued based upon known claims incurred and an estimate of claims incurred but not reported. The accruals are derived from known facts, historical trends and industry averages to determine the best estimate of the ultimate expected loss. Actual claims may vary from estimates. Any adjustments to such reserves are included in the Consolidated Statements of Operations in the period in which they become known. The Company’s concrete segment employee health care is provided through
The total accrual for insurance claims liabilities was $
Recent Accounting Pronouncements
The Financial Accounting Standards Board (“FASB”) issues accounting standards and updates (each, an “ASU”) from time to time to its Accounting Standards Codification (“ASC”), which is the primary source of U.S. GAAP. The Company regularly monitors ASUs as they are issued and considers applicability to its business. All ASUs are adopted by their respective due dates and in the manner prescribed by the FASB.
In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments are intended to increase reportable segment disclosure requirements primarily through enhanced disclosures about significant segment expenses. The ASU is effective on a retrospective basis for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company is currently evaluating the impact that this guidance will have on the disclosures within its consolidated financial statements.
In December 2023, the FASB issued ASU No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments require disclosure of specific categories in the rate reconciliation and provides additional information for reconciling items that meet a quantitative threshold and further disaggregation of income taxes paid for individually significant jurisdictions. The ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The Company is currently evaluating the impact that this guidance will have on the disclosures within its consolidated financial statements.
15
3.Revenue
Contract revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The following table represents a disaggregation of the Company’s contract revenues by service line for the marine and concrete segments:
Three months ended September 30, | Nine months ended September 30, | |||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Marine Segment |
|
|
|
|
|
|
|
| ||||
Construction | $ | | $ | | $ | | $ | | ||||
Dredging |
| |
| |
| |
| | ||||
Specialty Services |
| |
| |
| |
| | ||||
Marine segment contract revenues | $ | | $ | | $ | | $ | | ||||
Concrete Segment |
|
|
|
|
|
|
|
| ||||
Structural | $ | | $ | | $ | | $ | | ||||
Light Commercial |
| |
| |
| |
| | ||||
Concrete segment contract revenues | $ | | $ | | $ | | $ | | ||||
Total contract revenues | $ | | $ | | $ | | $ | | ||||
The Company has determined that it has
Marine Segment
Construction services include construction, restoration, maintenance, dredging and repair of marine transportation facilities, marine pipelines, bridges and causeways and marine environmental structures. Dredging services generally enhance or preserve the navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock. Specialty services include design, salvage, demolition, surveying, towing, diving and underwater inspection, excavation and repair.
Concrete Segment
Structural services include elevated concrete pouring for products such as columns, elevated beams and structural walls. Light commercial services include horizontally poured concrete for products such as slabs, sidewalks, ramps and tilt walls. Other services comprise labor related to concrete pouring such as rebar installation and pumping services and typically support the Company’s structural and light commercial services.
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4.Concentration of Risk and Enterprise-Wide Disclosures
In both reportable segments accounts receivable include amounts billed to governmental agencies and private customers and do not bear interest. Balances billed to customers but not paid pursuant to retainage provisions generally become payable upon contract completion and acceptance by the owner.
The table below presents the concentrations of current receivables (trade and retainage) at September 30, 2024 and December 31, 2023, respectively:
September 30, 2024 | December 31, 2023 |
| |||||||||
Federal Government |
| $ | |
| | % | $ | |
| | % |
State Governments |
| |
| | % |
| |
| | % | |
Local Governments |
| |
| | % |
| |
| | % | |
Private Companies |
| |
| | % |
| |
| | % | |
Gross receivables | | | % | | | % | |||||
Allowance for credit losses | ( | ( | |||||||||
Net receivables | $ | |
| $ | |
| |||||
At September 30, 2024, the United States Navy, which is included in the Federal Government category, accounted for
Additionally, the table below represents concentrations of contract revenue by type of customer for the three and nine months ended September 30, 2024 and 2023, respectively:
| Three months ended September 30, |
| Nine months ended September 30, |
| |||||||||||||||||
| 2024 |
| % |
| 2023 |
| % |
| 2024 |
| % |
| 2023 |
| % |
| |||||
Federal Government |
| $ | |
| | % | $ | |
| | % | $ | |
| | % | $ | |
| | % |
State Governments |
|
| |
| | % |
| |
| | % |
| |
| | % |
| |
| | % |
Local Government |
|
| |
| | % |
| |
| | % |
| |
| | % |
| |
| | % |
Private Companies |
|
| |
| | % |
| |
| | % |
| |
| | % |
| |
| | % |
Total contract revenues |
| $ | |
| | % | $ | |
| | % | $ | |
| | % | $ | |
| | % |
For the three months ended September 30, 2024, the United States Navy, which is included in the Federal Government category, accounted for
With the exception of the Unites States Navy, the Company does not believe that the loss of any one of its customers would have a material adverse effect on the Company or its subsidiaries and affiliates since no single specific customer besides the United States Navy sustains such a large portion of receivables or contract revenue over time. On March 10, 2023, the United States Navy awarded the Dragados/Hawaiian Dredging/Orion Joint
17
Venture a $
The concrete segment primarily purchases concrete from select suppliers. The loss of any one of these suppliers could adversely impact short-term operations.
Contract revenues generated outside the United States totaled
5.Contracts in Progress
Contracts in progress are as follows at September 30, 2024 and December 31, 2023:
| September 30, |
| December 31, | |||
2024 | 2023 | |||||
Costs incurred on uncompleted contracts | $ | | $ | | ||
Estimated earnings |
| |
| | ||
| |
| | |||
Less: Billings to date |
| ( |
| ( | ||
$ | | $ | | |||
Included in the accompanying Condensed Consolidated Balance Sheets under the following captions: |
|
|
|
| ||
Contract assets | $ | | $ | | ||
Contract liabilities |
| ( |
| ( | ||
$ | | $ | | |||
Included in contract assets is approximately $
Remaining performance obligations represent the transaction price of firm orders or other written contractual commitments from customers for which work has not been performed or is partially completed and excludes unexercised contract options and potential orders. As of September 30, 2024, the aggregate amount of the remaining performance obligations was approximately $
18
6.Property and Equipment
The following is a summary of property and equipment at September 30, 2024 and December 31, 2023:
| September 30, |
| December 31, | |||
2024 | 2023 | |||||
Automobiles and trucks | $ | | $ | | ||
Building and improvements |
| |
| | ||
Construction equipment |
| |
| | ||
Vessels and other equipment |
| |
| | ||
Office equipment |
| |
| | ||
| |
| | |||
Less: Accumulated depreciation |
| ( |
| ( | ||
Net book value of depreciable assets |
| |
| | ||
Construction in progress |
| |
| | ||
Land |
| |
| | ||
$ | | $ | | |||
For the three months ended September 30, 2024 and 2023, depreciation expense was $
Substantially all of the Company’s long-lived assets are located in the United States.
See Note 2 to the Company’s condensed consolidated financial statements for further discussion of property and equipment.
7.Fair Value
Recurring Fair Value Measurements
The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. Due to their short-term nature, the Company believes that the carrying value of its accounts receivable, other current assets, accounts payable and other current liabilities approximate their fair values.
