What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-07-29 compared with 2022-04-29 · 125 added, 59 removed, 161 unchanged (53% of the section changed)

1 unchanged sentence

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

Unless the context otherwise indicates, all references in this quarterly report to “Orion,” “the Company,” “we,” “our,” or “us” are to Orion Group Holdings, Inc.

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 .

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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 fiscal 2021 audited consolidated financial statements and notes thereto included in our 2021 Form 10-K, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2021 Form 10-K and with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this quarterly report.

Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the “Company”), provides a broad range of specialty construction services in the infrastructure, industrial and building sectors of the continental United States, Alaska, and the Caribbean Basin.

The Company’s marine segment services the

infrastructure sector through marine transportation facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services.

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 2021 Form 10-K, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2021 Form 10-K and with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q.

Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the “Company”), provides a broad range of specialty construction services in the infrastructure, industrial and building sectors throughout the continental United States, Alaska, and the Caribbean Basin.

The Company’s marine segment

services the infrastructure sector through marine transportation facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services.

Its concrete segment services the building sector by providing turnkey concrete construction services including pour and finish, dirt work, layout, forming, rebar, and mesh across the light commercial structural and other associated business areas.

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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.

First Quarter 2022 Recap and 2022 Outlook

In the quarter ended March 31, 2022, we recorded revenues of $174.9 million, of which $84.5 million was attributable to our marine segment and the remaining $90.4 million to our concrete segment.

Second Quarter 2022 Recap and 2022 Outlook

In the quarter ended June 30, 2022, we recorded revenues of $194.6 million, of which $82.3 million was attributable to our marine segment and the remaining $112.3 million to our concrete segment.

In addition, we ended the quarter with a consolidated backlog of $603.2 million.

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The spread of COVID-19 has impacted the global economy, leaving supply chains disrupted.

The use of business practices like “social distancing” and “stay at home orders” to slow and stop the spread of COVID-19, led to increased unemployment and to the weakening of consumer confidence.

continue to see disruptions to our operations as variants of the COVID-19 virus have caused increases in absenteeism rates among our workforce.

Further, any delays in the timing of future awards could create gaps in the Company’s project delivery schedule across quarterly periods.

Federal and State governments have increased spending as part of efforts to mitigate the impact of COVID-19 on the economy.

The amount and timing of such spending will be directly impacted by the duration of required efforts to contain COVID-19 and the severity of the negative impacts created by the virus and its effect on the economy.

Although to date the Company hasn’t experienced materially negative impacts from COVID-19, such as widespread project stoppage/cancelations or a slowdown/stoppage of accounts receivables collections, we have had and may continue to see disruptions to our operations as variants of the COVID-19 virus have caused increases in absenteeism rates among our workforce and other impacts to supply chains and labor markets.

Marine Segment

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In the long-term, we see positive trends in demand for our services in our end markets, including:

● Continuing need to repair and improve degrading U.

● Continuing need to repair and improve degrading U.S.

marine infrastructure;

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We currently see long-term demand for our concrete construction services in the Texas building sector as Texas’ four major metropolitan areas, and expanding suburbs, continuously retain their positions as leading destinations for population and business growth.

Population growth throughout our markets continues to drive new distribution centers, education facilities, office expansion, retail and grocery establishments, new multi-family housing units, and structural towers for business, residential or mixed-use purposes.

Population growth throughout our markets continues to drive new distribution centers, education facilities, office expansion, retail and grocery establishments, new multi-

family housing units, and structural towers for business, residential or mixed-use purposes.

The diversified Texas economy provides us with multiple sources of bid opportunities.

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Backlog as of the periods ended below are as follows (in millions):

June 30, 2022

March 31, 2022

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June 30, 2021

March 31, 2021

Marine segment

Concrete segment

The increase in backlog during the quarter is primarily driven by new jobs we won.

The increase in backlog was primarily driven by new jobs we won.

The now ended general trend of declining backlog through June 2021 was due in significant part to headwinds created by the COVID-19 pandemic in certain end market sectors, which slowed the timing of project awards.

Backlog has since increased significantly and we are optimistic in our end-markets and in the opportunities that are emerging across our various marketplaces as evidenced by the $2.1 billion of quoted bids outstanding at quarter end, of which $112 million we are the apparent low bidder on or have been awarded contracts subsequent to the end of the fiscal quarter ended March 31, 2022.

