Orion Group Holdings Inc Q4 FY2020 Earnings Call

Good morning everyone, and welcome to Orion Group Holdings' Fourth Quarter 2020 Earnings Conference Call and Webcast. My name is Fran Okoniewski, I'm Vice President of Investor Relations, and joining me today are Mark Stauffer, Orion Group Holdings' President and Chief Executive Officer; and Robert Tabb, our Vice President and Chief Financial Officer. Regarding the format of the call, we've allocated about 10 minutes for prepared remarks in which Mark and Robert will highlight our results and update our market outlook. We will then open the call for questions. Through the course of this conference call, we'll make projections and forward-looking statements regarding, among other things, our end markets, revenues, gross profits, gross margin, EBITDA, EBITDA margin, backlog, projects and negotiation and pending awards as well as our estimates and assumptions regarding our future growth, administrative expenses and capital expenditures. These statements are predictions that are subject to risks and uncertainties, including those described in our 10-K, that may cause actual results to differ materially from those statements. Moreover, past performance is not necessarily an indicator of future results. By providing this information, we undertake no obligation to update or revise any new projections or forward-looking statements, whether as a result of new developments or otherwise. Also, please note that adjusted net income, adjusted earnings per share, EBITDA and EBITDA margin are non-GAAP financial measures under the rules of the Securities and Exchange Commission, including Regulation G. Please refer to the reconciliations and definitions inclusive for the most comparable GAAP measures and reconciliation tables accompanying this earnings call within the press release issued yesterday. The press release can be found on our website at www.oriongroupholdingsinc.com. Also for additional discussion of Risk Factors that could cause actual results to differ materially from our current expectations, please refer to our quarterly and annual filings with the SEC, which are also available in the Investors section of our website. And with that, I'd like to turn the call over to Mark Stauffer, President and Chief Executive Officer. Mark?

Thank you, and good morning, everyone. Thanks for joining us today. Today, we'll discuss our fourth quarter and full-year 2020 results, provide updates on the benefits we continue to reap from our ISG and other operational improvement initiatives and discuss our outlook for 2021. I'll begin with an overview of the fourth quarter. Robert will then discuss our financial performance and provide an update on expectations for 2021. Then I'll come back to discuss our markets and provide an update on our ERP implementation before we turn to Q&A. I'd like to start by noting that our operations in Texas resumed this week after being impacted last week by the winter storm. Many of our employees across Texas were affected by the winter storm, and we are working through our HR support programs to provide assistance to our team members most impacted. I'd like to thank our team for their strong performance and ability to overcome obstacles, hardships and challenges this past year. I'm proud of our entire team on all our project sites, vessels, construction yards, shops and field support offices and their continued resilience and commitment to improve our performance. Along with our focus on operation and financial performance, our foremost priority is that all our employees go home to their families the same way they came into work, healthy and injury free. As such, we remain deeply committed to our Target Zero program to support our vision of an incident-free workplace. Turning to our financial results. During 2020, we made significant progress in our financial performance with near record level adjusted EBITDA. This progress is directly attributable to the implementation of our ISG initiatives, especially around labor and equipment efficiencies. Overall, end market demand remains positive, as evidenced by our Q4 year-over-year bookings growth of 30% and the approximately $1.6 billion in bids outstanding at the end of 2020. We continue to see bid opportunities in both our segments, and we expect to see bid opportunities increase as the COVID-19 vaccine rollout intensifies and the headwinds from the pandemic abate. A new infrastructure bill would also act as an additional catalyst for bid opportunities. These factors, combined with the operational transformation we've implemented through ISG, support our ability to continue to deliver improved results as we progress through 2021. Now I'll turn the call over to Robert to discuss our financial results for Q4.