The Company classifies financial assets and liabilities into the following three levels based on the inputs used to measure fair value in the order of priority indicated:
| ● | Level 1- fair values are based on observable inputs such as quoted prices in active markets for identical assets or liabilities; |
| ● | Level 2 - fair values are based on pricing inputs other than quoted prices in active markets for identical assets and liabilities and are either directly or indirectly observable as of the measurement date; and |
| ● | Level 3 - fair values are based on unobservable inputs in which little or no market data exists. |
19
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value requires judgment and may affect the placement of assets and liabilities within the fair value hierarchy levels.
The following table sets forth by level within the fair value hierarchy the Company’s recurring financial assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2024 and December 31, 2023:
Fair Value Measurements | |||||||||
| Carrying Value |
| Level 1 |
| Level 2 |
| Level 3 | ||
September 30, 2024 |
|
|
|
| |||||
Assets: |
|
|
|
|
|
|
|
| |
Cash surrender value of life insurance policy | $ | |
| — |
| |
| — | |
December 31, 2023 |
|
|
|
| |||||
Assets: |
|
|
|
|
|
|
|
| |
Cash surrender value of life insurance policy | $ | |
| — |
| |
| — | |
Our concrete segment had life insurance policies with a combined face value of $
Other Fair Value Measurements
The fair value of the Company’s debt at September 30, 2024 and December 31, 2023 approximated its carrying value of $
20
8.Accrued Liabilities
Accrued liabilities at September 30, 2024 and December 31, 2023 consisted of the following:
| September 30, 2024 |
| December 31, 2023 | |||
Accrued salaries, wages and benefits | $ | | $ | | ||
Accrued liabilities expected to be covered by insurance |
| |
| | ||
Sales taxes |
| |
| | ||
Property taxes |
| |
| | ||
Sale-leaseback arrangement | | | ||||
Accounting and audit fees | | | ||||
Interest |
| |
| | ||
Other accrued expenses |
| |
| | ||
Total accrued liabilities | $ | | $ | | ||
9.Debt
On May 15, 2023, the Company entered into a new Credit Agreement with White Oak ABL, LLC and White Oak Commercial Finance, LLC which includes a $
The Credit Agreement is secured by substantially all of the assets of the Company and its subsidiaries, including fixed assets and account receivables, and is used to finance general corporate and working capital purposes, capital expenditures, and permitted acquisitions and associated fees, to refinance existing indebtedness, and to pay for all expenses related to the Credit Agreement. Amounts repaid under the Revolver can be re-borrowed.
The Revolver initially bore interest at a rate of the 30-day plus
On April 24, 2024, the Company executed Amendment No. 3 to the Loan Agreement with White Oak Commercial Finance, LLC. This amendment, among other things, (i) replaced the Consolidated EBITDA covenant with a Consolidated Fixed Charge Coverage Ratio (FCCR) for the quarter ended March 31, 2024, (ii) lowered the FCCR covenant threshold from
21
On June 28, 2024, the Company executed Amendment No. 4 to the Loan Agreement with White Oak Commercial Finance, LLC. This amendment, among other things, (i) revised the Minimum Liquidity covenant to require that the Loan Parties and Subsidiaries cause Liquidity to not fall below the following amounts for more than consecutive Business Days or as of the close of business on Friday of each week: From the Third Amendment Effective Date through July 26, 2024 - $
On July 26, 2024, the Company executed Amendment No. 5 to the Loan Agreement with White Oak Commercial Finance, LLC and the Lenders party thereto. This amendment, among other things, (i) replaced the minimum FCCR covenant with a minimum EBITDA covenant for the next quarters, (ii) modified the minimum liquidity requirements through January 1, 2025, (iii) replaced the requirement to raise $
Under the terms of Amendment No. 5, the Company was required to make the following term loan prepayments: July 26, 2024 - $
Amendment No. 5 also includes other administrative and definitional changes, including changes to the EBITDA requirements used to compute the interest rate margin applicable to the revolving credit facility.
The quarterly weighted average interest rate for the Credit Agreement, as of September 30, 2024 was
22
The Company’s obligations under debt arrangements consisted of the following:
September 30, 2024 | December 31, 2023 | |||||||||||||||||
|
| Debt Issuance |
|
|
| Debt Issuance |
| |||||||||||
Principal | Costs(1) | Total | Principal | Costs(1) | Total | |||||||||||||
Term loan - current | $ | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||
Other debt | | — | | | — | | ||||||||||||
Total current debt |
| |
| ( |
| |
| |
| ( |
| | ||||||
Term loan - long-term |
| |
| ( |
| |
| |
| ( |
| | ||||||
Other debt | | — | | | — | | ||||||||||||
Total long-term debt | | ( | | | ( | | ||||||||||||
Total debt | $ | | $ | ( | $ | | $ | | $ | ( | $ | | ||||||
| (1) | Total debt issuance costs include underwriter fees, legal fees, syndication fees and fees related to the execution of the Credit Agreement and the termination and repayment of the Company’s prior credit facility. |
Provisions of the revolving line of credit
The Company has a maximum borrowing capacity under the Revolver of $
The Company is subject to a commitment fee for the unused portion of the maximum borrowing availability under the Revolver. The Revolver termination date is the earlier of the Credit Agreement termination date, May 15, 2027, or the date the outstanding balance is permanently reduced to zero, in accordance with the terms of the Credit Agreement.
As of September 30, 2024, the Company had
During the nine months ended September 30, 2024, the Company had borrowings and of $
Financial covenants
Restrictive financial covenants under the amended Credit Agreement include:
| ● | A Consolidated Fixed Charge Coverage Ratio to not be less than the following during each noted period: |
| - | Trailing Four Quarter Test Period Ending September 30, 2025 and each Fiscal Quarter thereafter, to not be less than |
| ● | A Revolver Loan Turnover Ratio to not be less than the following during each noted period: |
| - | Fiscal Quarter Ending June 30, 2023 and each Fiscal Quarter thereafter, to not be less than |
| ● | A Term Loan Loan-to-Value Ratio to not be greater than the following during each noted period: |
| - | Fiscal Quarter Ending June 30, 2023 and each Fiscal Quarter thereafter, to not be more than |
23
| ● | A Minimum EBITDA to not be less than the following during each noted period: |
| - | Trailing Four Quarter Test Period Ended September 30, 2024 - $ |
| - | Trailing Four Quarter Test Period ended December 31, 2024 - $ |
| - | Trailing Four Quarter Test Period ended March 31, 2025 - $ |
| - | Trailing Four Quarter Test Period ending June 30, 2025 - $ |
The Company shall not permit Liquidity (as defined in the Credit Agreement) to fall below $
In addition, the Credit Agreement contains events of default that are usual and customary for similar arrangements, including non-payment of principal, interest or fees; breaches of representations and warranties that are not timely cured; violation of covenants; bankruptcy and insolvency events; and, events constituting a change of control.
The Company was in compliance with all financial covenants under the amended agreement as of September 30, 2024.