Backlog has since increased significantly and we are optimistic in our end-markets and in the opportunities that are emerging across our various marketplaces as evidenced by the $2.5 billion of quoted bids outstanding at quarter end, of which $153 million we are the apparent low bidder on or have been awarded contracts subsequent to the end of the fiscal quarter ended June 30, 2022.

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.

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Delays in decisions on pending awards also have a negative impact on the timing and amount by which we are able to increase backlog.

Three months ended March 31, 2022, compared with three months ended March 31, 2021.

Three months ended March 31,

Three months ended June 30, 2022, compared with three months ended June 30, 2021.

Three months ended June 30,

(dollar amounts in thousands)

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(Loss) income before income tax expense

Income tax expense

Income tax benefit

Net (loss) income

Contract Revenues.

Contract revenues for the three months ended March 31, 2022 of $174.9 million increased $21.6 million or 14.1% as compared to $153.3 million in the prior year period.

The increase was primarily driven by the start up on large jobs awarded in the second half of 2021 in the marine segment and increased cubic yard production on light commercial projects in the concrete segment.

Contract revenues for the three months ended June 30, 2022 of $194.6 million increased $48.7 million or 33.4% as compared to $145.9 million in the prior year period.

The increase was primarily driven by higher volume in the concrete segment and the start up on large jobs awarded in the second half of 2021 in the marine segment.

Gross Profit.

Gross profit was $12.8 million for the three months ended March 31, 2022, compared to $15.5 million in the prior year period, a decrease of $2.7 million or 17.1%.

Gross profit in the first quarter was 7.3% of total contract revenues as compared to 10.1% in the prior year period.

The decrease in gross profit dollars and percentage was primarily driven by write-downs in the concrete segment as a result of project conditions, reduced dredging volume in the current quarter and a change in the mix of work in the current period.

Gross profit was $14.3 million for the three months ended June 30, 2022, compared to $12.3 million in the prior year period, an increase of $2.0 million or 16.5%.

Gross profit in the second quarter was 7.4% of total contract revenues as compared to 8.4% in the prior year period.

The increase in gross profit dollars was primarily driven by efficiencies in equipment and labor utilization and a change in the mix of work in the marine segment in the current period, partially offset by unabsorbed indirect expenses in the concrete segment.

The decrease in gross profit percentage was primarily driven by additional costs in the concrete segment as a result of project performance and conditions and a change in the mix of work in the current period partially offset by the impact from change orders recognized related to work primarily recognized in previous periods.

Selling, General and Administrative Expense.

Selling, general and administrative ("SG&A") expenses were $16.2 million for the three months ended March 31, 2022 compared to $14.6 million in the prior year period, an increase of $1.6 million or 10.5%.

Selling, general and administrative ("SG&A") expenses were $17.2 million for the three months ended June 30, 2022 compared to $13.7 million in the prior year period, an increase of $3.5 million or 25.7%.

As a percentage of total contract revenues, SG&A expenses decreased from 9.3% to 8.9%, primarily due to higher revenues in the current period.

The increase in SG&A dollars was driven primarily by additional consulting fees related to the management transition and additional property taxes, partially offset by reduced bonus expense.

The increase in SG&A dollars was driven primarily by severance, consulting fees related to the management transition, property tax true-ups in the current year period and as a result of a true-up reducing bonus expense in the prior year period.

Gain on Disposal of Assets, net.

During the three months ended March 31, 2022 and 2021, we realized $0.8 million and $1.6 million, respectively, of net gains on disposal of assets.

During the three months ended June 30, 2022 and 2021, we realized $0.4 million and $7.4 million, respectively, of net gains on disposal of assets.

Included in the prior year amount is a net gain of $6.8 million related to the sale of property in Tampa, Florida.

See Note 6 – Property and Equipment in this Quarterly Report on Form 10-Q for a further description of the sale of the property.

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.

We recorded tax expense of $1.3 million in the three months ended March 31, 2022, compared to tax expense of $0.2 million in the prior year period.

Our effective tax rate for the three months ended March 31, 2022 was (37.5)%, which differs from the federal statutory rate of 21% primarily due to the movement in the valuation allowance for current year activity, state income taxes and the non-deductibility of other permanent items.

Income Tax Benefit.

We recorded tax benefit of $0.7 million in the three months ended June 30, 2022, compared to tax benefit of $0.8 million in the prior year period.

Our effective tax rate for the three months ended June 30, 2022 was 18.2%, which differs from the federal statutory rate of 21% primarily due to the tax impact from the valuation allowance for current year activity, state income taxes and the non-deductibility of other permanent items.

