Orion Group Holdings Inc Q1 FY2021 Earnings Call

Greetings. And welcome to the Orion Group Holdings' First Quarter 2021 Conference Call. At this time, all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host Francis Okoniewski, Vice President of Investor Relations.

Good morning everyone and welcome to Orion Group Holdings' first quarter 2021 earnings conference call and webcast. My name is Fran Okoniewski, I'm Vice President, Investor Relations and joining me today are Mark Stauffer, Orion Group Holdings' President and Chief Executive Officer; and Robert Tabb, our Executive 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 first quarter 2021 results, provide updates on the benefits we continue to reap from our ISG and other operational improvement initiatives, and discuss our current outlook. I'll begin with an overview of the first quarter; Robert will then discuss our financial performance in more detail. Then I'll come back to discuss our markets and provide an update on our ERP implementation before we turn to Q&A. As always, I'd like to begin by thanking our team for their hard work and commitment to our success, not only with regard to operational and financial performance, but most importantly, with respect to safety. Our foremost priority is that all our employees go home to their families the same way they came into work, healthy and injury-free. We are deeply committed to our Target Zero program to support our vision of an incident-free workplace. With respect to the first quarter of 2021, as anticipated, our results reflected the impact of the historic winter storm in Texas during February, which disrupted our progress on projects across our Concrete and Marine operations, including our dredging projects. This reduced revenue for the quarter by approximately $8.2 million and lowered earnings per share by approximately $0.03. Despite the weather challenges, our Concrete segment delivered year-over-year growth in both revenue and profitability, which was a result of our team's solid execution of the labor and equipment efficiencies gained by our ISG program. While our backlog was down at the end of the first quarter relative to the end of the fourth quarter and the first quarter of last year, we are very optimistic about the trends we're seeing with respect to project opportunities across our end markets. Our current level of quoted work stands at nearly $2 billion, a record level, up almost 130% from this time last year, and also up meaningfully on a sequential basis. We have a significant amount of bids submitted and under evaluation in both our Marine and Concrete segments, and as noted in our earnings release, we currently have $134 million of low bid or awarded work, the highest reported level in five quarters. We anticipate new bidding opportunities to emerge as economic activity picks up with increasing vaccination levels and herd immunity with respect to COVID-19. These factors make us confident we will be able to maintain our project pipeline and increase backlog as 2021 progresses, positioning us well for 2021 and beyond. This favorable outlook has been further enhanced by the possibility of a new federal infrastructure bill, which would be an additional catalyst for increased demand across our diverse operations. Also, during the first quarter, we continued to improve our liquidity. Now, I'll turn the call over to Robert to discuss our financial results for Q1.