Other debt
The Company has entered into debt agreements with De Lage Landen Financial Services, Inc. and Mobilease for the purpose of financing equipment purchased. As of September 30, 2024 and December 31, 2023, the carrying value of this debt was $
On June 23, 2023, the Company closed on a land-sale leaseback contract for the Company’s Port Lavaca South Yard property located in Port Lavaca, Texas for a purchase price of $
24
10.Other Long-Term Liabilities
Other long-term liabilities at September 30, 2024 and December 31, 2023 consisted of the following:
| September 30, 2024 |
| December 31, 2023 | |||
Sale-leaseback arrangement | $ | | $ | | ||
Deferred compensation |
| |
| | ||
Accrued liabilities expected to be covered by insurance | |
| | |||
Total other long-term liabilities | $ | | $ | | ||
Sale-Leaseback Arrangements
On May 15, 2023, the Company entered into a $
Concurrent with the sale of Company’s Port Lavaca South Yard property, the Company entered into a
On September 27, 2019, the Company entered into a purchase and sale agreement (the “Purchase and Sale Agreement”). Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its 17300 & 17140 Market Street location in Channelview, Texas for a purchase price of $
Related to the failed sale-leasebacks, the Company recorded liabilities for the amounts received, will continue to depreciate the non-land portion of the assets, and has imputed an interest rate so that the net carrying amount of the financial liability and remaining assets will be zero at the end of the initial lease terms.
11.Income Taxes
Income tax expense (benefit) included in the Company’s accompanying Condensed Consolidated Statements of Operations was as follows (in thousands, except percentages):
Three months ended |
| Nine months ended |
| ||||||||||
September 30, | September 30, | ||||||||||||
| 2024 | 2023 | 2024 | 2023 | |||||||||
Income tax expense (benefit) | $ | | $ | ( | $ | | $ | | |||||
Effective tax rate |
| | % |
| | % |
| ( | % |
| ( | % | |
The effective rate for the three and nine months ended September 30, 2024 differed from the Company’s statutory federal rate of
25
The Company's effective tax rate is typically based on expected income for the calendar year, statutory rates and tax planning opportunities available. This estimated annual effective tax rate is then applied to year-to-date operations. The Company expects near break-even operations for the full year ended December 31, 2024, such that a small change in the year-to-date operations could result in a large change to the estimated annual effective tax rate. Therefore, the Company’s effective tax rate for the period ending September 30, 2024, is based off actual year-to-date operations.
The Company assessed the realizability of its deferred tax assets and determined that it was more likely than not that some portion or all the deferred tax assets would not be realized and therefore recorded a valuation allowance on the net deferred tax assets. The Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. The Company considers the scheduled reversal of deferred tax liabilities, available carryback periods, and tax-planning strategies in making this assessment. For the period ended September 30, 2024 the Company evaluated all positive and negative evidence in determining the amount of deferred tax assets more likely than not to be realized. Based on the review of available evidence, management believes that a valuation allowance on the net deferred tax assets at September 30, 2024 remains appropriate.
The Company reduced its previously unrecognized tax benefits by $
12.Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during each period. Diluted earnings per share is based on the weighted average number of common shares outstanding as well as the effect of all dilutive common stock equivalents during each period net income is generated. For the three months ended September 30, 2024 and 2023, the Company had
26
The following table reconciles the denominators used in the computations of both basic and diluted earnings per share:
Three months ended | Nine months ended September 30, | |||||||
September 30, | September 30, | |||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | |
Basic: |
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
| |
| |
| |
| |
Diluted: |
|
|
|
|
|
|
|
|
Total basic weighted average shares outstanding |
| |
| |
| |
| |
Effect of potentially dilutive securities: |
|
|
|
|
|
|
|
|
Common stock options |
| |
| |
| |
| |
Employee stock purchase plan | |
| |
| |
| | |
Total weighted average shares outstanding assuming dilution |
| |
| |
| |
| |
13.Issuance of Common Stock
On September 12, 2024, the Company completed the sale of
14.Share-Based Compensation
The Compensation Committee of the Company’s Board of Directors is responsible for the administration of the Company’s stock incentive plans, which include the balance of shares remaining under the 2022 Long Term Incentive Plan (the “2022 LTIP”), which was approved by shareholders in May of 2022 and amended in May of 2024 and authorizes
In May 2024 shareholders approved the ESPP, which became effective on September 16, 2024. The Company has reserved a total of
In the three months ended September 30, 2024 and 2023, compensation expense related to share-based awards outstanding was $
27
share-based compensation for certain officers of the Company were $
On March 4, 2024, an employee of the Company was awarded a total of
On March 20, 2024, the Company granted certain executives a total of
On March 20, 2024, the Company granted certain executives a total of
On May 16, 2024, the Company’s
On May 17, 2024, the Company granted certain employees a total of
On June 24, 2024, an employee of the Company was awarded a total of
On August 5, 2024, an employee of the Company was awarded a total of
In the three months ended September 30, 2024, there were
At September 30, 2024, total unrecognized compensation expense related to unvested stock was approximately $
15.Commitments and Contingencies
The Company is involved in various legal and other proceedings which are incidental to the conduct of its business, none of which in the opinion of management will have a material effect on the Company’s financial condition, results of operations or cash flows. Management believes that it has recorded adequate accrued liabilities and believes that it has adequate insurance coverage or has meritorious defenses for these claims and contingencies.
28
16.Segment Information
The Company currently operates in
Segment information for the periods presented is provided as follows:
Three months ended |
| Nine months ended | |||||||||
September 30, | September 30, | ||||||||||
2024 | 2023 | 2024 | 2023 | ||||||||
Marine | |||||||||||
Contract revenues | $ | | $ | | $ | | $ | | |||
Operating income (loss) | $ | | $ | | $ | ( | $ | ( | |||
Depreciation and amortization expense | $ | ( | $ | ( | $ | ( | $ | ( | |||
Total assets | $ | | $ | | $ | | $ | | |||
Property and equipment, net | $ | | $ | | $ | | $ | | |||
Concrete |
|
|
|
|
|
|
| ||||
Contract revenues | $ | | $ | | $ | | $ | | |||
Operating income (loss) | $ | | $ | | $ | | $ | ( | |||
Depreciation and amortization expense | $ | ( | $ | ( | $ | ( | $ | ( | |||
Total assets | $ | | $ | | $ | | $ | | |||
Property and equipment, net | $ | | $ | | $ | | $ | | |||
There was $
The marine segment had foreign revenues of $
29
17.Leases
The Company has operating and finance leases for office space, equipment and vehicles.