Six months ended June 30, 2022, compared with six months ended June 30, 2021.

Six months ended June 30,

(dollar amounts in thousands)

Contract revenues

Cost of contract revenues

Selling, general and administrative expenses

Amortization of intangible assets

Gain on disposal of assets, net

Operating (loss) income

Other (expense) income:

Interest income

Interest expense

Other expense, net

(Loss) income before income tax expense

Income tax expense (benefit)

Net (loss) income

Contract Revenues.

Contract revenues for the six months ended June 30, 2022 of $369.5 million increased $70.3 million or 23.5% as compared to $299.2 million in the prior year period.

The increase was primarily driven by the start up on large jobs awarded in the second half of 2021 in the marine segment and higher volume in the concrete segment.

Gross Profit.

Gross profit was $27.1 million for the six months ended June 30, 2022, compared to $27.8 million in the prior year period, a decrease of $0.7 million or 2.2%.

Gross profit in the period was 7.3% of total contract revenues as compared to 9.3% in the prior year period.

The decrease in gross profit dollars and percentage was primarily driven by additional costs in the concrete segment as a result of project performance and conditions and a change in the mix of work in the current period partially offset by the impact from change orders recognized related to work primarily recognized in previous periods.

Selling, General and Administrative Expense.

SG&A expenses were $33.4 million for the six months ended June 30, 2022 compared to $28.3 million in the prior year period, an increase of $5.1 million or 17.8%.

As a percentage of total contract revenues, SG&A expenses decreased from 9.5% to 8.9%, primarily due to higher revenues in the current period.

The increase in SG&A dollars was driven primarily by severance, consulting fees related to the management transition and property tax true-ups in the current year period.

Gain on Disposal of Assets, net.

During the six months ended June 30, 2022 and 2021, we realized $1.2 million and $9.0 million, respectively, of net gains on disposal of assets.

Included in the prior year amount is a net gain of $6.8 million related to the sale of property in Tampa, Florida.

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 $0.6 million in the six months ended June 30, 2022, compared to tax benefit of $0.7 million in the prior year period.

Our effective tax rate for the six months ended June 30, 2022 was (8.8)%, which differs from the federal statutory rate of 21% primarily due to the tax impact from the valuation allowance for current year activity, state income taxes and the non-deductibility of other permanent items.

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 (loss) income as a percentage of segment revenues.

In connection with the preparation of the financial statements for the quarter ended June 30, 2021, the Company has identified and corrected certain immaterial errors in segment reporting for all periods presented.

Specifically, certain corporate overhead costs previously recorded to the marine segment as part of operating income (loss) and allocated from the marine segment to the concrete segment below operating income in the other income (expense) line have been allocated from the marine segment to the concrete segment as part of the determination of operating income for each segment.

These corrections resulted in an offsetting change in operating income (loss) for each segment of $2.9 million for the three months ended March 31, 2021.

Three months ended March 31, 2022 compared with three months ended March 31, 2021.

Three months ended March 31,

Three months ended June 30, 2022 compared with three months ended June 30, 2021.

Three months ended June 30,

(dollar amounts in thousands)

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Marine Segment

Revenues for our marine segment for the three months ended March 31, 2022 were $84.5 million compared to $72.1 million for the three months ended March 31, 2021, an increase of $12.4 million, or 17.1%.

Revenues for our marine segment for the three months ended June 30, 2022 were $82.3 million compared to $63.9 million for the three months ended June 30, 2021, an increase of $18.4 million, or 28.7%.

The increase was primarily driven by the start up on large jobs awarded in the second half of 2021.

Operating income for our marine segment for the three months ended March 31, 2022 was $1.8 million, compared to operating income of $2.8 million for the three months ended March 31, 2021, a decrease of $1.0 million.

This decrease in operating income was primarily due to the decrease in gross profit margin noted above and the increase in selling, general and administrative expense noted above.

Operating income for our marine segment for the three months ended June 30, 2022 was $2.5 million, compared to operating income of $8.6 million for the three months ended June 30, 2021, a decrease of $6.1 million.

Excluding the impact of the sale of property in Tampa, Florida in the prior year period operating income was $2.5 million, compared to operating income of $1.8 million for the three months ended June 30, 2021, an increase of $0.7 million, or 36.8%.

This increase in operating income was primarily due to the increase in revenue noted above, partially offset by the increase in SG&A expense noted above.