Thank you, Mark, and thanks, everyone, for joining us. Today, I will review the financial results for the fourth quarter 2020, provide an update on the company's liquidity position and discuss the company's full-year 2021 outlook. Starting with the financials. Revenue for the fourth quarter 2020 were $170 million compared to $199.8 million in the fourth quarter of 2019. This decrease was due to the timing and mix of projects in both the Marine and Concrete segments in the current year period. Fourth quarter year-over-year gross profits rose 13.7% to $21.7 million. This increase was a result of continued project execution gains and better labor utilization across both segments. As a percentage of revenues, gross profit margins expanded 320 basis points to 12.8%. Turning to our segments. In the fourth quarter of 2020, our Marine segment had revenues of $97.6 million and an adjusted EBITDA of $13.1 million. This equates to an adjusted EBITDA margin of 13.5%. In the prior-year period, we had revenues of $111.2 million and an adjusted EBITDA of $12.1 million, resulting in an adjusted EBITDA margin of 10.9%. The year-over-year revenue decline was due to timing and mix of projects in the current period. Despite this, we were still able to improve our profitability in this segment as a result of better labor and equipment utilization. Our Concrete segment had fourth quarter revenues of $72.5 million compared to $88.6 million in the fourth quarter of 2019. Adjusted EBITDA for the Concrete segment was a loss of $580,000 compared to a loss of $577,000 in the current year period. Our Concrete segment's year-over-year revenue decline was driven by a decrease in production volumes resulting from the timing of start-ups on certain newly awarded projects. That being said, we were able to more than offset the year-over-year revenue decline with improved operating margins. Adjusted SG&A expenses for the fourth quarter were $16.6 million or 9.7% of revenues. The year-over-year increase is due to an increased accrual in the current period for the annual incentive compensation plan. Net income for the fourth quarter 2020 was $3.7 million or $0.12 diluted earnings per share, which includes $150,000 of nonrecurring costs and other charges, predominantly related to ERP initiatives. Adjusted net income was $3.5 million or $0.12 per share. Fourth quarter adjusted EBITDA grew 9.5% to $12.6 million. This represents an adjusted EBITDA margin of 7.4% compared to $11.5 million for an adjusted EBITDA margin of 5.8% in the prior-year period. Now to bidding metrics and win rates. For the fourth quarter 2020, we bid on approximately $954 million worth of opportunities and were successful on $181 million. This resulted in a book-to-bill ratio of 1.06 times and a win rate of 19% for the quarter. As of December 31, 2020, our backlog was $440 million, of which $203 million was associated with our Marine segment and $237 million for the Concrete segment. Additionally, we were the apparent low bidder or have been awarded subsequent to the end of the fourth quarter, $96 million worth of opportunities. Of this, $46 million is related to the Marine segment, while $50 million is related to the Concrete segment. In total, currently, we have over $535 million of projects between backlog and low bid. Now turning to the balance sheet. As of December 31, 2020, we had approximately $1.6 million in cash and $63 million of availability under our revolving credit facility. We ended the quarter with $35 million of outstanding debt, $5 million of which was related to the revolver and $30 million related to the term loan. This translated into a 0.89 times leverage ratio and a fixed charge ratio of 4.05 times, both well within the covenant requirements. Our current liquidity position provides us with flexibility to execute on our strategy, pursue new awards and perform work in backlog. Regarding our outlook for 2021, while we expect the COVID-19 pandemic to continue to impact certain end markets, based on our current backlog and bid opportunities, we expect adjusted EBITDA to be in the mid to high $40 million range, which is comparable to 2020, normalizing gains on the sale of assets. As macroeconomic factors develop such as increases in nationwide distribution of the COVID-19 vaccine, we will provide an EBITDA update as the year progresses. Overall, 2020 was a successful year. The company achieved record high revenues and gross profits, leading to a near record annual adjusted EBITDA. We are pleased with the progress that was made last year but we remain focused on execution and continued improvement in 2021. Now I'll turn the call back to Mark.