Leases recorded on the balance sheet consists of the following:
| September 30, | December 31, | |||
Leases | 2024 | 2023 | |||
Assets | |||||
Operating lease right-of-use assets, net (1) | $ | | $ | | |
Financing lease right-of-use assets, net (2) |
| |
| | |
Total assets | $ | | $ | | |
Liabilities |
|
|
|
| |
Current |
|
|
|
| |
Operating | $ | | $ | | |
Financing |
| |
| | |
Total current |
| |
| | |
Noncurrent |
|
|
|
| |
Operating |
| |
| | |
Financing |
| |
| | |
Total noncurrent |
| |
| | |
Total liabilities | $ | | $ | | |
| (1) | Operating lease right-of-use assets are recorded net of accumulated amortization of $ |
| (2) | Financing lease right-of-use assets are recorded net of accumulated amortization of $ |
Other information related to lease term and discount rate is as follows:
September 30, |
| December 31, |
| |
2024 |
| 2023 |
| |
Weighted Average Remaining Lease Term (in years) |
|
| ||
Operating leases | ||||
Financing leases | ||||
Weighted Average Discount Rate | ||||
Operating leases | | % | | % |
Financing leases | | % | | % |
30
The components of lease expense are as follows:
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
| 2024 |
| 2023 | 2024 |
| 2023 | |||||
Operating lease costs: |
|
|
|
|
|
|
| ||||
Operating lease cost | $ | | $ | | $ | | $ | | |||
Short-term lease cost (1) |
| |
| |
| |
| | |||
Financing lease costs: |
|
|
|
|
|
| |||||
Interest on lease liabilities |
| |
| |
| |
| | |||
Amortization of right-of-use assets |
| |
| |
| |
| | |||
Total lease cost | $ | | $ | | $ | | $ | | |||
| (1) | Includes expenses related to leases with a lease term of more than one month but less than one year. |
Supplemental cash flow information related to leases is as follows:
Nine Months Ended September 30, | |||||
2024 | 2023 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | |||||
Operating cash flows for operating leases | $ | | $ | | |
Operating cash flows for finance leases | $ | | $ | | |
Financing cash flows for finance leases | $ | | $ | | |
Non-cash activity: |
|
| |||
ROU assets obtained in exchange for new operating lease liabilities | $ | | $ | | |
ROU assets obtained in exchange for new financing lease liabilities | $ | | $ | | |
Maturities of lease liabilities are summarized as follows:
Operating Leases | Finance Leases | |||||
Year ending December 31, | ||||||
2024 (excluding the nine months ended September 30, 2024) | $ | | $ | | ||
2025 |
| |
| | ||
2026 |
| |
| | ||
2027 |
| |
| | ||
2028 |
| |
| | ||
Thereafter |
| |
| | ||
Total future minimum lease payments |
| |
| | ||
Less - amount representing interest |
| |
| | ||
Present value of future minimum lease payments |
| |
| | ||
Less - current lease obligations |
| |
| | ||
Long-term lease obligations | $ | | $ | | ||
18.Related Party Transaction
On March 10, 2023, the United States Navy awarded the Dragados/Hawaiian Dredging/Orion Joint Venture a $
31
approximately $
1
ITEM 2. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Unless the context otherwise indicates, all references in this Quarterly Report on Form 10-Q to “Orion,” “the Company,” “we,” “our,” or “us” are to Orion Group Holdings, Inc. and its subsidiaries as a whole.
Certain information in this Quarterly Report on Form 10-Q, including but not limited to Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), may constitute forward-looking statements as such term is defined within the meaning of the “safe harbor” provisions of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements other than statements of historical facts, including those that express a belief, expectation, or intention are forward-looking statements. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, our pipeline of opportunities, conversion of backlog, revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes.
We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control, including unforeseen productivity delays and other difficulties encountered in project execution, challenges incurred by virtue of our position as a substantial subcontractor that reports to a significantly larger project contractor, levels of government funding or other governmental budgetary constraints, contract modifications and changes, including change orders and contract cancellation at the discretion of the customer. These and other important factors, including those described under “Risk Factors” in Part 1, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2023 may cause our actual results, performance- or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date of this report; we disclaim- any obligation to update these statements unless required by securities law, and we caution you not to rely on them unduly.
MD&A provides a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition since the most recent fiscal year-end, and (ii) results of operations during the current fiscal year-to-date period and current fiscal quarter as compared to the corresponding periods of the preceding fiscal year. In order to better understand such changes, this MD&A should be read in conjunction with the Company’s audited consolidated financial statements and notes thereto included in our 2023 Form 10-K, Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2023 Form 10-K and with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.
32
Overview
Orion Group Holdings, Inc. and subsidiaries (hereafter collectively referred to as the “Company”), is a leading specialty construction company serving the infrastructure, industrial, and building sectors, providing services both on and off the water in the continental United States, Alaska, Hawaii, Canada and the Caribbean Basin through our marine segment and our concrete segment. Our marine segment provides construction and dredging services including marine transportation facility construction, marine pipeline construction, marine environmental structures construction, dredging of waterways, channels and ports, environmental dredging, design, and specialty services related to marine construction, fabrication, and dredging. Our concrete segment provides turnkey concrete construction services including concrete surface place and finish, site preparation, layout, forming, and rebar placement for large commercial, structural and other associated business areas. We are headquartered in Houston, Texas with regional offices throughout our operating areas.
Our contracts are obtained primarily through competitive bidding in response to “requests for proposals” by federal, state and local agencies and through negotiation and competitive bidding with private parties and general contractors. Our bidding activity and strategies are affected by factors such as our backlog, current utilization of equipment and other resources, job location, our ability to obtain necessary surety bonds and competitive considerations. The timing and location of awarded contracts may result in unpredictable fluctuations in the results of our operations.
Most of our revenue is derived from fixed-price contracts. We record revenue on construction contracts over time, measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract. There are a number of factors that can create variability in contract performance and therefore impact the results of our operations. The most significant of these include the following:
| ● | completeness and accuracy of the original bid; |
| ● | increases in commodity prices such as concrete, steel and fuel; |
| ● | customer delays, work stoppages, and other costs due to weather and environmental restrictions; |
| ● | subcontractor performance; |
| ● | unforeseen site conditions; |
| ● | availability and skill level of workers; and |
| ● | a change in availability and proximity of equipment and materials. |
All of these factors can have a negative impact on our contract performance, which can adversely affect the timing of revenue recognition and ultimate contract profitability. We plan our operations and bidding activity with these factors in mind and they generally have not had a material adverse impact on the results of our operations in the past.
Consolidated Results of Operations
Backlog Information
Our contract backlog represents our estimate of the revenues we expect to realize under the portion of contracts remaining to be performed. Given the typical duration of our contracts, which is generally less than a year, our backlog at any point in time usually represents only a portion of the revenue that we expect to realize during a
33
twelve-month period. We have not been adversely affected by contract cancellations or modifications in the past, however we may be in the future, especially in periods of economic uncertainty.
Backlog as of the periods ended below are as follows (in millions):
September 30, 2024 |
| June 30, 2024 |
| March 31, 2024 |
| December 31, 2023 |
| September 30, 2023 | |||||||
Marine segment | $ | 537.0 | $ | 567.1 | $ | 569.9 | $ | 602.5 | $ | 699.9 | |||||
Concrete segment |
| 153.5 |
| 191.3 |
| 186.7 |
| 159.7 |
| 177.6 | |||||
Consolidated | $ | 690.5 | $ | 758.4 | $ | 756.6 | $ | 762.2 | $ | 877.5 | |||||
We are optimistic in our end-markets and in the opportunities that are emerging across our various marketplaces as evidenced by the $753 million of quoted bids outstanding at quarter end, of which over $116 million were awarded but not fully contracted as of or awarded subsequent to September 30, 2024.
