What changed in this filing

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Item 7. Management’s Discussion and Analysis

2025-03-06 compared with 2024-03-01 · 67 added, 91 removed, 240 unchanged (40% of the section changed)

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Unless the context requires otherwise, when we refer to “we,” “us” and “our,” we are describing Orion Group Holdings, Inc.

and its consolidated subsidiaries.

and its consolidated subsidiaries and affiliates.

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 its marine segment and its concrete segment.

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.

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2024 Recap and 2025 Outlook

In 2023, we recorded revenues of $711.8 million, a decrease of 4.9% as compared with 2022.

In 2024, we recorded revenues of $796.4 million, an increase of 11.9% as compared with 2023.

$521.3 million of total revenue was attributable to our marine segment and the remaining $275.1 million to our concrete segment.

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In addition, we ended 2024 with a consolidated backlog of $729.1 million.

At the end of 2022, management outlined a strategic plan to improve the profitability of the concrete segment, strengthen business development to drive growth, and make investments in critical resources that would help realize the full potential of our business.

During 2023, the concrete segment generated a profit beginning in the third quarter of 2023.

On the business development front, we attracted experienced business development executives including a leader for the new role of corporate growth and strategy, and head of business development in Louisiana.

We invested in training and tools to engage our entire staff in fully understanding our business objectives, and to embrace a growth mindset through collaboration across disciplines.

These were important steps in strengthening our culture, leveraging best practices, driving synergies, and cross-selling capabilities.

In May, we closed a $103 million asset-based lending credit facility which included a term loan of $38 million and a revolving credit facility of up to $65 million.

In addition, we closed $25.8 million in equipment and real estate sale-leaseback transactions in the year.

Looking to 2025, we will continue to execute our strategic plan focused on developing opportunities across the infrastructure, industrial, and building sectors.

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marine infrastructure;

● Navy infrastructure investments;

● Long-term demand from downstream energy-related companies will be driven by larger capital projects, as well as maintenance call-out work;

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Demand for our concrete segment’s services continues, although timing of certain new project releases could be delayed as a result of inflation, interest rates, labor concerns, supply chain delays and macroeconomic impacts.

We currently see long-term demand for our concrete construction services in the Texas building sector as Texas’s major metropolitan areas, and expanding suburbs continue to be leading locations for population and business growth.

We currently see long-term demand for our concrete construction services in the Texas building sector as Texas’s major metropolitan areas,

and expanding suburbs continue to be leading locations 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.

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● Population growth in the state of Texas driven by corporate relocations;

● Continued investment in warehouse/distribution space in our core markets;

● Nearly $7 billion of federal funding provided by the USACE in connection with disaster recovery in Texas;

● Continued investment in warehouse/distribution and data center space in our core markets;

● Geographic expansion outside of Texas;

● Potential opportunities related to the IIJA.

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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 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.

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):

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Concrete segment

We are optimistic in our end-markets and in the opportunities that are emerging across our various marketplaces as evidenced by the $3.0 billion of quoted bids outstanding at quarter end, of which over $121 million resulted in the award of contracts subsequent to the end of the fiscal year ended December 31, 2023.

We are optimistic in our end-markets and in the opportunities that are emerging across our various marketplaces as evidenced by the $1.2 billion of quoted bids outstanding at quarter end.

Of this amount, approximately $248 million was either awarded to us and contracted, or awarded and pending contract, subsequent to December 31, 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.

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Intangible asset impairment loss

Operating loss

Operating income (loss)

Other (expense) income:

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Contract Revenues.

Contract revenues for the year ended December 31, 2024 of $796.4 million increased $84.6 million or 11.9% as compared to $711.8 million in the prior year period.

The increase was primar ily 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 $91.2 million for the year ended December 31, 2024 compared to $61.7 million in the prior year period, an increase of $29.5 million or 47.8%.

Gross profit in the year ended December 31, 2024 was 11.4% of total contract revenues as compared to 8.7% 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 $82.5 million for the year ended December 31, 2024 compared to $69.4 million in the prior year period, an increase of $13.1 million or 18.9%.

As a percentage of total contract revenues, SG&A expenses increased from 9.8% to 10.4%.

The increase in SG&A dollars and percentage reflect 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 year ended December 31, 2024 and 2023 we realized $2.9 million and $8.5 million, respectively, of net gains on disposal of assets.

The year ended December 31, 2023, included a gain of $5.2 million related to the sale-leaseback of our Port Lavaca South Yard property in Texas.

Other Expense, net.

Other expense primarily reflects interest on our borrowings of $13.4 million and $11.7 million in the years ended December 31, 2024 and 2023, respectively, partially offset by interest income and non-operating gains or losses.

Income Tax Expense.

We recorded tax expense of $0.3 million in both the year ended December 31, 2024 and in the prior year period.