Thanks, Robert. Turning to our markets. As I've stated previously, while pandemic-related uncertainty has pushed some bidding opportunities in certain sectors to the right, other end markets continue to function normally, and we continue to pursue projects in both our segments. Our focus is on profitably bidding these opportunities and our ability to adjust between differing end markets continues to serve us well. Additionally, we continue to target select larger and longer duration projects in both segments to provide us with greater operational visibility. In our Marine segment, we continue to pursue opportunities in the public sector at the federal, state and local levels, including port expansion projects, DOT work involving bridges over water, Navy facilities and environmental and flood control projects. We are also continuing to see bid opportunities materialize in the private sector with expected upcoming projects in the energy space and the Caribbean market. In our Concrete segment, we are continuing to pursue project opportunities in functioning end markets, including the tech, e-commerce and large retail sectors. We are also pursuing larger structural projects involving high-rise residential or mixed-use towers similar to those we are currently working on in Austin and Houston. Throughout 2020, the changes we previously implemented through our ISG initiative have resulted in improved operational effectiveness as we focus on labor management, equipment management, project execution and corporate processes. In all these areas, we've implemented enhancements and improvements, leading to improved efficiencies and cost control. As part of our push to improve our operational efficiency, we have continued with the process of our new ERP system implementation. This will not only solidify our operational efficiencies, but also allow us to scale these efficiencies as we grow in the future. As a reminder, as a result of the acquisitions we've made, we currently operate on separate data platforms across our segments. ERP is crucial to achieve full system integration across our businesses and critical functions, including CRM, project management, HR, payroll and financial. While becoming an increased cost over the short-term, our investment in a new ERP system will provide the scalable platform crucial for us to execute our strategic plan. We have performed incredibly well in a difficult and challenging environment, and we continue to improve our liquidity and strengthen our balance sheet. This past year has been one of challenges, hardships and tragedy. Through it all, our team has proved to be resilient and focused, and I'm proud to lead such a great group of people. I'm confident in our team's ability to perform in the current environment and the challenges that it brings along with it. We have shown that we were able to improve operational effectiveness and profitability by focusing on business development, efficiently executing the work on our projects and controlling indirect costs, in particular, unabsorbed labor and equipment. Through the hard work and dedication of our team, we are incredibly well positioned with options to execute our growth strategy as we move forward and look toward a post-pandemic economy. We remain confident in the diversity, sustainability and long-term drivers of our markets, and we believe we are well positioned to capitalize on both current demand and post-pandemic demand across our end markets. Lastly, we'd like to thank our customers, suppliers and shareholders for their continued support. With that, I'll turn the call back to the operator for Q&A.

Thank you. Our first question is from Julio Romero with Sidoti & Company. Please proceed.

Hey good morning. Hope you all are well?

Good, Julio. How are you doing?

I'm good. Thanks. So my first question is just on the guidance. I wanted to ask about what are the big swing factors that get you to the high-end of your EBITDA guide range?

Well, I think this is kind of where we are right now. I mean we're coming into the year, we feel good about where we are with respect to the backlog, the bid opportunities we see in front with the comments we made in the remarks. But we've still got the uncertainty around COVID. Our focus is to meet or exceed the guidance, like we did last year. We've got a good plan. We've got good people, a good team. And so we're focused on the kind of the same thing we did in 2020 and just focused on beating it. And certainly, if we see an infrastructure bill, that would be a positive catalyst. But again, we've got functioning end markets now, and we expect those to improve as the year progresses.

Okay. On the ERP implementation, can you just talk about how much investment you're expecting for 2021? And if you're still expecting to realize the full annual benefit beginning in 2023?

Yes. As we previously mentioned, we estimate that the total cost will be around $15 million once everything is finalized. In 2021, we plan to spend between $4 million and $6 million on expenses and an additional $2 million or $3 million on capital expenditures. Regarding the benefits, we are still on track and expect to begin seeing those gains in 2023.

Okay. Can you discuss the labor and equipment efficiencies observed in the fourth quarter of the ISG plan? Will these improvements continue throughout the year, and if so, how will they progress over time?

We observed significant improvements throughout 2020, particularly in our management of indirect labor and equipment. In the fourth quarter, while we continued to see better control in these areas, much of the enhancement was linked to increased production efficiency on the projects. Our focus with ISG has been to ensure consistent performance in managing costs, and we've made notable progress in this regard over the past year. Looking ahead, our goal is to maintain this consistency, and the implementation of our ERP system will further strengthen our ability to manage these costs effectively. Overall, we have demonstrated steady performance over the last four quarters and aim to keep this momentum going.

Okay. I'll pass it on and circle back with any follow-ups. Thank you.

Thanks Julio.

Our next question is from Alex Rygiel with B. Riley FBR.