These estimates are subject to fluctuations based upon the scope of services to be provided, as well as factors affecting the time required to complete the project. Backlog is not necessarily indicative of future results. In addition to our backlog under contract, we also have a substantial number of projects in negotiation or pending award at any given time. Delays in decisions on pending awards also have a negative impact on the timing and amount by which we are able to increase backlog.
Income Statement Comparisons
Three months ended September 30, 2024 compared with three months ended September 30, 2023.
Three months ended September 30, | ||||||||||||
| 2024 |
| 2023 |
|
| |||||||
| Amount |
| Percent |
| Amount |
| Percent |
| ||||
(dollar amounts in thousands) | ||||||||||||
Contract revenues | $ | 226,675 |
| 100.0 | % | $ | 168,476 |
| 100.0 | % | ||
Cost of contract revenues |
| 199,611 |
| 88.1 | % |
| 149,406 |
| 88.7 | % | ||
Gross profit |
| 27,064 |
| 11.9 | % |
| 19,070 |
| 11.3 | % | ||
Selling, general and administrative expenses |
| 20,846 |
| 9.2 | % |
| 17,135 |
| 10.2 | % | ||
Amortization of intangible assets | — | — | % | 59 | — | % | ||||||
Gain on disposal of assets, net | (1,563) | (0.7) | % | (685) | (0.4) | % | ||||||
Operating income |
| 7,781 |
| 3.4 | % |
| 2,561 |
| 1.5 | % | ||
Other (expense) income: |
|
|
|
|
|
|
|
| ||||
Other income |
| 107 |
| — | % |
| 49 |
| — | % | ||
Interest income |
| 73 |
| — | % |
| 21 |
| — | % | ||
Interest expense |
| (3,617) |
| (1.5) | % |
| (3,414) |
| (2.0) | % | ||
Other expense, net |
| (3,437) |
| (1.5) | % |
| (3,344) |
| (2.0) | % | ||
Income (loss) before income taxes |
| 4,344 |
| 1.9 | % |
| (783) |
| (0.5) | % | ||
Income tax expense (benefit) |
| 82 |
| — | % |
| (123) |
| (0.1) | % | ||
Net income (loss) | $ | 4,262 |
| 1.9 | % | $ | (660) |
| (0.4) | % | ||
Contract Revenues. Contract revenues for the three months ended September 30, 2024 of $226.7 million increased $58.2 million or 34.5% as compared to $168.5 million in the prior year period. The increase was primarily due to an increase in Marine segment revenue related to the Pearl Harbor drydock project, partially
34
offset by lower Concrete segment revenue due to our deliberate efforts to adhere to disciplined bidding standards to win quality work at attractive margins.
Gross Profit. Gross profit was $27.1 million for the three months ended September 30, 2024 compared to $19.1 million in the prior year period, an increase of $8.0 million, or 41.9%. Gross profit in the quarter was 11.9% of total contract revenues as compared to 11.3% in the prior year period. The increase in gross profit dollars and margin was primarily driven by improved pricing of projects in both segments stemming from higher quality projects and improved execution.
Selling, General and Administrative Expense. Selling, general and administrative (“SG&A”) expenses were $20.8 million for the three months ended September 30, 2024 compared to $17.1 million in the prior year period, an increase of $3.7 million or 21.7%. As a percentage of total contract revenues, SG&A expenses decreased from 10.2% to 9.2%. The increase in SG&A dollars reflected an increase in compensation expense, business development spending and legal expenses.
Gain on Disposal of Assets, net. During the three months ended September 30, 2024 and 2023 we realized $1.6 million and $0.7 million, respectively, of net gains on disposal of assets.
Other Income, net of Expense. Other expense primarily reflects interest on our borrowings, partially offset by interest income and non-operating gains or losses.
Income Tax Expense (Benefit). We recorded tax expense of $0.1 million in the three months ended September 30, 2024, compared to tax benefit of $0.1 million in the prior year period. We expect near break-even operations for the full year ended December 31, 2024, such that a small change in the year-to-date operations could result in a large change to the estimated annual effective tax rate. Therefore, our effective tax rate for the period ending September 30, 2024, is based off actual year-to-date operations.
35
Nine months ended September 30, 2024 compared with nine months ended September 30, 2023.
Nine months ended September 30, | |||||||||||
| 2024 |
| 2023 |
| |||||||
| Amount |
| Percent |
| Amount |
| Percent |
| |||
(dollar amounts in thousands) | |||||||||||
Contract revenues | $ | 579,514 |
| 100.0 | % | $ | 510,184 |
| 100.0 | % | |
Cost of contract revenues |
| 518,631 |
| 89.5 | % |
| 471,488 |
| 92.4 | % | |
Gross profit |
| 60,883 |
| 10.5 | % |
| 38,696 |
| 7.6 | % | |
Selling, general and administrative expenses |
| 60,980 |
| 10.5 | % |
| 52,271 |
| 10.3 | % | |
Amortization of intangible assets | — | — | % | 383 | 0.1 | % | |||||
Gain on disposal of assets, net | (1,986) | (0.3) | % | (7,915) | (1.6) | % | |||||
Operating income (loss) |
| 1,889 |
| 0.3 | % |
| (6,043) |
| (1.2) | % | |
Other (expense) income: |
|
|
|
|
|
|
|
| |||
Other income |
| 299 |
| 0.1 | % |
| 592 |
| 0.1 | % | |
Interest income |
| 97 |
| — | % |
| 90 |
| — | % | |
Interest expense |
| (10,336) |
| (1.8) | % |
| (7,674) |
| (1.5) | % | |
Other expense, net |
| (9,940) |
| (1.7) | % |
| (6,992) |
| (1.4) | % | |
Loss before income taxes |
| (8,051) |
| (1.4) | % |
| (13,035) |
| (2.6) | % | |
Income tax expense |
| 347 |
| — | % |
| 475 |
| — | % | |
Net loss | $ | (8,398) |
| (1.4) | % | $ | (13,510) |
| (2.6) | % | |
Contract Revenues. Contract revenues for the nine months ended September 30, 2024 of $579.5 million increased $69.3 million or 13.6% as compared to $510.2 million in the prior year period. The increase was primarily due to an increase in marine segment revenue related to the Pearl Harbor drydock project, partially offset by lower concrete segment revenue due to disciplined bidding standards to win quality work at attractive margins.
Gross Profit. Gross profit was $60.9 million for the nine months ended September 30, 2024 compared to $38.7 million in the prior year period, an increase of $22.2 million or 57.3%. Gross profit in the nine months ended September 30, 2024 was 10.5% of total contract revenues as compared to 7.6% in the prior year period. The increase in gross profit dollars and margin was primarily driven by improved pricing of projects in both segments stemming from higher quality projects and improved execution.
Selling, General and Administrative Expense. SG&A expenses were $61.0 million for the nine months ended September 30, 2024 compared to $52.3 million in the prior year period, an increase of $8.7 million or 16.7%. As a percentage of total contract revenues, SG&A expenses increased from 10.3% to 10.5%. The increase in SG&A dollars and percentage reflecting an increase in IT, compensation, business development spending, and higher legal costs related to pursuing project-related claims.
Gain on Disposal of Assets, net. During the nine months ended September 30, 2024 and 2023 we realized $2.0 million and $7.9 million, respectively, of net gains on disposal of assets. The nine months ended September 30, 2023, included a gain of $5.2 million related to the sale-leaseback of our Port Lavaca South Yard property in Texas.