Our effective tax rate for the year ended December 31, 2024 was (26.9)%, which differs from the federal statutory rate of 21% primarily due to the tax impact from the valuation allowance for current year activity, the statue expiration of an uncertain tax position, state income taxes and the non-deductibility of other permanent items.

Year ended December 31, 2023 compared with year ended December 31, 2022

Contract Revenues.

Contract revenues for the year ended December 31, 2023 of $711.8 million decreased $36.5 million or 4.9% as compared to $748.3 million in the prior year period.

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Selling, General and Administrative Expenses.

Selling, General and Administrative (“SG&A”) expenses were $69.4 million for the year ended December 31, 2023, compared to $62.5 million in the prior year period, an increase of $6.9 million, or 11.1%.

SG&A expenses were $69.4 million for the year ended December 31, 2023, compared to $62.5 million in the prior year period, an increase of $6.9 million, or 11.1%.

As a percentage of total contract revenues, SG&A expenses increased from 8.4% to 9.8% for the year ended December 31, 2023 and December 31, 2022, respectively.

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The segment had previously operated under its prior name, TAS Concrete Construction, since its acquisition in 2015.

The rebranding reflects a strategic initiative to integrate our different service offerings under one banner to leverage Orion’s brand reputation and

to deliver greater value and seamless execution for our customers.

The rebranding reflects a strategic initiative to integrate our different service offerings under one banner to leverage Orion’s brand reputation and to deliver greater value and seamless execution for our customers.

See Note 8 of the Notes to the Financial Statements in this Form 10-K for a further discussion of the intangible asset impairment loss.

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Our effective tax rate for the year ended December 31, 2023 was (1.9)%, 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.

Year ended December 31, 2022 compared with year ended December 31, 2021

Contract Revenues.

Contract revenues for the year ended December 31, 2022 of $748.3 million increased $146.9 million or 24.4% as compared to $601.4 million in the prior year period.

The increase was primarily driven by the start of large jobs awarded in the second half of 2021 in the marine segment, higher volume in the concrete segment, and the impact from claims and unapproved change orders recognized related to work primarily incurred in previous periods.

Gross Profit.

Gross profit was $50.7 million for the year ended December 31, 2022, compared to $41.0 million in the prior year period, an increase of $9.7 million or 23.9%.

Gross profit in both periods was 6.8% of total contract revenues.

The increase in gross profit dollars was primarily driven by the impact from claims and unapproved change orders recognized related to work primarily incurred in previous periods and the release of discretionary project bonuses.

Selling, General and Administrative Expenses.

SG&A expenses were $62.5 million for the year ended December 31, 2022, compared to $60.2 million in the prior year period, an increase of $2.3 million or 3.9%.

As a percentage of total contract revenues, SG&A expenses decreased from 10.0% to 8.4% 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, partially offset by a decrease in ERP implementation expense.

Gain on Disposal of Assets, net.

During the year ended December 31, 2022 and 2021, we realized $5.0 million and $11.4 million, respectively, of net gains on disposal of assets.

Included in the prior year amount is a net gain of $6.7 million related to the sale of property in Tampa, Florida.

Other Expense, net.

Other expense primarily reflects interest on our borrowings, partially offset by interest income and non-operating gains or losses.

Interest expense for the prior year period included $2.1 million related to the extinguishment of our term loan and related interest rate swaps.

Income Tax Expense.

We recorded tax expense of $0.4 million in the year ended December 31, 2022, compared to tax expense of $0.5 million in the prior year period.

Our effective tax rate for the year ended December 31, 2022 was (3.5)%, 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

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The increase was primarily related to the Pearl Harbor Project.

Operating income for our marine segment for the year ended December 31, 2024 was $2.3 million, compared to $3.7 million for the year ended December 31, 2023, a decrease in operating income of $1.4 million.

Adjusted for the gain on the Port Lavaca South Yard property sale-leaseback in Texas that occurred during the year ended December 31, 2023, operating loss for the year ended December 31, 2023 was $1.5 million.

This $3.8 million increase in operating income was primarily due to margin improvements stemming from higher quality projects and improved execution.

Concrete Segment

Revenues for our concrete segment for the year ended December 31, 2024 were $275.1 million compared to $315.9 million for the year ended December 31, 2023, a decrease of $40.8 million, or 12.9%.

This decrease was primarily due to disciplined bidding standards to win quality work at attractive margins.

Operating income for our concrete segment for the year ended December 31, 2024 was $9.2 million, compared to an operating loss of $10.3 million for the year ended December 31, 2023, an increase of $19.5 million.

This increase was primarily due to winning higher margin jobs due to disciplined bidding standards and improved execution.

Year ended December 31, 2023 compared with year ended December 31, 2022

Marine Segment

Revenues for our marine segment for the year ended December 31, 2023 were $395.9 million compared to $339.2 million for the year ended December 31, 2022, an increase of $56.7 million, or 16.7%.

The increase was primarily related to the Pearl Harbor Project.

Operating income for our marine segment for the year ended December 31, 2023 was $3.7 million, compared to operating income of $9.8 million for the year ended December 31, 2022, a decrease of $6.1 million.

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This decrease in operating loss was primarily due to lower indirect costs due to winding down operations in Central Texas.

Year ended December 31, 2022 compared with year ended December 31, 2021

Marine Segment

Revenues for our marine segment for the year ended December 31, 2022 were $339.2 million compared to $263.9 million for the year ended December 31, 2021, an increase of $75.3 million, or 28.5%.

The increase was primarily driven by the start of large jobs awarded in the second half of 2021 and the impact from claims and unapproved change orders recognized related to work primarily incurred in previous periods.

Operating income for our marine segment for the year ended December 31, 2022 was $9.8 million, compared to operating income of $5.8 million for the year ended December 31, 2021, an increase of $4.0 million.

Excluding the impact of the sale of property in Tampa, Florida in the prior year, operating income was $9.8 million for the year ended December 31, 2022, compared to an operating loss of $0.6 million for the year ended December 31, 2021, an increase of $10.5 million.

This increase in operating income was primarily due to the increase in revenue noted above, the impact from claims and unapproved change orders recognized related to work primarily incurred in previous periods, the gain on the disposal of excess equipment and the release of discretionary project bonuses, partially offset by the increase in SG&A expense noted above.

Concrete Segment

Revenues for our concrete segment for the year ended December 31, 2022 were $409.1 million compared to $337.5 million for the year ended December 31, 2021, an increase of $71.6 million, or 21.2%.

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

Operating loss for our concrete segment for the year ended December 31, 2022 was $17.8 million, compared to $15.1 million for the year ended December 31, 2021, an increase in operating loss of $2.7 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, partially offset by the release of discretionary project bonuses.

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 December 31, 2023, our working capital was $55.9 million, as compared with $31.1 million at December 31, 2022.

At December 31, 2024, our working capital was $78.2 million, as compared to $55.9 million at December 31, 2023.

As of December 31, 2024, we had unrestricted cash on hand of $28.3 million.

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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 $26.4 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.

The following table provides information regarding our cash flows and our capital expenditures for the years ending December 31, 2024, 2023 and 2022:

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Cash flows provided by operating activities

Cash flows provided by (used in) investing activities

Cash flows provided by (used in) financing activities

Cash flows (used in) provided by investing activities

Cash flows (used in) provided by financing activities

Capital expenditures (included in investing activities above)

Operating Activities.

During 2024, we generated approximately $12.7 million from cash in our operating activities.

The net cash inflow is comprised of $34.4 million of cash inflows from net income, after adjusting for non-cash items and $21.7 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 Consolidated Statements of Cash Flows, were primarily driven by $19.6 million of cash outflows pursuant to the relative timing and significance of project progression and billings during the period, a $8.7 million decrease in operating lease liabilities and $0.4 million of other outflows, partially offset by a $7.0 million cash inflow related to an increase in our net position of accounts receivable and accounts payable plus accrued liabilities during the period.

During 2023, we generated approximately $17.2 million in cash from our operating activities.

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The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Consolidated Statements of Cash Flows, were primarily driven by a $4.7 million decrease in operating lease liabilities during the period and a $4.7 million outflow pursuant to the relative timing and significance of project progression and billings during the period, partially offset by a $4.1 million inflow related to an increase in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and $0.1 million of other cash inflows.

During 2021, we generated approximately $0.1 million in cash from our operating activities.

The net cash inflow is comprised of $8.2 million of cash inflows from net income, after adjusting for non-cash items and $8.1 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 Consolidated Statements of Cash Flows, were primarily driven by a $2.4 million outflow pursuant to the relative timing and significance of project progression and billings during the period, a $1.3 million outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and a $4.9 million decrease in operating lease liabilities during the period, partially offset by $0.5 million of other cash inflows.

Investing Activities.

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Financing Activities.

million on the revolving credit line under our new Credit Agreement, proceeds from failed sales-leasebacks of $14.7 million, proceeds of $2.4 million related to the Port Lavaca land sale-leaseback financing, loan costs of $6.5 million, payments on finance lease liabilities of $4.8 million and a cash outflow of $0.5 million for payments related to tax withholdings for share-based compensation.

During the year ended December 31, 2024, we had proceeds from an offering of common stock of $26.4 million, borrowings and repayments of $72.6 million on the White Oak revolving credit line, repayments of $15.0 million on the White Oak term loan, payments on finance lease liabilities of $8.9 million, payments made on failed sale-leaseback arrangements of $5.8 million, $0.5 million of payments related to tax withholding for share-based compensation, repayments of $0.5 million on other debt, loan costs of $0.4 million and a cash inflow of $0.9 million for proceeds from the exercise of stock options.