Concrete Segment

Revenues for our concrete segment for the three months ended March 31, 2022 were $90.4 million compared to $81.2 million for the three months ended March 31, 2021, an increase of $9.2 million, or 11.4%.

Revenues for our concrete segment for the three months ended June 30, 2022 were $112.3 million compared to $81.9 million for the three months ended June 30, 2021, an increase of $30.4 million, or 37.0%.

This increase was primarily driven by increased cubic yard production in light commercial projects.

Operating loss for our concrete segment for the three months ended March 31, 2022 was $4.7 million, compared to $0.8 million for the three months ended March 31, 2021, a decrease of $3.9 million.

This decrease in operating income was primarily due to the decline in project profits due to write-downs on several projects in addition to unabsorbed indirect expenses related to additional project management labor expense.

Operating loss for our concrete segment for the three months ended June 30, 2022 was $5.4 million, compared to $3.0 million for the three months ended June 30, 2021, an increase of $2.4 million.

This increase in operating loss was primarily due to the decline in project profits due to write-downs on several projects in addition to unabsorbed indirect expenses related to additional project management labor expense.

Six months ended June 30, 2022 compared with six months ended June 30, 2021.

Six months ended June 30,

(dollar amounts in thousands)

Contract revenues

Marine segment

Public sector

Private sector

Marine segment total

Concrete segment

Public sector

Private sector

Concrete segment total

Operating income (loss)

Marine segment

Concrete segment

Marine Segment

Revenues for our marine segment for the six months ended June 30, 2022 were $166.8 million compared to $136.1 million for the six months ended June 30, 2021, an increase of $30.7 million, or 22.6%.

The increase was primarily driven by the start up on large jobs awarded in the second half of 2021.

Operating income for our marine segment for the six months ended June 30, 2022 was $4.4 million, compared to operating income of $11.5 million for the six months ended June 30, 2021, a decrease of $7.1 million.

Excluding the impact of the sale of property in Tampa, Florida in the prior year period operating income was $4.4 million, compared to operating income of $4.7 million for the six months ended June 30, 2021, a decrease of $0.3 million, or 7.1%.

This decrease in operating income was primarily due to the decrease in gross profit margin noted above and the increase in SG&A expense noted above.

Concrete Segment

Revenues for our concrete segment for the six months ended June 30, 2022 were $202.7 million compared to $163.1 million for the six months ended June 30, 2021, an increase of $39.6 million, or 24.3%.

This increase was primarily driven by increased cubic yard production in light commercial projects.

Operating loss for our concrete segment for the six months ended June 30, 2022 was $10.1 million, compared to $3.8 million for the six months ended June 30, 2021, an increase of $6.3 million.

Liquidity and Capital Resources

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Changes in working capital are normal within our business given the varying mix in size, scope and timing of delivery of our projects.

At March 31, 2022, our working capital was $32.7 million, as compared with $36.2 million at December 31, 2021.

As of March 31, 2022, we had unrestricted cash on hand of $6.7 million.

Our borrowing capacity at March 31, 2022 was approximately $13.4 million.

At June 30, 2022, our working capital was $30.7 million, as compared with $36.2 million at December 31, 2021.

As of June 30, 2022, we had unrestricted cash on hand of $8.1 million.

Our borrowing capacity at June 30, 2022 was approximately $8.4 million.

Ninth Amendment to Revolving Credit Facility

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We expect to meet our future internal liquidity and working capital needs and maintain or replace our equipment fleet through capital expenditure purchases, leases and major repairs, from funds generated by our operating activities for at least the next 12 months.

Although our line of credit is reduced, we believe our cash position and available credit is adequate for our general business requirements discussed above and to service our debt.

The following table provides information regarding our cash flows and our capital expenditures for the three and months ended March 31, 2022 and 2021:

Although our line of credit is reduced, we believe our forecasted cash position and available credit, including our ability to access liquidity beyond the maturing

date of the Credit Agreement, is adequate for our general business requirements discussed above, to service our debt, and to maintain compliance with our financial covenants.

The following table provides information regarding our cash flows and our capital expenditures for the three and six months ended June 30, 2022 and 2021:

Three months ended

Six months ended

Net (loss) income

Adjustments to remove non-cash and non-operating items

Cash flow from net income after adjusting for non-cash and non-operating items

Cash flow from net (loss) income after adjusting for non-cash and non-operating items

Change in operating assets and liabilities (working capital)

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Cash flows (used in) provided by investing activities

Cash flows used in financing activities

Cash flows provided by (used in) financing activities

Capital expenditures (included in investing activities above)

Operating Activities.