Other Income, net of Expense. Other expense primarily reflects interest on our borrowings, partially offset by interest income and non-operating gains or losses.
36
Income Tax Expense. We recorded tax expense of $0.3 million in the nine months ended September 30, 2024, compared to tax expense of $0.5 million in the prior year period. We expect near break-even operations for the full year ended December 31, 2024, such that a small change in the year-to-date operations could result in a large change to the estimated annual effective tax rate. Therefore, our effective tax rate for the period ending September 30, 2024, is based off actual year-to-date operations.
Segment Results
The following table sets forth, for the periods indicated, statements of operations data by segment, segment revenues as a percentage of consolidated revenues and segment operating income (loss) as a percentage of segment revenues.
Three months ended September 30, 2024 compared with three months ended September 30, 2023.
Three months ended September 30, | |||||||||||
2024 | 2023 | ||||||||||
| Amount |
| Percent |
| Amount |
| Percent |
| |||
(dollar amounts in thousands) | |||||||||||
Contract revenues | |||||||||||
Marine segment |
| ||||||||||
Public sector | $ | 94,719 | 67.7 | % | $ | 61,144 | 75.6 | % | |||
Private sector | 45,294 | 32.3 | % | 19,769 | 24.4 | % | |||||
Marine segment total | $ | 140,013 | 100.0 | % | $ | 80,913 | 100.0 | % | |||
Concrete segment |
|
| |||||||||
Public sector | $ | 10,782 | 12.4 | % | $ | 7,974 | 9.1 | % | |||
Private sector | 75,880 | 87.6 | % | 79,589 | 90.9 | % | |||||
Concrete segment total | $ | 86,662 | 100.0 | % | $ | 87,563 | 100.0 | % | |||
Total | $ | 226,675 |
| $ | 168,476 |
| |||||
Operating income |
|
|
|
|
|
|
|
| |||
Marine segment | $ | 5,485 |
| 3.9 | % | $ | 2,001 |
| 2.5 | % | |
Concrete segment |
| 2,296 |
| 2.6 | % |
| 560 |
| 0.6 | % | |
Total | $ | 7,781 | $ | 2,561 |
|
| |||||
Marine Segment
Revenues for our marine segment for the three months ended September 30, 2024 were $140.0 million compared to $80.9 million for the three months ended September 30, 2023, an increase of $59.1 million, or 73.0%. The increase was primarily related to the Pearl Harbor Project.
Operating income for our marine segment for the three months ended September 30, 2024 was $5.5 million, compared to $2.0 million for the three months ended September 30, 2023, an increase of $3.5 million. The increase in operating income was primarily related to the Pearl Harbor Project.
Concrete Segment
Revenues for our concrete segment for the three months ended September 30, 2024 were $86.7 million compared to $87.6 million for the three months ended September 30, 2023, a decrease of $0.9 million, or 1.0%. This decrease was primarily due to disciplined bidding standards to win quality work at attractive margins.
37
Operating income for our concrete segment for the three months ended September 30, 2024 was $2.3 million, compared to $0.6 million for the three months ended September 30, 2023, an increase of $1.7 million. This increase was primarily due to reduction of lower margin work, winning higher margin jobs due to disciplined bidding standards and improved execution.
Nine months ended September 30, 2024 compared with nine months ended September 30, 2023.
Nine months ended September 30, | |||||||||||
2024 | 2023 | ||||||||||
| Amount |
| Percent |
| Amount |
| Percent |
| |||
(dollar amounts in thousands) | |||||||||||
Contract revenues | |||||||||||
Marine segment |
| ||||||||||
Public sector | $ | 290,995 | 77.1 | % | $ | 193,813 | 74.3 | % | |||
Private sector | 86,296 | 22.9 | % | 66,941 | 25.7 | % | |||||
Marine segment total | $ | 377,291 | 100.0 | % | $ | 260,754 | 100.0 | % | |||
Concrete segment |
|
| |||||||||
Public sector | $ | 20,211 | 10.0 | % | $ | 17,662 | 7.1 | % | |||
Private sector | 182,012 | 90.0 | % | 231,768 | 92.9 | % | |||||
Concrete segment total | $ | 202,223 | 100.0 | % | $ | 249,430 | 100.0 | % | |||
Total | $ | 579,514 |
| $ | 510,184 |
| |||||
Operating (loss) income |
|
|
|
|
|
|
|
| |||
Marine segment | $ | (4,847) |
| (1.3) | % | $ | (587) |
| (0.2) | % | |
Concrete segment |
| 6,736 |
| 3.3 | % |
| (5,456) |
| (2.2) | % | |
Total | $ | 1,889 | $ | (6,043) |
|
| |||||
Marine Segment
Revenues for our marine segment for the nine months ended September 30, 2024 were $377.3 million compared to $260.8 million for the nine months ended September 30, 2023, an increase of $116.5 million, or 44.7%. The increase was primarily related to the Pearl Harbor Project.
Operating loss for our marine segment for the nine months ended September 30, 2024 was $4.8 million, compared to $0.6 million for the nine months ended September 30, 2023, an increase in operating loss of $4.2 million. Adjusted for the gain on the Port Lavaca South Yard property sale-leaseback in Texas operating loss for the nine months ended September 30, 2023 was $5.8 million. This $1.0 million decrease in operating loss was primarily due to margin improvements stemming from higher quality projects and improved execution.
Concrete Segment
Revenues for our concrete segment for the nine months ended September 30, 2024 were $202.2 million compared to $249.4 million for the nine months ended September 30, 2023, a decrease of $47.2 million, or 18.9%. This decrease was primarily due to disciplined bidding standards to win quality work at attractive margins.
Operating income for our concrete segment for the nine months ended September 30, 2024 was $6.7 million, compared to an operating loss of $5.5 million for the nine months ended September 30, 2023, an increase of $12.2 million. This increase was primarily due to a reduction of lower margin work, winning higher margin jobs due to disciplined bidding standards and improved execution.
38
Liquidity and Capital Resources
Changes in working capital are normal within our business given the varying mix in size, scope, seasonality and timing of delivery of our projects. At September 30, 2024, our working capital was $72.2 million, as compared to $55.9 million at December 31, 2023. As of September 30, 2024, we had unrestricted cash on hand of $28.3 million. Our borrowing availability under our revolving portion of our Credit Agreement at September 30, 2024 was approximately $46.1 million.
Our primary liquidity needs are to finance our working capital and fund capital expenditures. Historically, our source of liquidity has been cash provided by our operating activities, sale of underutilized assets, and borrowings under our credit facilities. The assessment of our liquidity requires us to make estimates of future activity and judgments about whether we are compliant with financial covenant calculations under our debt and other agreements and have adequate liquidity to operate. Significant assumptions used in our forecasted model of liquidity include forecasted sales, costs, and capital expenditures, as well as expected timing and proceeds of planned real estate transactions.