Thank you, Mark and thanks everyone for joining us. Today, I will review the financial results for the first quarter of 2021, then provide updates on the company's liquidity position, and the status of our real estate transactions. Starting with the financials, revenues for the first quarter of 2021 were $153.3 million, compared to $166.6 million in the first quarter of 2020, or a decrease of 7.9%. The decrease in revenues was driven by a combination of the timing and mix of projects from period-to-period and the extreme winter weather in Texas. The first quarter gross profit was $15.5 million compared to $19.8 million in the prior year period. The gross profit was also impacted by winter weather in Texas and the mix of projects, both resulting in a decrease in equipment and labor utilization. Also note, Q1 2020's gross profits benefited from execution-related margin gains on several projects. Turning to our segments, in the first quarter of 2021, our Marine segment had revenues of $72.1 million and an adjusted EBITDA of $7.9 million. This equated to an adjusted EBITDA margin of 10.9%. In the prior year period, we generated revenues of $85.9 million and adjusted EBITDA of $11.2 million or a 13.1% adjusted EBITDA margin. Marine's revenue and EBITDA decline were driven by shifts in the timing and mix of projects. In Q1 of 2020, we had several large jobs close out and recognized execution related margin gains. Our Concrete segment had first quarter revenues of $81.1 million compared to $80.7 million in the first quarter of 2020. Adjusted EBITDA for the Concrete segment was $1.6 million compared to $985,000 in the prior year period. Our Concrete segment's year-over-year results improved despite being impacted by the winter weather in Texas; increased production volume rates and execution-related margin gains were key drivers of the year-over-year improvements. Adjusted SG&A expenses for the first quarter were $14 million or 9.2% of revenues. Please note that the first quarter tends to be the most seasonally weak quarter from a topline perspective. However, we remain focused on driving annualized SG&A to or below 8.5%. Net income for the first quarter of 2021 was $928,000 or $0.03 diluted earnings per share. Net income includes roughly $500,000 of net expenses related to ERP, partially offset by the benefit of our tax valuation allowances. Adjusted net income was $1.2 million or $0.04 per share. The first quarter adjusted EBITDA was $9.5 million, representing an adjusted EBITDA margin of 6.2%. This compares to $12.2 million for an adjusted EBITDA margin of 7.3% in the prior year period. Now to the bidding metrics and win rates. For the first quarter of 2021, we've bid on approximately $1.1 billion worth of opportunities and were successful on $79 million. This resulted in a book-to-bill ratio of 0.5 times and a win rate of 7.4% for the quarter. The lower than average win rate is primarily the result of extended timing of several projects being awarded. We currently have a significant amount quoted for which the outcome was undetermined during the quarter. As of March 31st, 2021, our backlog was $365 million, of which $155 million was associated with our Marine segment and $210 million for the Concrete segment. Additionally, subsequent to the end of the first quarter, we are the apparent low bidder or have been awarded $134 million worth of opportunities. Of this, $56 million is related to the Marine segment, while $78 million is related to the Concrete segment. I want to note this is the highest low bidder in subsequent awards in the past five quarters. We see this as a positive leading indicator for potential future awards. Also, as Mark mentioned, we have nearly $2 billion of quoted work, which is a record level. Now turning to the balance sheet. As of March 31st, 2021, we had approximately $4.6 million of cash and $68.3 million of availability under our revolving credit facility. We ended the quarter with $29 million of debt outstanding, all of which was related to the term loan. This translates into a 0.74 times leverage ratio and a fixed charge ratio of 4.1 times, both well within the covenant requirements. Our current liquidity position provides us with the flexibility to execute on our strategy and to pursue new awards. Now, I'll provide an update on the status of our pending real estate transaction, starting with Tampa. The rezoning of the Tampa property, which is a prerequisite for our transaction to close, is moving to our final approval. We believe this transaction will close in the second quarter of 2020. Now, on to the Port Lavaca property. The buyer is finalizing its lenders' requirements and has requested to close in July. We will continue to work with the buyer and are optimistic that this will close in Q3. Finally, the property ownership channel continues to garner significant interest. We believe as the impacts of COVID-19 abate, we will receive offers on this property. As we execute our real estate transactions, we will continue to evaluate all potential uses of capital, including reinvestment into core assets of accretive M&A, and share buybacks. In closing, our first quarter 2020 was consistent with our expectations. We saw the Concrete segment post a year-over-year improvement in results, despite the extreme winter weather challenges in Texas. Lastly, we have a significant amount of low bid in quoted work. We continue to make progress during the quarter, but we remain focused on continuing our improvements.