Thank you. Nice quarter, gentlemen.

Thanks, Alex.

Mark, have you seen any early proposals of the infrastructure bill and how the Army Corps' budget could be impacted? Or possibly, could you address how their budget was impacted in previous infrastructure bills?

Yes, that's a good question. There are a few points to consider. Firstly, the overall spending for the Corps may vary from what we've heard, as the information has been inconsistent. The President's transition website mentions a substantial infrastructure bill, estimated at around $2 trillion. We still need to see more details about it. Regarding your second question about the Corps of Engineers, whether the stimulus amounts to $1 trillion, $1.5 trillion, or $750 billion, the Corps' share is likely to be relatively small compared to the overall infrastructure bill. However, in relation to the Corps' budget, it could be quite significant. For instance, back in 2009, during a stimulus bill—although it's somewhat different from an infrastructure plan—the Corps' operations budget effectively doubled, reflecting a 100% increase due to the stimulus. Therefore, we believe this upcoming bill could have a major positive impact on the Corps of Engineers, and we anticipate additional opportunities through the Department of Transportation and other surface transportation projects that may receive funding from the infrastructure bill. Overall, we expect this to be a strong catalyst for our business.

That's great. And then turning to the Concrete segment for a second. Backlog is holding up pretty well. Can you address the intermediate term sort of bidding environment? And do you have any plans to expand this more aggressively from a geographic standpoint?

Yes. The first part of your question is that, if you look back at Q2 and Q3 of last year, we experienced a pullback in our book-to-bill as the markets adjusted. However, there are functioning end markets. The good news is that for those impacted end markets, we believe this is deferred demand, and we expect those projects to come back, which is positive for future bidding opportunities. In Q4, we had very strong bookings for our Concrete business, and this trend has continued with the project announcements we've made in the first quarter. We are also expanding our search for bid opportunities beyond Texas. Our internal focus is on backlog, and we aim to capitalize on new project opportunities. With the improvements we've made in our Concrete group this past year, we are engaging more with our customers and are actively pursuing work outside of Texas, specifically in Louisiana and Florida. We anticipate having updates on project wins as the year progresses.

That's great. And lastly, Robert, maybe you could help us to sort of understand the first quarter a little bit in light of sort of the difficult weather in Texas this month and how we should think about sort of revenue and EBITDA or EBITDA margins?

I expect that when comparing year-over-year to 2020, revenue may decrease by around 5%. From a profitability perspective, I anticipate we will be closer to break-even than we were in the first quarter of 2021. We accounted for that dip in revenue in our full-year guidance due to the winter weather. However, we believe that as the year goes on, we will recover the losses.

Thank you very much.

Thanks Alex.

Our next question is from Marco Rodriguez with Stonegate Capital Markets.

Good morning. Thank you for taking my questions.

You bet.

I was wondering if maybe you could talk a little bit more about your backlog. On the prepared remarks, it seems like things are going pretty well. You're feeling pretty good about what you have in there. If you can talk maybe about what the margin profile kind of looks like in that backlog. And while I understand that the Concrete backlog is pretty quick turn stuff, if maybe you can kind of help us understand, by the two segments, how that backlog should sort of flow into fiscal 2021.

We have considered various factors in our guidance. It’s important to note that the impact depends on the nature of the work and the number of bidders involved. Currently, we are optimistic about our positioning concerning the macroeconomic landscape. In our Marine segment, there are many opportunities in the public sector, and we anticipate private sector opportunities beginning to arise, which we are already starting to see. The competitiveness of bid pricing will depend on the specific opportunity. We aim to pursue opportunities that provide the best options for achieving our goals. Thus, while we are attentive to all available options, our priority is on those most likely to yield profitable projects. In summary, we are confident in our backlog and the opportunities it presents, which we believe will support our targets for 2021. Additionally, we remain committed to exceeding those targets, as we did in 2020.

Got it. And then in terms of the bids outstanding in the quarter, you're at $1.6 billion level there. Can you maybe talk a little bit about that right there? Just I believe in prior conference call, you had discussed the fact that, obviously with COVID, some of the bid markets had kind of been pushed and were kind of slower just because of the decision-making and obviously not having everybody maybe in offices to make these sort of decisions. Are the bids outstanding still sort of reflecting that impact? Or that sort of kind of cleared away for you guys?

I think most of the issues have resolved. Everyone has adapted to working in the COVID environment over the past three quarters. At the year's end, we see a normal churn in the business development process. Our bids and quoted work are very dynamic, with projects continually being added and removed. Sometimes a project we bid on gets postponed or re-bid after being shuffled around. This is all quite typical. Looking at the year-over-year comparison, our quoted work and outstanding bids have increased compared to the end of 2019, which was before COVID. Additionally, there's been an improvement in our book-to-bill ratio, exceeding 1 in the fourth quarter after being below 1 in the second and third quarters. This suggests a move towards more functional markets, which bodes well for us. We are optimistic about the future opportunities as we expect further improvements with the ongoing vaccine rollout and a return to normalcy in our end markets.

Got it. I have another question about the Concrete business regarding your previous comments on expanding your bids into Louisiana and Florida. Could you discuss what is needed from an infrastructure perspective to support that business if you start winning bids there?

Yes. It's definitely a move beyond our usual area. However, in Louisiana, we have extensive experience in the state since it's adjacent to Texas, making it relatively close. We have a solid background in the marine industry there, which gives us confidence in our team's ability to enter that market. Similarly, in Florida, we have maintained a significant presence for 20 years, and even longer from a legacy standpoint. Our marine segment has established a strong infrastructure in the state, and we aim to leverage that with our concrete group. We're very confident in our capability to carry out that work.

Got it. And if I can just sneak one last one in, and then I'll jump back in queue. Can you provide an update on the non-operational asset sales, Tampa, Port Lavaca and East and West Jones?

Yes. I'll start with Tampa. There was a hearing with the City Council on February 11. The buyers group asked for a continuous. The City wanted a couple of other concessions made to their designs and their drawings and their plans. So they will reconvene back on April 8, and we'll get an update on what that rezoning is on April 8. As far as the Port Lavaca property, the buyer continues to work with their bank to finalize their funding. We're awaiting pattern and today, wrap up the financing fees, but they're working through that. On East and West Jones, I guess, no real update to report here. I can say that there's been an increase or an uptick in interest and activity. So we feel good where that property is. And we feel comfortable that we'll be able to get a transaction on that property in the next, call it, 6 to 18 months.

Got it. Thanks a lot guys. I really appreciate your time.

Thanks, Marco.

Our next question is from Poe Fratt with NOBLE Capital Markets. Please proceed.

Yes. I would like to follow up on the Tampa sale deferment. They will return with a revised development plan, which we hope will receive City Council approval. If it is not rezoned, is there a final deadline for that? Also, what are the financial implications if they decide to walk away?

Yes. We have a contract in place, and we're going to go through with the process and the hearing and see where that shakes out. I don't want to, Poe, negotiate over a conference call. But what I can tell you is that we have significant interest in the property beyond the party that we have a contract with. And we feel comfortable that this property is marketable, and we'll get a transaction done.

Just to clarify, Robert. Is there a deadline for this? There were scheduling issues at the City Council where they were considering attending the meeting on April 22, but the buyer indicated they couldn't do that due to contractual reasons. Can you address that? Additionally, do they have a deposit down? Would they lose the deposit if they decided to walk away?

Yes, we usually have firm deadlines in our contracts, and it's accurate to say that we have one in this case. There is financial commitment associated with this contract. As Robert mentioned, we prefer not to discuss negotiations publicly, but there is a termination date if we don't finalize a transaction or agree to an extension. Currently, our main focus is to resolve the issues with the buyer and the City to complete the transaction. As Robert stated, we believe this property is highly marketable, and we expect to finalize a deal on it.

Great. Could you talk about the fourth quarter? You exceeded your EBITDA guidance of $10 million to $12 million, largely due to Marine. Can you explain the sustainability of the Marine performance? Additionally, could you clarify the situation with Concrete? It seemed like you had an advantage with some deferrals shifting from the third quarter to the fourth quarter, yet revenues declined sequentially and profitability was disappointing. Can you address what occurred in the fourth quarter?