Recent Developments
On September 12, 2024, we completed the sale of 5,589,000 shares of common stock, including 729,000 shares of common stock pursuant to an option granted to the underwriters, in an underwritten public offering. We received net proceeds of approximately $26.5 million, after deducting underwriting discounts and other estimated offering expenses payable by us. The net proceeds were used for working capital and for general corporate purposes, including repayment of borrowings under the Credit Agreement.
39
Cash Flow
The following table provides information regarding our cash flows and our capital expenditures for the three and nine months ended September 30, 2024 and 2023:
Three months ended | Nine months ended | ||||||||||||
September 30, | September 30, | ||||||||||||
| 2024 |
| 2023 |
| 2024 |
| 2023 | ||||||
Net income (loss) | $ | 4,262 | $ | (660) | $ | (8,398) | $ | (13,510) |
| ||||
Adjustments to remove non-cash and non-operating items | 8,362 | 8,214 | 27,874 | 16,393 | |||||||||
Cash flow from net income after adjusting for non-cash and non-operating items | 12,624 | 7,554 | 19,476 | 2,883 | |||||||||
Change in operating assets and liabilities (working capital) | 22,532 | (24,079) | (20,163) | (31,384) | |||||||||
Cash flows provided by (used in) operating activities | $ | 35,156 | $ | (16,525) | $ | (687) | $ | (28,501) | |||||
Cash flows (used in) provided by investing activities | $ | (2,589) | $ | (1,650) | $ | (8,722) | $ | 5,391 | |||||
Cash flows (used in) provided by financing activities | $ | (9,150) | $ | 13,990 | $ | 6,725 | $ | 23,207 | |||||
Capital expenditures (included in investing activities above) | $ | (4,157) | $ | (2,387) | $ | (10,644) | $ | (6,678) | |||||
Operating Activities. During the three months ended September 30, 2024, we generated approximately $35.2 million in cash from our operating activities. The net cash inflow was comprised of $22.5 million of inflows related to changes in net working capital and $12.6 million of cash inflows from net income, after adjusting for non-cash items. The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Condensed Consolidated Statements of Cash Flows, were primarily driven by a $11.5 million cash inflow related to an increase in our net position of accounts receivable and accounts payable plus accrued liabilities during the period, $9.4 million of cash inflows pursuant to the relative timing and significance of project progression and billings during the period, and a $4.2 million inflow related to a decrease in prepaid expenses and other, partially offset by a $2.1 million decrease in operating lease liabilities and $0.5 million of other outflows.
During the nine months ended September 30, 2024, we used approximately $0.7 million in cash in our operating activities. The net cash outflow was comprised of $20.2 million of outflows related to changes in net working capital, partially offset by $19.5 million of cash inflows from net income, after adjusting for non-cash items. The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Condensed Consolidated Statements of Cash Flows, were primarily driven by a $21.1 million cash outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period, a $6.6 million decrease in operating lease liabilities and $0.7 million of other outflows, partially offset by a $4.9 million inflow related to a decrease in prepaid expenses and $3.3 million of cash inflows pursuant to the relative timing and significance of project progression and billings during the period.
Investing Activities. Capital asset additions and betterments to our fleet were $4.2 million and $2.4 million in the three months ended September 30, 2024 and 2023, respectively. Proceeds from the sale of property and equipment were $1.6 million in the three months ended September 30, 2024, as compared with $0.7 million in the three months ended September 30, 2023.
Capital asset additions and betterments to our fleet were $10.6 million and $6.7 million in the nine months ended September 30, 2024 and 2023, respectively. Proceeds from the sale of property and equipment were $1.9 million in the nine months ended September 30, 2024, as compared with $12.1 million in the nine months ended
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September 30, 2023. Included in the nine months ended September 30, 2023 was $8.1 million of proceeds related to the sale-leaseback of the Port Lavaca South Yard property in Texas.
Financing Activities. During the three months ended September 30, 2024, we had proceeds from an offering of common stock of $27.2 million, borrowings of $10.1 million and repayments of $32.8 million on the White Oak revolving credit line, repayments of $10.0 million on the White Oak term loan, payments on finance lease liabilities of $2.3 million, payments made on failed sale-leaseback arrangements of $0.9 million, $0.4 million of payments related to tax withholding for share-based compensation and repayments of $0.1 million on other debt.
During the nine months ended September 30, 2024, we had proceeds from an offering of common stock of $27.2 million, borrowings and repayments of $39.3 million on the White Oak revolving credit line, repayments of $10.0 million on the White Oak term loan, payments on finance lease liabilities of $6.5 million, payments made on failed sale-leaseback arrangements of $3.2 million, $0.4 million of payments related to tax withholding for share-based compensation, repayments of $0.4 million on other debt, loan costs of $0.4 million and a cash inflow of $0.4 million for proceeds from the exercise of stock options.
Sources of Capital
On May 15, 2023, we entered into a new three-year $103.0 million Credit Agreement with White Oak which includes a $65.0 million asset based revolving credit line and a $38.0 million fixed asset term loan. Please see “Note 9 – Debt” in our unaudited condensed consolidated financial statements for a more detailed description of the Credit Facility.
We were in compliance with all financial covenants under the amended agreement as of September 30, 2024.
Bonding Capacity
We are often required to provide various types of surety bonds that provide additional security to our customers for our performance under certain government and private sector contracts. Our ability to obtain surety bonds depends on our capitalization, working capital, past performance and external factors, including the capacity of the overall surety market. At September 30, 2024, the capacity under our current bonding arrangement was at least $950 million, with approximately $550 million of projects being bonded. While we believe that our current bonding capacity is sufficient to satisfy current demand for our services, any new major project opportunities may require us to seek additional bonding capacity in the future. We believe our balance sheet and working capital position will allow us to access additional bonding capacity as needed in the future.
Effect of Inflation
We are subject to the effects of inflation through increases in the cost of raw materials, and other items such as fuel, concrete and steel. Due to the relative short-term duration of our projects, we are generally able to include anticipated cost increases in the pricing of our bids.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In the normal course of business, our results of operations are subject to risks related to fluctuations in commodity prices and fluctuations in interest rates. Historically, our exposure to foreign currency fluctuations has not been material and has been limited to temporary field accounts located in foreign countries where we perform work. Foreign currency fluctuations were immaterial in this reporting period.
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Commodity price risk
We are subject to fluctuations in commodity prices for concrete, steel products and fuel. Although we routinely attempt to secure firm quotes from our suppliers, we generally do not hedge against increases in prices for commodity products. Commodity price risks may have an impact on our results of operations due to the fixed-price nature of many of our contracts, although the short-term duration of our projects may allow us to include cost increases to the pricing of our bids.
Interest rate risk
At September 30, 2024, we had $28.0 million in outstanding borrowings under our Credit Agreement, with a weighted average ending interest rate of 12.31%. Based on the amounts outstanding under our Credit Agreement as of September 30, 2024, a 100 basis-point increase in SOFR (or an equivalent successor rate) would increase the Company’s annual interest expense by approximately $0.3 million.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As required, the Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2024.
Changes in Internal Control over Financial Reporting
There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended September 30, 2024 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II.OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
For information about litigation involving us, see Note 15 to the condensed consolidated financial statements in Part I of this report, which we incorporate by reference into this Item 1 of Part II.