Thanks Robert. Turning to our markets, as I've stated previously, many of our end markets have continued to function normally or at increased levels during the pandemic, while others have seen project opportunities slide to the right. Bidding and winning new awards and augmenting our backlog remains a top priority, more specifically, securing the most attractive jobs where we have the best likelihood of executing at or above our target profitability levels. We believe this will continue to drive increased shareholder value. The diversity of our markets and the flexibility to adjust between them is a great advantage to us in this regard. In addition, we are targeting select larger, longer-duration projects that give us greater operational visibility. And we currently have some very good prospects of this nature that we look forward to providing you with updates on in the coming months. 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've recently booked several new dredging jobs, including with the U.S. Army Corps of Engineers. We expect to see an increase in bidding opportunities for dredging work from the Corps as we move through the second and third quarters, which is the back half of the federal fiscal year and we are well-positioned to capitalize on these upcoming opportunities. We're also continue to see bid opportunities materialize in the private sector with expected upcoming projects in the energy space and in the Caribbean market, which is a positive sign of economic activity picking up in the markets that were more impacted by the pandemic. With the continued rollout of the COVID vaccine and as we reach herd immunity, we expect overall economic activity to accelerate driving bidding activity in these markets, including some potentially large projects. In our Concrete segment, we have been pursuing and successfully winning new work in attractive end markets such as the tech, e-commerce, and large retail sectors. We also continue to bid on larger structural projects involving high-rise residential or mixed-use towers. Anyone who has been in Dallas-Fort Worth, Austin, or Houston in recent months will understand the significant activity going on with these types of projects. Additionally, we are seeing bid opportunities outside our traditional Texas markets and in particular, we are targeting large structural or large like commercial construction projects in the Florida market where we have a longstanding presence in our Marine segment. We've talked about our ISG initiative for several quarters now and while implemented during 2019, the benefits to our profitability resulting from enhanced labor management, equipment management, project execution, and corporate processes really began to accrue to our results in 2020. We expect to continue to see benefits from the actions we've taken as we move through 2021 and beyond, particularly as our revenues increase and we gain leverage on our improved efficiencies and cost control. We continue to make progress with our new ERP system implementation, which we expect to enable us to garner even greater benefit from our ISG initiative. Once completed, our new company-wide ERP platform will not only solidify our operational efficiencies but also allow us to scale these efficiencies as we grow organically and through profitable M&A in the future. ERP will enable us to achieve full system integration across the various businesses that we've acquired over the years in critical corporate functions including CRM, project management, HR, payroll, and finance. We are confident that this investment will increase our effectiveness in executing our strategic plan and enable us to more efficiently integrate any future acquisitions. In the first quarter of 2021, we continue to strengthen our balance sheet and improve our liquidity position, providing us with flexibility to continue to execute on projects and backlog and pursue new awards, while at the same time, enabling us to execute on our strategic plan, including positioning ourselves for any potential accretive acquisition opportunities. Additionally, we are investing in the rebuilding and upgrading of one of our dredges previously converted to use as a booster, which will replace the dredges lost during last year's tragic accident. Moving forward, we will also look to upgrade and extend the lives of several of our dredging assets. We would expect our pending asset sales to contribute to additional improvement to our financial position in the coming quarters. In the first quarter, our team once again rose to the occasion and executed well in the face of adversity, just as they have been doing for the past year. As we look ahead, we are confident that through our ISG initiative, our ERP implementation, the strengthening of our balance sheet, all combined with a favorable outlook for our diverse end markets positions us well to capitalize both on current and post-pandemic economic activity. With that I'll turn the call back to the operator for Q&A.

Thank you. At this time, we will be conducting a question-and-answer session. Our first question today is from Julio Romero of Sidoti & Company. Please proceed with your question.

Hey, good morning, everyone.

Good morning.

Good morning.

Could you provide an update on the current quotation levels compared to a quarter ago? Based on your earlier comments, it seems to be improving. What are you observing regarding activity levels, and do you find the overall conditions to be favorable?

Yes, I believe we do. It’s the highest level of quoted work we have ever had. We are currently bidding on several projects, particularly in the government sector, which are still in the evaluation stage of the RFP process. We have a number of those projects in progress. Additionally, we have several large projects that we've priced and are awaiting feedback on. As mentioned earlier, we have a significant amount of low bidder work at this time, marking the highest level we've reported in about five quarters. We feel positive about our Concrete business, which presents many opportunities across all our markets, including those beyond our traditional Texas base. On the Marine side, we are seeing work in government sectors as well as advancements in private sector areas that were previously affected by COVID. Things seem to be picking up, and we are optimistic about the opportunities ahead.

Got it. In the Concrete segment, I wanted to ask about potential geographic expansion there. I know you mentioned in your prepared remarks that you're targeting projects outside of Texas, including Florida as an example. What about opportunities in other regions? You have previously mentioned Louisiana; can you discuss other opportunities beyond Texas and Florida?

Yes, we've been working in Louisiana. We haven't secured any wins yet, but we're definitely competitive, and our team has put in a strong effort. We're beginning to receive opportunities and invitations to take on work beyond Texas from some of our general contractors. Some of our GCs operate in markets outside of Texas and have a broader national presence. They are aware that we're looking to expand beyond Texas, which has led to new opportunities coming our way as they recognize our capabilities and the quality of our work and teams. They are starting to reach out to us about other locations as they seek projects in different markets. Florida, in particular, is an area of significant interest for us. Its population is growing, and it attracts new residents similarly to Texas. The same factors driving opportunities in Texas are also present in Florida. We are very familiar with that market, thanks to our long-standing presence in the Marine sector, which allows us to leverage our existing connections to pursue these opportunities. We are pleased with the progress we are making.

Great. And then just last one for me here is did you mention in your remarks that you expect backlog to expand sequentially as we progress throughout the year?

Well, what I mentioned was that we've talked about the $134 million and the opportunities present, along with the quoted work we have and the pipeline in sight. We believe we're well positioned for this to occur. Of course, we need to bid for projects and secure them. However, we are optimistic about the potential for a growing backlog as we move through the year.

Sounds good. Thanks for taking the questions.

Yes.

The next question is from Alex Rygiel of B. Riley FBR. Please proceed with your question.

Thank you. Good morning, Mark. Your win rate in the quarter was on the low end of historical levels. Can you help us to understand why?

Yes, it really relates to the timing of awards. Much of the quoted work, even in the government sector, particularly for RFP-type projects, is not included in our calculations. We see this as a timing issue and expect that it will increase as we move through the second quarter. We already have a significant amount of work at historical low levels of quoted projects outstanding. As we receive determinations on these matters, we are optimistic about our prospects, and we anticipate an uptick in the quoted work as we enter the second and third quarters.

And then the SG&A target of 8.5%. When might you get to this level?

We think that as we progress through the year, we have a good shot at this year from adjusted standpoint removing out all of the ERP. What we'll also have moving expenses as we sell some of these properties, which we'll add back. But no, it's a target for this year and we think we'll get there. Now, it's going to be weighted, right? It's going to be a little bit heavier on those percentages in the earlier part of the year we've got to abate as we get into the year.

And then lastly, sounds like you're going to spend a little bit of CapEx on some dredge rebuilds. Can you quantify that for 2021 and 2022?

For 2021, we will align with the levels we discussed earlier. We have initiated the process of converting the dredge that we previously used as a booster back to its original form. Additionally, we will rebuild and upgrade it. This ongoing process will remain within the capital expenditure targets we outlined for 2021. While it's too early to discuss 2022, we will provide updates throughout the year. This initiative will be part of a multi-year program, and we will address the 2022 capital expenditures and future plans as we progress through the year.

Thank you.

The next question is from Marco Rodriguez of Stonegate Capital Markets. Please proceed with your question.

Good morning, everyone. Thank you for taking my questions. I was wondering if you could elaborate on the asset sales that have been recognized in your P&L, which had a relatively high level of gain this quarter, exceeding your historical trends. I know this is an ongoing situation and may be a challenging question to answer, but I believe you mentioned in your prepared remarks that you anticipate additional gains from asset sales. How should we consider these sales throughout this fiscal year? What kind of levels might be reflected in your guidance? Also, I assume many of these elevated sales are being driven by the ISG review and efforts to improve utilization rates; any insights would be appreciated.

I believe there are two distinct areas to consider. Firstly, we are engaged in our regular business operations as discussed through ISG. We ensure that any equipment or tools we use in our operations meet our desired utilization and return metrics. If they do not, we look to dispose of them or find ways to improve efficiency. Specifically, Robert's comments, along with mine, focused on real estate, which he detailed extensively. These remarks pertain more to our overall strategy rather than the general routine of assessing our equipment needs. This assessment might lead us to sell equipment instead of replacing it, or it could involve selling equipment that has reached the end of its life and replacing it with something new. Essentially, we are experiencing a turnover in our assets, and there may be capital expenditures that offset some of these sales.

Got it understood. And so just also clarify the non-operational asset sales, those are not included in any sort of guidance, correct?

No, they're not.

Got it, understood. And I don't know if I missed this on the call, but did you quantify the impact that the winter weather had on Q1 results? And if I remember correctly, we were talking about this on the last call, that there was an expectation that this would probably be made up in Q2, Q3. Just kind of wondering if that's still the game plan, if you will, and wondering also if there might be any sort of compression in the margins just because of the delay?

We noted that the impact of Q1 was approximately $8.2 million on the topline due to the winter storm in Texas, which resulted in about a $0.03 decrease in our EPS. It's important to understand that while the work will still be completed, it won't contribute to future periods in an additive way. The work didn't disappear; we will carry out all the tasks that were delayed during that time. However, it's essential to emphasize that this work does not add to future periods but will be executed then.

Got it, understood. And then in terms of the Concrete segment, just looking at the operating margins; maybe if you can talk a little bit more about that and framing it in regard to the ISG review process. Obviously, the operating margins are not at the level that you're aiming for just quite yet. And you've made some improvements in terms of the types of bidding on work that is supposed to help kind of drive that. Maybe if you kind of update us on your thinking there on the IGS review process and how those margins might move a little bit here in the next, I don't know, 12 months or so?

I believe the ISG initiatives have now become an integral part of our daily operations. As you noted, we still have work ahead to reach our targeted levels. However, we have made significant progress and continue to do so. We saw this in the first quarter, even with the difficult weather conditions, which included the worst winter storm in Texas since 1890, affecting all 254 counties. Despite these challenges, our team has improved our Concrete business, and we are moving in the right direction. While there is still work to be done, our team is equipped with the right people, mindset, and commitment to keep advancing. We are factoring this progress into our expectations for 2021 and remain confident that we will achieve our targeted margins. We continue to move forward despite the challenges we face.

Understood. Thank you very much for your time. I really appreciate it.

The next question is from Poe Fratt of NOBLE Capital Markets. Please proceed with your question.

Yes. Good morning, Mark, Robert, and Fran. I have a couple of high-level questions. Considering the current structure of the company, when discussing possible accretive acquisitions, could you explain where you are focusing most of your time and energy in identifying those acquisitions?

Well, we're not going to get into a whole bunch of detail. I mean its early days on this, but I mean we're looking for things that we're not being restricted. I mean we could potentially look for things that are within our existing businesses or complimentary services, complimentary geographic regions. Obviously, we'll factor in capital needs, CapEx needs, are they heavy or light and, again, looking for those things that can enhance and have a higher margin type businesses or higher margin type services. So, anything that is in our existing lanes or maybe even adjacent lanes that can provide that forces is things that we're looking at. We're out there looking at things talking to investment bankers and think that we got some good opportunities to generate some opportunities for us to look at and successfully make the transaction happen.

I was surprised to hear your optimism about the cruise industry. It appears that the CEO of Royal Caribbean expressed uncertainty regarding the Georgetown cruise port. I'm curious about your outlook for the cruise industry over the next 12 to 18 months.

I would differentiate Georgetown and the Cayman Islands from any remarks regarding the cruise business and the cruise industry overall. The Georgetown pier has long been a challenging target for the cruise industry. Back in 2005, we were working on Georgetown, and discussions about the cruise pier were happening then. As you know, there was significant conversation about it last year, prior to COVID, but local opposition started growing even before the pandemic. I believe the cruise lines are currently reevaluating that situation, but Cayman doesn't necessarily reflect what's occurring in other areas. We have been monitoring pre-COVID projects in different locations and are observing progress on cruise pier activity and cruise-related infrastructure projects in the states as well. We're starting to see some movement on those initiatives, which we believe will advance in locations other than Cayman. Honestly, I wouldn't put much faith in the Cayman project moving forward at this moment. I'll believe it when I see it. This doesn’t imply that there won’t be plenty of other activity in various places. Bookings for cruises in 2022 are increasing, and new ships are under construction, including ones designed to operate on LNG, which is quite intriguing for us on several fronts. We anticipate numerous opportunities arising from the cruise industry.

Okay, great. And then when you look at Concrete and potentially, bidding into Florida, can you give us an appreciation for whether any of the low bids pending award or any of the quotes are associated with work in Florida? You already said that you bid into Louisiana, but I was wondering if Florida is active from the standpoint, we might see something over the second half or the rest of the year? Or is it still more on the horizon?

To address your first question, no, we currently do not have any low bids or quotes that are active in Florida. However, in response to the second part of your inquiry, we are aiming to secure work in Florida this year. We are actively pursuing opportunities, and our goal is to obtain projects in Florida within this timeframe.

Okay, great. And then Robert, regarding a previous question about guidance, did you provide any guidance for 2021 in terms of revenue or EBITDA, or would you be open to doing so?

Yes, on the last call, we said, mid to high $40 million range from an EBITDA standpoint. And I think Marco was asking about the asset sales; the real estate sales are not factored into that guidance. Any equipment sales and things like that that pieces factor, but the real estate gains are not considered in that number.

Great. So, the guidance is unchanged from that mid to high $40 million range?

That’s what I'm saying, yes.

And again exclusive of ERP cost?

Yes, exclusive ERP and any moving costs associated with our assets.

And then it looks like Robert, in the first quarter, the ERP costs were a little bit lower than what I thought they might be for the run rate for the year. Is that accurate? And mean also could you give us an idea of sort of how the ERP expenses will look for the rest of the year?

I expected this to start wrapping up. We completed the design phase during the first part of the year. Now is the time when we will begin spending more money, so you'll notice that increase. There is no change to the overall price. We anticipate going live around the middle of next year, and I expect to see a solid increase over the next few quarters.

Sort of in the $1.5 million to $2 million range per quarter, or it's sort of can you give us an appreciation for just how much of a ramp?

Yes, it really just depends on the consulting. A lot of this is the consulting dollars into consulting hours if that breaks out. We have a better feel of the timing. But yes, I could see it jumping up in that $1 million range.

Great. And just to confirm your working estimate for CapEx for 2021 remains $20 million?

Yes, we said $22 million to $20 million in our guidance.

The next question is from Gerry Heffernan of Walthausen & Co. Please proceed with your question.

Hello, guys. Thanks for taking the call. To start off with I have a rather elementary question here and it goes back to the person that had asked about the win rate. And Mark you commented on timing of awards comes into that as far as why is it so low, which to me, begs the question, what exactly is the win rate? Because it sounded like if you bid on 10 projects, won one, lost one and the other eight are still outstanding as not decided, is that a 10% win rate?

We calculate it by not factoring in any outcomes of bids until they are determined. This method has been consistent, and there is no change in the way we handle it this quarter compared to previous quarters. Therefore, if we have submitted quotes but have not received a determination, they do not contribute to the win rate calculation.

Okay. All right. I just wanted to make sure I understood that clearly. In regards to this $2 billion of bids outstanding, how does that break out between Marine and Cement, if you can just give me just roughly?

Roughly, probably about 75% of that is on the Concrete side and 25%, roughly, is on the Marine side, which is consistent with what we see just historically. We bid a higher volume of work in our Concrete business as a subcontractor. And we have different competitive dynamics. Our targeted win rates are a little bit lower in that business than it is in the Marine business. So, we are consistent with what we kind of see.

Okay, very good. And so of the 25%, as Marine, call it, 500 and understand I'm just talking rail numbers here, I don't want to get too specific with it. How does that number stand up historically in regards to Marine bids outstanding and marine activity out there?

It is towards the upper end of what we would see historically. So, it's higher than average based on our historical data from the last few years.

Okay. And is there any geographic focus to that? Is it well diversified? Is there any one area that's really juicing that business activity?

No, it's kind of across the board. I mean I was again, I think, as we talked about before and mentioned again today, the energy space in the Caribbean market has been somewhat muted for the last year based off COVID. We're starting to see stirrings on that. But in terms of geographic, the quoted work, outstanding, low bids, it's kind of spread across the geographic footprint.

Okay. And, as you said, 500 would be above average, but we're not talking peak levels here. What is the capability of assets in the Marine construction business, in total industry-wide to handle a $500 million bidding activity? At what point does the industry become taxed on having assets available to meet demand?

That's a tough question. It really depends on the type of service involved in a project. For instance, if we're discussing dredging services, that's one aspect. The industry does have the capacity to accommodate an increase in infrastructure spending, as seen with the Corps of Engineers. However, other projects vary depending on the assets required and the equipment being used. For example, certain machinery, like a crane, can operate on land or water, which means flexibility in capacity is not a limiting factor if more lifting capacity is needed. On the other hand, floating equipment presents a different situation. We do have capacity within our fleet, and there are also third-party rental options available to expand that capacity. Unfortunately, I can't provide a specific number regarding the overall market size since we draw from numerous sources. Our work is always just a fraction of the larger picture. However, if I understand your question correctly, I believe there is capacity within the system to increase output as the economy improves, especially with a potential infrastructure bill on the horizon.

Okay, I appreciate that. I was just trying to get a feel for anywhere near a point where bidding margin start to push up because of asset availability, but it sounds like that's not the case.

I believe other factors influence this in terms of the amount of work available. If GDP numbers continue to show strong growth, as indicated by the first quarter results, there will be chances to improve profit margins as utilization rises. That's how I would say it.