Yes. There are a couple of points to address. First, regarding the Marine segment, we have consistently targeted an EBITDA margin of 10% to 12%, and we achieved that in 2020. We've expressed our intention to exceed this range, and it appears we've made some progress in the Marine business. Maintaining this focus has been a significant aspect of our ISG initiative, and we believe we have demonstrated sustainability over the past four quarters. Now, concerning the Concrete segment, we've made substantial advancements in this area thanks to a strong team. We've continually implemented changes from the ISG perspective throughout early 2020, and we are confident in our team's performance. Specifically in the fourth quarter, as noted in Robert's earlier comments, the timing of project start-ups greatly influenced our results. In Q2 and Q3, our book-to-bill ratio was notably below 1, but we experienced a significant increase in work as we moved into the fourth quarter. The start-ups of new projects were later in the quarter, which affected our performance. While we are satisfied with the progress in this segment, we recognize there is still work to be done. Our target remains high-single-digit EBITDA margins, and although we haven’t fully reached that yet, we have made significant strides and are equipped with the right team to achieve our goals.

Yes. So starting with the capital expenditures, we'll guide to $20 million to $22 million, that's inclusive of the ERP spend. But as we say every year, we manage CapEx, we watch it. It ebbs and flows with the business, with the schedule. And we'll continue to manage that. As far as SG&A, I'll talk about it from an adjusted standpoint. We set the target of 8.5%, and we're extremely focused on meeting or beating that percentage.

Good morning everybody. Mark, Rob, Fran thank you for having the call.

You bet.

I would like to focus on the backlog. Many people have raised this issue. Mark, you mentioned that you believe the slowdown in the bidding process due to COVID-19 is largely over and that people have adapted. However, I noticed that the outstanding bid number you reported is $1.6 billion, which is significantly higher than any figure you've reported in the last three years for any quarter. This stands out. Can you explain why this number is so elevated and whether we can expect a historical hit rate on it? Additionally, could you provide some insight into how this number is divided between Concrete and Marine, and how that division may differ from previous periods?

Yes. I'll address the last point first. The breakdown is predominantly focused on the Concrete business due to its inherent nature. We have submitted a significantly higher volume of bids in Concrete, which is typical for this business model as a subcontractor, and as a result, the hit rate tends to be somewhat lower. Our targeted hit rate in Concrete is comparatively lower, leading us to bid more frequently. Additionally, the time it takes for bids to be reviewed and decisions to be made is generally longer in this sector, and this trend has remained consistent with prior quarters. On the Marine side, the outstanding bid numbers are relatively lower. The timeline for quoting and receiving decisions is typically much shorter, particularly for public sector work, where the bidding process often provides clarity on whether we are the apparent low bidder. We are also strategically focusing on larger, longer-term projects in both sectors, which affects the number of outstanding bids. For Concrete, we are particularly aiming to enhance our share of the structural market, which involves bidding on larger projects. Similarly, in the Marine sector, we have increased the scale of our current projects and are actively seeking out larger opportunities. This evolution will also influence the overall number of outstanding bids.

I understand the approach for the Marine side of targeting larger, longer-duration projects. Are those projects currently available? Are we limiting our potential to win by aiming for a specific type of project?

No. To be clear, we're still pursuing projects of all sizes. Our dive group is actively seeking $50,000 and $100,000 projects. We're engaging in a wide range of projects, whether they're worth a couple million dollars, $10 million, or $25 million. There is a variety of opportunities available right now, including large port development projects, Department of Transportation bridge work, and contracts with the U.S. Navy. We anticipate that as the Caribbean market improves with the easing of COVID, there will also be potential for significant projects in that region. We have a solid mix of work across all levels that informs our pursuits. We're not excluding anything based on size. If a project aligns with our objectives and is a good fit for us, we're interested. If it doesn’t, we won't pursue it. There are projects of all sizes in that mix.

In regards to the guidance, Robert, you mentioned the mid to high 40s for adjusted EBITDA. You pointed out the comparability issue with the current year, which was $54 million due to the gain on the sale of assets, correct?

Yes, that's correct.