ITEM 1A.RISK FACTORS
Except as noted below, there have been no material changes to the risk factors previously disclosed in Part I, Item 1A, “Risk Factors”, of our 2023 Form 10-K.
A significant portion of our revenues may be concentrated among a small number of projects.
From time to time in any given period, a significant percentage of our revenues may be attributable to a limited number of contracts, customers or projects. A reduction in scale, a delay in scheduled work, the termination of a material contract, or the loss of a major customer could negatively impact our reputation and could have an adverse effect on our business, our revenue and results of operations. Furthermore, even if the ultimate amount of our contract revenue attributable to a particular project remains the same, delays in scheduled work may impact the timing of the recognition of our contract revenues and profits. In addition, in many cases, we work
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as a subcontractor or among a team of contractors. Our ability to timely execute on our work is often affected by scheduling changes or contract performance by our co-contractors, all of which are outside of our control.
For example, our Pearl Harbor Project for the United States Navy, our portion of which totals $447.6 million, and our design-build contract for the Grand Bahama Shipyard totaling over $100.0 million may concentrate our revenues. To the extent we experience any delays in the Pearl Harbor Project, the Grand Bahama Shipyard or any other significant project, anticipated revenue or profits associated with that project may shift into future periods, which may impact the accuracy of our guidance.
The timing and funding of new contracts may result in volatility in our cash flow and profitability. These factors as well as others that may cause our actual financial results to vary from any publicly disclosed earnings guidance and forecasts are outside of our control.
Our revenues are generated from project-based work. It is generally very difficult to predict the timing and source of awarded contracts, and the timing of revenue under awarded contracts. The selection of, timing of, or failure to obtain projects, delays in awards of projects, the rebidding or termination of projects due to budget overruns, or the cancellations of projects or delays in completion of contracts could result in the under-utilization of our assets and reduce our cash flows and profitability, or cause revenues to be shifted further into the future. Even if we are awarded contracts, we face additional risks that could affect whether, or when, work will begin. For example, some of our contracts are subject to financing and other contingencies that may delay or result in termination of projects. This may make it difficult to match workforce size and equipment location with contract needs. In some cases, we may be required to bear the cost of a readily available workforce and fleet of equipment that is larger than needed at the time, resulting in unpredictability in our cash flow, expenses and profitability. If an expected contract award or the related notice to proceed is delayed or not received, we could incur substantial costs without receipt of any corresponding revenues, or the revenues could appear in periods later than expected. Delays by our customers in obtaining required approvals and permits for their infrastructure projects may delay their awarding contracts for those projects and once awarded, the ability to commence construction under those contracts. Moreover, construction projects for which our services are contracted may require significant expenditures by us prior to receipt of relevant payments by a customer and may expose us to potential credit risk if such customer should encounter financial difficulties. Such expenditures could reduce our cash flows and necessitate increased borrowings under our Credit Agreement. In addition, a change in the timing of a construction project may impact future revenue. If a project is delayed, revenue that we expect to receive may appear in periods later than we initially expected, which may impact the accuracy of our guidance. Finally, the winding down or completion of work on significant projects that were active in previous periods will reduce our revenue and earnings if such significant projects have not been replaced in the current period. From time to time, we may publicly provide earnings or other forms of guidance, which reflect our predictions about future revenue, operating costs and capital structure, among other factors. Any such predictions may be impacted by these factors as well as others that are beyond our control and might not turn out to be accurate.
We may not be able to enter into contracts associated with our pipeline of opportunities, or realize any revenue associated with our pipeline of opportunities.
As of September 30, 2024, we had a pipeline of opportunities of $13.0 billion. We define our pipeline of opportunities as specific projects that we have identified and are tracking as projects of interest.
Our pipeline of opportunities does not represent binding contracts with third parties. Before we can capitalize on our pipeline of opportunities, we would have to enter into contracts with third parties, or otherwise be
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selected to perform services, for the particular project identified in our pipeline of opportunities. We cannot provide any assurance that we will ultimately enter into a contract with a third party or provide services with respect to any particular opportunity. We may be unable to enter into contracts or perform services associated with an opportunity for a variety of reasons, including being outbid, not having the ability to satisfy customer or contract requirements, resource constraints, or bonding requirements. Even if we enter into a contract associated with an opportunity, it may be for a contract amount that is lower than the amount we estimated and included in our pipeline.
Furthermore, even if we are ultimately awarded contracts in our pipeline of opportunities, we cannot guarantee that the revenue associated with those projects will be realized, or if realized, will result in positive earnings. Further, such contracts would become subject to the typical risks associated with our projects, such as execution risk, counter-party risk, delays, cancellations, cost-overruns, weather conditions, natural disasters, health epidemics, and cybersecurity incidents, among others.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no unregistered sales or issuer purchases of equity securities in the period ended September 30, 2024.
ITEM 3.DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
None.
ITEM 6. EXHIBITS
Exhibit |
| Description |
|---|---|---|
Amended and Restated Certificate of Incorporation of Orion Group Holdings, Inc. (incorporated herein by reference to Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed with the Securities and Exchange Commission on August 5, 2016 (File No. 001-33891)). | ||
Amended and Restated Bylaws of Orion Group Holdings, Inc. (incorporated herein by reference to Exhibit 3.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2016, filed with the Securities and Exchange Commission on August 5, 2016 (File No. 001-33891)). | ||
Purchase and Sale Agreement, dated July 2, 2024, by and between a subsidiary of Orion Group Holdings, Inc. and Capital Development Partners Acquisitions, LLC (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 2, 2024 (File No. 001-33891)). |
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Exhibit |
| Description |
|---|---|---|
Amendment No. 4, dated June 28, 2024, to the Loan Agreement dated as of May 15, 2023 among Orion Group Holdings, Inc. and certain of its subsidiaries from time to time party hereto as borrowers, the entities from time to time party hereto, as Lenders, White Oak Commercial Finance, LLC, as Administrative Agent and Collateral Agent (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission on July 2, 2024 (File No. 001-33891)). | ||
Amendment No. 5 dated July 26, 2024, to the Loan Agreement dated as of May 15, 2023 among Orion Group Holdings, Inc. and certain of its subsidiaries from time to time party hereto as borrowers, the entities from time to time party hereto, as Lenders, White Oak Commercial Finance, LLC, as Administrative Agent and Collateral Agent (incorporated herein by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2024, filed with the Securities and Exchange Commission on July 26, 2024 (File No. 001-33891)). | ||
*31.1 | Certification of the Chief Executive Officer Pursuant to Rules 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
*31.2 | Certification of the Chief Financial Officer Pursuant to Rules 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
**32.1 | Certification of the Chief Executive Officer and the Chief Financial Officer pursuant to Title 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
*101.INS | XBRL Instance Document. | |
*101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
*101.CAL | Inline XBRL Extension Calculation Linkbase Document. | |
*101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
*101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
*101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
*104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* Filed herewith
** Furnished herewith
† Management contract or compensatory plan or arrangement
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
ORION GROUP HOLDINGS, INC. | ||
October 31, 2024 | By: | /s/ Travis J. Boone |
Travis J. Boone | ||
October 31, 2024 | By: | /s/ Scott Thanisch |
Scott Thanisch |
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