During the three months ended March 31, 2022, we generated approximately $10.1 million in cash from our operating activities.

During the three months ended June 30, 2022, we generated approximately $1.6 million in cash from our operating activities.

The net cash inflow is comprised of $5.0 million of cash inflows from net loss, after adjusting for non-cash items, partially offset by $3.4 million of cash outflows related to changes in net working capital.

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 $7.3 million outflow pursuant to the relative timing and significance of project progression and billings during the period and a $1.1 million decrease in operating lease liabilities, partially offset by a $4.2 million inflow related to an increase in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and $0.8 million of inflows from the decrease in prepaid expenses and other assets.

During the six months ended June 30, 2022, we generated approximately $11.7 million in cash from our operating activities.

The net cash inflow is comprised of $7.2 million of cash inflows from net loss, after adjusting for non-cash items and $4.5 million of cash inflows related to changes in net working capital.

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 $9.7 million inflow pursuant to the relative timing and significance of project progression and billings during the period, $2.5 million of inflows from the decrease in prepaid expense and other assets and $1.2 million of other inflows, partially offset by a $4.3 million outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and a $1.2 million decrease in operating lease liabilities.

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 $4.5 million of inflows from the decrease in prepaid expenses and other assets and by a $2.4 million inflow pursuant to the relative timing and significance of project progression and billings during the period, partially offset by a $2.3 million decrease in operating lease liabilities and a $0.1 million outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period.

Investing Activities.

Capital asset additions and betterments to our fleet were $3.5 million in the three months ended March 31, 2022, as compared with $1.6 million in the three months ended March 31, 2021.

Proceeds from the sale of property and equipment were $0.7 in the three months ended March 31, 2022, as compared with $2.0 million in the three months ended March 31, 2021.

Capital asset additions and betterments to our fleet were $4.5 million in the three months ended June 30, 2022, as compared with $3.1 million in the three months ended June 30, 2021.

Proceeds from the sale of property and equipment were $0.3 in the three months ended June 30, 2022, as compared with $22.8 million in the three months ended June 30, 2021.

Capital asset additions and betterments to our fleet were $8.0 million in the six months ended June 30, 2022, as compared with $4.7 million in the six months ended June 30, 2021.

Proceeds from the sale of property and equipment were $1.0 in the six months ended June 30, 2022, as compared with $24.7 million in the six months ended June 30, 2021.

The decrease in proceeds from the sale of property and equipment for the three and six months ended June 30, 2022 is primarily related to the sale of our property in Tampa, Florida in the prior year period.

Financing Activities.

During the three months ended March 31, 2021, we repaid $11.6 million on our revolving line of credit, had payments of $0.6 million on finance lease liabilities and incurred $0.5 million of loan costs related to the Ninth Amendment of the Credit Facility.

During the three months ended June 30, 2022, we had borrowings of $5.0 million on our revolving line of credit, had payments of $0.8 million on finance lease liabilities and incurred $0.1 million of loan costs related to the Ninth Amendment of the Credit Facility.

During the six months ended June 30, 2022 we had borrowings of $5.0 million and payments of $11.6 million on our revolving line of credit, had payments of $1.5 million on finance lease liabilities and incurred $0.6 million of loan costs related to the Ninth Amendment of the Credit Facility.

Sources of Capital

As of March 31, 2022, our available sources of capital consist of borrowing availability on our revolving line of credit of $13.4 million pursuant to our Credit Facility.

As of June 30, 2022, our available sources of capital consist of cash flows from operations and borrowing availability on our revolving line of credit of $8.4 million pursuant to our Credit Facility.

Financial covenants

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• Consolidated EBITDA minimum of:

- Fiscal Quarter Ending March 31, 2022 - $2.6 million

- Fiscal Quarter Ending June 30, 2022 - $7.7 million on a year-to-date basis

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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 March 31, 2022, the capacity under our current bonding arrangement was at least $750 million, with approximately $235 million of projects being bonded.

We believe our strong balance sheet and working capital position will allow us to continue to access our bonding capacity.

At June 30, 2022, the capacity under our current bonding arrangement was at least $750 million, with approximately $200 million of projects being bonded.

We believe our balance sheet and working capital position will allow us to continue to access our bonding capacity.

Effect of Inflation

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis