Orion Group Holdings Inc 10-Q

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 , and the general economic impact of tariffs and trade wars. 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, 2024 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 2024 Form 10-K, Part II, Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations included in our 2024 Form 10-K and with our unaudited condensed consolidated financial statements and related notes appearing elsewhere in this Quarterly Report on Form 10-Q. Overview Orion Group Holdings, Inc. and its subsidiaries (hereafter collectively referred to as the “Company”), is a leading specialty construction company serving the infrastructure, industrial, and building sectors, providing 22 ​ Table of Contents 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, dredging and specialty services. 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. 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. ​ 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 23 ​ Table of Contents 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. Backlog as of the periods ended below are as follows (in millions): ​ ​ ​ ​ ​ ​ ​ ​ ​ June 30, 2025 December 31, 2024 Marine segment ​ $ 554.8 ​ $ 582.8 Concrete segment ​ 190.9 ​ 146.3 Consolidated ​ $ 745.7 ​ $ 729.1 ​ 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. Income Statement Comparisons Three months ended June 30, 2025 compared with three months ended June 30, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ 2025 2024 ​ Amount Amount ​ ​ (dollar amounts in thousands) Contract revenues ​ $ 205,286 $ 192,167 Cost of contract revenues ​ 179,489 173,886 Gross profit ​ 25,797 18,281 Selling, general and administrative expenses ​ 22,774 21,135 Gain on disposal of assets, net ​ ​ (409) ​ ​ (86) Operating income (loss) ​ 3,432 (2,768) Other (expense) income: ​ Interest expense ​ (2,920) (3,345) Other income ​ 117 127 Other expense, net ​ (2,803) (3,218) Income (loss) before income taxes ​ 629 (5,986) Income tax (benefit) expense ​ (212) 617 Net income (loss) ​ $ 841 $ (6,603) ​ Contract Revenues. Contract revenues for the three months ended June 30, 2025 of $205.3 million increased $13.1 million, or 6.8%, as compared to $192.2 million in the prior year period. The increase was primarily due to new awards and higher volume across the marine and concrete segments. Gross Profit. Gross profit was $25.8 million for the three months ended June 30, 2025 compared to $18.3 million in the prior year period, an increase of $7.5 million, or 41.1%. The increase in gross profit was primarily driven by increased revenue, improvement in marine projects, and reduced indirect expenses, partially offset by favorable concrete project close-outs in 2024 that did not reoccur in 2025. Selling, General and Administrative Expense. Selling, general and administrative (“SG&A”) expenses were $22.8 million for the three months ended June 30, 2025 compared to $21.1 million in the prior year period, an increase of $1.7 million or 7.8%. The increase in SG&A was primarily due to increased spending to support business growth. ​ 24 ​ Table of Contents Gain on Disposal of Assets, net. During the three months ended June 30, 2025 and 2024 we realized $0.4 million and $0.1 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 (Benefit) Expense. We recorded a tax benefit of $0.2 million in the three months ended June 30, 2025, compared to a tax expense of $0.6 million in the prior year period. Our effective tax rate for the three months ended June 30, 2025 differs from the federal statutory rate 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, 2025 compared with six months ended June 30, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ 2025 2024 ​ Amount Amount ​ ​ (dollar amounts in thousands) Contract revenues ​ $ 393,939 $ 352,839 Cost of contract revenues ​ 345,127 319,020 Gross profit ​ 48,812 33,819 Selling, general and administrative expenses ​ 45,319 40,134 Gain on disposal of assets, net ​ ​ (772) ​ ​ (423) Operating income (loss) from operations ​ 4,265 (5,892) Other (expense) income: ​ Interest expense ​ (5,254) (6,719) Other income ​ 344 216 Other expense, net ​ (4,910) (6,503) Loss before income taxes ​ (645) (12,395) Income tax (benefit) expense ​ (72) 265 Net loss ​ $ (573) $ (12,660) ​ Contract Revenues. Contract revenues for the six months ended June 30, 2025 of $393.9 million increased $41.1 million or 11.6% as compared to $352.8 million in the prior year period. The increase was primarily due to new awards and higher volume across the marine and concrete segments. Gross Profit. Gross profit was $48.8 million for the six months ended June 30, 2025 compared to $33.8 million in the prior year period, an increase of $15.0 million, or 44.3%. The increase in gross profit was primarily driven by increased revenue, improvement in marine projects, and reduced indirect expenses, partially offset by favorable concrete project close-outs in 2024 that did not reoccur in 2025. ​ Selling, General and Administrative Expense. SG&A expenses were $45.3 million for the six months ended June 30, 2025 compared to $40.1 million in the prior year period, an increase of $5.2 million, or 12.9%. The increase in SG&A was primarily due to increased spending to support business growth. ​ Gain on Disposal of Assets, net. During the six months ended June 30, 2025 and 2024 we realized $0.8 million and $0.4 million, respectively, of net gains on disposal of assets. 25 ​ Table of Contents 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 (Benefit) Expense. We recorded a tax benefit of $0.1 million in the six months ended June 30, 2025, compared to a tax expense of $0.3 million in the prior year period. Our effective tax rate for the six months ended June 30, 2025 differs from the federal statutory rate 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 income (loss) as a percentage of segment revenues. Three months ended June 30, 2025 compared with three months ended June 30, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ Three Months Ended June 30, ​ ​ 2025 2024 ​ Amount Amount ​ ​ (dollar amounts in thousands) Contract revenues ​ ​ ​ ​ ​ ​ Marine segment ​ ​ ​ ​ ​ Public sector ​ $ 107,243 ​ $ 103,341 Private sector ​ ​ 28,059 ​ ​ 27,612 Marine segment total ​ $ 135,302 ​ $ 130,953 Concrete segment ​ ​ ​ ​ ​ Public sector ​ $ 11,635 ​ $ 6,025 Private sector ​ ​ 58,349 ​ ​ 55,189 Concrete segment total ​ $ 69,984 ​ $ 61,214 Total ​ $ 205,286 $ 192,167 ​ ​ ​ ​ ​ ​ ​ Operating income (loss) ​ Marine segment ​ $ 6,230 $ (5,466) Concrete segment ​ (2,798) 2,698 Total ​ $ 3,432 ​ $ (2,768) ​ Marine Segment Revenues for our marine segment for the three months ended June 30, 2025 were $135.3 million compared to $131.0 million for the three months ended June 31, 2024, an increase of $4.3 million, or 3.3%. The increase was primarily due to new awards and higher volume on our marine construction contracts. Operating income for our marine segment for the three months ended June 30, 2025 was $6.2 million, compared to an operating loss of $5.5 million for the three months ended June 30, 2024, an increase of $11.7 million. The increase in gross profit was primarily driven by increased revenue, reduced indirect expenses, and project delays in 2024 that did not reoccur in 2025 . 26 ​ Table of Contents Concrete Segment Revenues for our concrete segment for the three months ended June 30, 2025 were $70.0 million compared to $61.2 million for the three months ended June 30, 2024, an increase of $8.8 million, or 14.3%. This increase was primarily due to new awards and higher volume on our concrete contracts. Operating loss for our concrete segment for the three months ended June 30, 2025 was $2.8 million, compared to operating income of $2.7 million for the three months ended March 31, 2024, a decrease of $5.5 million. This decrease was primarily driven by favorable concrete project close-outs in 2024 that did not reoccur in 2025. Six months ended June 30, 2025 compared with six months ended June 30, 2024. ​ ​ ​ ​ ​ ​ ​ ​ ​ Six Months Ended June 30, ​ ​ 2025 2024 ​ Amount Amount ​ ​ (dollar amounts in thousands) Contract revenues ​ ​ ​ ​ ​ ​ Marine segment ​ ​ ​ ​ ​ Public sector ​ $ 207,464 ​ $ 196,276 Private sector ​ ​ 55,001 ​ ​ 41,002 Marine segment total ​ $ 262,465 ​ $ 237,278 Concrete segment ​ ​ ​ ​ ​ Public sector ​ $ 19,296 ​ $ 9,429 Private sector ​ ​ 112,178 ​ ​ 106,132 Concrete segment total ​ $ 131,474 ​ $ 115,561 Total ​ $ 393,939 $ 352,839 ​ ​ ​ ​ ​ ​ ​ Operating income (loss) ​ Marine segment ​ $ 11,008 $ (10,333) Concrete segment ​ (6,743) 4,441 Total ​ $ 4,265 ​ $ (5,892) ​ Marine Segment Revenues for our marine segment for the six months ended June 30, 2025 were $262.5 million compared to $237.3 million for the six months ended June 30, 2024, an increase of $25.2 million, or 10.6%. The