It's great to hear that. In early 2020, one of the initial stimulus bills included funding for harbor efforts, though I can't recall the specific number. Did you notice any impacts on business activity from that? Now, with discussions around an infrastructure bill, many believe it's a positive move, but I'm curious about the extent to which this has been genuine government support compared to mere talk, and whether you've actually seen tangible benefits from the stimulus efforts.

We are seeing significant spending from port authorities as they implement their plans. This spending stems from their ability to generate capital investment funds, along with support from federal government initiatives. There is discussion surrounding the stimulus bills currently being considered, and we will need to see the final outcomes and their implications. However, I know that water infrastructure, particularly in ports, is being discussed in these bills. Reflecting on past stimulus efforts, particularly during the early Obama administration, there was a notable increase in funding for the Corps of Engineers, which, although only $5 billion or $10 billion, represented a substantial boost compared to their usual budget. Such funding can have a significant impact relative to the normal allocations for agencies like the Corps of Engineers. We anticipate that if an infrastructure bill is passed, the benefits will flow to the Department of Transportation, which would support state departments and enable bridge work for us as well as port authorities. This has been a frequent topic of conversation and would further drive the expansion efforts already planned by many port authorities.

Okay. Last area of discussion, if you would. I'd appreciate it if we could talk a little bit about capital allocation. To the extent that you're able to work towards your annual forecast of mid-high 40s of EBITDA, that will be back to back years. I believe last year, the tally was around $47 million of EBITDA. Even with the ERP effort, there still should be a pretty good free cash flow to further reduce debt on the balance sheet. Can you talk to us about the current tax structure you have? What do you do with a clean balance sheet, understanding that you already mentioned M&A earlier? At this share price and its valuation, given strong EBITDA and free cash flow, how do you find an acquisition that is better than just buying shares of your own company?

As Robert mentioned earlier, we will assess all capital uses, including share buybacks. The positive aspect is that we have significant flexibility. We are reinvesting in our dredge fleet as previously discussed and are ready to seize opportunities in M&A if the right situation arises. Any potential acquisition must align with our interests. Ultimately, we will consider all capital allocation strategies, with share buybacks being one of the possibilities. We are fortunate to have the flexibility to explore all our options.

Okay. Can talk to your current debt structure, because I don't think you have great flexibility in that? And we certainly know from other information that the banks are desperate to have lending facilities, it would seem to me that post the Tampa sell, you would pay things off and enjoy a lot of free lunches from bankers trying to get your business.

Yes, as we complete the Tampa sale, we will certainly have the flexibility to change the structure and explore alternative options. You are right, it is a strong banking market currently. The best approach, as we have indicated in previous calls, is that as we approach those closing dates, we will ensure we maintain maximum flexibility. We've been in discussions with the banks and having internal conversations. We will prioritize what is best and what brings the most value.

Operator, we have two callers in the queue and only a few minutes left. Let's move to the next caller, please.

Yes, sir. Our next question is from Christopher Sansone of Sansone Advisors. Please proceed with your question.

Hi, good morning. One quick question for me, regarding the $135 million award, how does the profitability on that award compare to your 2021 operating budget? Thank you.

It's in line with the work that we've been executing on and fits in line with what our guidance is for 2021.

The next question is a follow-up from Poe Fratt of NOBLE Capital Markets. Please proceed with your question.

Thank you. Gerry covered most of the points I wanted to address regarding cash flow and the balance sheet. I have a couple of follow-up questions to help us understand how quickly things could progress. The second reading for the Tampa City Council is on May 6th. How soon can you close after that? Additionally, regarding the $68 million available, how much of that is from the credit facility set to expire in June? Is it possible to cancel that early given your strong balance sheet and the free cash you are generating?

Well, regarding the first point, I will refer you back to my earlier comments. We believe that the capital property will be finalized sometime in the second quarter. Concerning the debt you mentioned, the 364-day credit facility concludes at the end of next month. We will have some flexibility with that banking group to advance our strategic plan, whether through creative mergers and acquisitions or other means. We have been in communication with our banks, and I believe we are all aligned.

Great. Really well-positioned. Thank you, Robert.

There are no additional questions at this time. I would like to turn the call back over to Francis Okoniewski for closing remarks.

Okay, thank you, Brock, and thank you everyone for joining our Q1 earnings conference call. We look forward to talking with you again in late July for our Q2 earnings results. Thank you and have a great day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.