During the year ended December 31, 2023, we had borrowings of $5.0 million from our prior credit agreement, $38.0 million from the term loan portion of our new Credit Agreement and borrowings of $64.0 million on the revolving credit line under our new Credit Agreement, repayments of $40.0 million on our prior credit agreement, repayments of $64.0 million on the revolving credit line under our new Credit Agreement, proceeds from failed sales-leasebacks of $14.7 million, proceeds of $2.4 million related to the Port Lavaca land sale-leaseback financing, loan costs of $6.5 million, payments on finance lease liabilities of $4.8 million and a cash outflow of $0.5 million for payments related to tax withholdings for share-based compensation.

During the year ended December 31, 2022, we drew down $24.0 million from our revolving line of credit under our prior credit agreement.

During the year ended December 31, 2022, we repaid $28.0 million on our revolving line of credit under our prior credit agreement, had payments of $3.0 million on finance lease liabilities and incurred $0.7 million of loan costs related to the ninth amendment to our prior credit agreement.

During the year ended December 31, 2021, we drew down $53.0 million from our revolving line of credit under our prior credit agreement.

During the year ended December 31, 2021, we repaid $19.0 million on our revolving line of credit under our prior credit agreement.

During the year ended December 31, 2021, we fully extinguished the term loan portion of our prior credit agreement, in part using proceeds from the sale of property in Tampa, Florida.

Concurrent with extinguishing the term loan, we canceled the remaining open position on our interest rate swap, resulting in a $1.3 million loss on the mark to market value of the swap at the date of termination.

The $1.3 million was paid to the counterparty, cleared from the balance sheet as an interest rate swap liability, removed from Other Comprehensive Income and charged to interest expense during the year ended December 31, 2021.

Further, the remaining $0.8 million of unamortized deferred debt issuance costs were charged to interest expense related to the early extinguishment of the term loan.

There were no penalties incurred related to early payment of the term loan.

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 s ee Note 10 of the Notes to the Financial Statements for further discussion.

Please s ee Note 10 of the Notes to the Consolidated Financial Statements for further discussion.

Amendment No.

6 to the Credit Agreement

Please see “Note 21 – Subsequent Event” in our audited consolidated financial statements for a detailed description of Amendment No.

6 to the Credit Agreement.

Bonding Capacity

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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 December 31, 2023, the capacity under our current bonding arrangement was at least $750 million, with approximately $575 million of projects being bonded.

At December 31, 2024, the capacity under our current bonding arrangement was at least $1.1 billion, with approximately $588 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.

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● Income Taxes.

● Insurance Coverage, Litigation, Claims and Contingencies.

Revenue Recognition

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Fixed assets are carried at cost and are depreciated over their estimated useful lives, ranging from one to 30 years, using the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes.

The carrying value of our long-lived assets is

evaluated periodically based on utilization of the asset and physical condition of the asset, as well as the useful life of the asset to determine if adjustment to the depreciation period or the carrying value is warranted.

The carrying value of our long-lived assets is evaluated periodically based on utilization of the asset and physical condition of the asset, as well as the useful life of the

asset to determine if adjustment to the depreciation period or the carrying value is warranted.

If events and circumstances such as poor utilization or deteriorated physical condition indicate that the asset(s) should be reviewed for possible impairment, we use projections to assess whether future cash flows, including disposition, on a non-discounted basis related to the tested assets are likely to exceed the recorded carrying amount of those assets to determine if an impairment exists.

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We evaluate and record any uncertain tax positions based on the amount that management deems is more likely than not to be sustained upon ultimate settlement with the tax authorities in the tax jurisdictions in which we operate.

Insurance Coverage, Litigation, Claims and Contingencies

We maintain insurance coverage for our 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 our workers’ compensation exposure is covered through a mutual association, which is subject to supplemental calls.

The marine segment maintains five levels of excess loss insurance coverage, totaling $300 million in excess of primary coverage.

This excess loss coverage responds to most of its liability policies when a primary limit of $1 million has been exhausted;

provided that the primary limit for Contingent Maritime Employer’s Liability is $10 million and the Watercraft Pollution Policy primary limit is $5 million.

The concrete segment maintains five levels of excess loss insurance coverage,

totaling $300 million in excess of primary coverage.

This excess loss coverage responds to most of its liability policies when a primary limit of $1 million has been exhausted.

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 Results of Operations in the period in which they become known.

The Company’s concrete segment employee health care is provided through two policies.

A fully funded policy is offered primarily to salaried employees and their dependents while a partially self-funded plan with an appropriate stop-loss is offered primarily to hourly employees and their dependents.

The self-funded plan is funded to the maximum exposure and, as a result, is expected to receive a partial refund after the policy expiration.

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-K

Item 7. Management’s Discussion and Analysis