increase was primarily due to new awards and higher volume on our marine construction contracts. Operating income for our marine segment for the six months ended June 30, 2025 was $11.0 million, compared to an operating loss of $10.3 million for the six months ended June 30, 2024, an increase of $21.3 million. The increase in gross profit was primarily driven by increased revenue, reduced indirect expenses, and project delays in 2024 that did not reoccur in 2025 . Concrete Segment Revenues for our concrete segment for the six months ended June 30, 2025 were $131.5 million compared to $115.6 million for the six months ended June 30, 2024, an increase of $15.9 million, or 13.8%. This increase was primarily due to new awards and higher volume on our concrete contracts. 27 ​ Table of Contents Operating loss for our concrete segment for the six months ended June 30, 2025 was $6.7 million, compared to operating income of $4.4 million for the six months ended June 30, 2024, a decrease of $11.1 million. This decrease was primarily driven by favorable concrete project close-outs in 2024 that did not reoccur in 2025. 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 June 30, 2025, our working capital was $76.9 million, as compared to $78.2 million at December 31, 2024. As of June 30, 2025, we had unrestricted cash on hand of $1.7 million. Our borrowing availability under the revolving portion of our Credit Agreement at June 30, 2025 was approximately $21.9 million. Our primary liquidity needs are to finance our working capital and fund capital expenditures. Historically, our sources of liquidity have been cash provided by our operating activities, sale of underutilized assets, borrowings under our credit facilities, and equity issuances. 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 asset sale transactions. As of June 30, 2025, management believes the Company will have adequate liquidity for its operations for at least the next 12 months. ​ Cash Flow ​ The following table provides information regarding our cash flows and our capital expenditures for the three and six months ended June 30, 2025 and 2024: ​ ​ ​ ​ ​ ​ ​ ​ ​ Six months ended ​ ​ June 30, ​ 2025 2024 Net income (loss) ​ $ (573) ​ $ (12,660) Adjustments to remove non-cash and non-operating items ​ ​ 18,510 ​ ​ 19,512 Cash flow from net income after adjusting for non-cash and non-operating items ​ ​ 17,937 ​ ​ 6,852 Change in operating assets and liabilities (working capital) ​ ​ (26,942) ​ ​ (45,009) Cash flows used in operating activities ​ $ (9,005) ​ $ (38,157) Cash flows used in investing activities ​ $ (14,976) ​ $ (6,133) Cash flows (used in) provided by financing activities ​ $ (2,603) ​ $ 18,189 ​ ​ ​ ​ ​ ​ ​ Capital expenditures (included in investing activities above) ​ $ (16,165) ​ $ (6,487) ​ Operating Activities. During the six months ended June 30, 2025 we used approximately $9.0 million of cash in our operating activities. The net cash outflow was comprised of $26.9 million of outflows related to changes in net working capital, partially offset by $17.9 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 $58.8 million cash outflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period and a $3.2 million decrease in operating lease liabilities, partially offset by $34.8 million of cash inflows pursuant to the relative timing and significance of project progression and billings during the period. 28 ​ Table of Contents Investing Activities. During the six months ended June 30, 2025, we used approximately $15.0 million of cash in our investing activities. Capital asset additions and betterments to our fleet were $16.2 million and $6.5 million in the six months ended June 30, 2025 and 2024, respectively. Financing Activities. During the six months ended June 30, 2025, we used approximately $2.6 million of cash in our financing activities. During the six months ended June 30, 2025, we had borrowings on credit of $77.0 million and repayments of $67.0 million on the White Oak revolving credit line, payments on finance lease liabilities of $5.3 million, payments made on failed sale-leaseback arrangements of $7.2 million. 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 June 30, 2025. ​ 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 June 30, 2025, the capacity under our current bonding arrangement was $1.1 billion, with approximately $485 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.