Okay. And we had about $9 million of income from the sale of assets. So just to be clear, for the guidance, you're assuming zero as far as gain on asset sales?

Well, in that $54 million of EBITDA, $2.8 million in Q3 was already removed out of it. So if you normalize the $9 million for that $2.8 million, then you back it out of the $54 million that will give you a pretty good number.

I'm sorry, you lost me. What was the total for the year-to-date or total year, we have $9 million in EBITDA?

No. So you had $9 million of gain on the sale of assets. If you back out the $2.8 million from the Waymon Boyd incident, and then you use that number to back off of the $54 million that will give you a pretty good year-over-year comparison.

I normalized the EBITDA number, and it seems that you are anticipating a flat year on an organic basis in 2021 compared to the adjusted EBITDA number from 2020. Is that correct?

Yes. Yes.

From our current standpoint, considering the uncertainties related to COVID, we are aiming to exceed our performance as we did in 2020. As we move further into the year, we will provide updates.

Understood. Yes, it’s about what we see right now and staying balanced regarding the current situation since COVID remains a concern. I want to make sure I understand the comparison accurately. If we consider a better scenario for the backlog in Marine, can you share your perspective on the Marine business in terms of the overall industry? Excluding any potential infrastructure bill, do you view it as an improving industry?

I believe that, as I have mentioned in previous calls, we have a positive outlook on the long-term drivers. While some have been affected by COVID, we see strong prospects in both the public and private sectors. The Department of Defense has substantial infrastructure needs, and there is ongoing dredging work that is necessary every year. I believe the Corps is becoming more effective in their operations, although we would like to see some improvements in their work pace. Much of this work is recurring. Additionally, the energy sector will continue to present opportunities, as we are still generating significant domestic energy, and this trend is likely to persist despite changes in the administration. The dynamics of the supply chain have shifted to create opportunities for us. Even without an infrastructure bill, there is still funding and work available through the Department of Transportation. In the private sector, we believe there is considerable pent-up demand in the recreational market, particularly in the Caribbean, which presents ongoing opportunities. While these may have been delayed by COVID, we anticipate that demand is poised to surge soon.

Sure. Let's shift focus to the balance sheet. Your leverage has significantly decreased, which is reassuring. You will start generating cash again next year. How do you view the current state of the balance sheet? I'm particularly curious about the status of your bank agreement, which unfortunately still imposes some restrictions on your capital allocation decisions. Can you provide an update on that?

Yes. So as far as the banking relationship, it's in a good place. We're at a good leverage ratio, well within covenant compliance. A lot of those restrictions that you're talking about, they will alleviate here in the next several months. But it is something that we're looking at as we look at our overall strategy for the company. And where we stand today, I think our banking relationship is more than adequate and supportive of what we need to execute this year. But we'll look into that, and we'll be looking to make adjustments as needed.

And then, Gerry, I would add to that, too, is I think I said this on the remarks last time and touched on it a little bit this time. Again, we've been focused on that balance sheet and strengthening it and cash flow generation. Obviously, we've got the real estate transactions hanging out there, which are just going to improve us even further. But the way we look at that as that opens up a lot of options for us. And with respect to capital allocation, to your point, and we think that's a good place to be. So I think in executing our strategy or otherwise deploying capital, we expect to have a lot of options as we go through the year here.

Well, Mark, I appreciate that. I really do. I guess the biggest sticking point is the inability to repurchase shares, which, when you're trading at just round numbers, call it, 5 times EBITDA, in my opinion, seems to be a very low valuation. A very good investment to be buying a quality company at 5 times EBITDA, particularly if you see things on the verge of getting even better. Having that credit agreement out there that restricts dividends and/or buybacks, to me, seems like it's something that should be taken care of as soon as it's possible to be taken care of.

Yes, yes. I hear you.

Okay. Hey, thank you very much for the time today. Good luck going forward.

Thanks, Gerry.

This does conclude our question-and-answer session. I would like to turn the conference back over to management for closing remarks.

Thank you, everyone, for joining our fourth quarter earnings conference call. We look forward to talking with you again in late April for our Q1 earnings results. Thank you.

Thank you. This does conclude today's conference. You may disconnect your lines at this time and thank you for your participation.