Orion Group Holdings Inc Q3 FY2022 Earnings Call

Thank you for joining us for the Orion Group Holdings Third Quarter 2022 Earnings Call. To minimize background noise, all lines have been muted. Following the speakers' presentations, we will have a question-and-answer session. I will now hand the call over to Francis Okoniewski, Vice President of Investor Relations. Mr. Okoniewski, you may proceed.

Thank you, Jack, and good morning, everyone, and welcome to Orion Group Holdings third quarter 2022 earnings conference call and webcast. Joining me today are Travis Boone, Orion Group Holdings President and Chief Executive Officer; and Scott Thanisch, Executive Vice President and Chief Financial Officer. Regarding the format of the call, we've allocated about 10 minutes for prepared remarks in which Travis and Scott will highlight our results and update our outlook. We will then open up the call for questions. During the course of this call, we will make projections and other 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 uncertainty, 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 our future results. By providing this information, we undertake no obligation to update or revise any 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 rules of the Securities and Exchange Commission, including Regulation G. Please refer to reconciliations and definitions inclusive of the most comparable GAAP measures and reconciliation tables accompanying this earnings conference call within the press release issued last evening. 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 would like to turn the call over to Travis Boone, President and Chief Executive Officer. Travis?

Good morning. Thank you all for joining. I'm happy to be talking to you for the first time today from this seat. Thanks to Austin for leading the business for the past couple of quarters and for helping me make this transition into the role. He did a great job of setting Scott and me up for success. Also thanks to our people who have endured a lot of uncertainty over the past year or so, and remain committed and kept working hard through the challenges. We wouldn't have a business without them. I'm very excited to be leading this team at Orion. We have great people, a robust market, and opportunities to build our business and grow organically in the coming years. I came here because this company has extraordinary potential and is uniquely positioned to be so much more than we are today. I've been in the construction and engineering industry my entire life. From my start working for my dad as a teenager to leading a business with thousands of employees and billions in revenue, I'm well-suited and prepared to address the challenges we've seen as a company and refocus our business to build a strong foundation and a healthy future. Scott and I have spent the last six weeks listening and learning the business with the teams on the ground. We've been in most of the offices and at multiple project sites. We've also been talking to our investors and analysts. We've been soaking in all that we can in order to build the strategy for the next year and beyond. Our confidence in this business comes from the strong base that exists in the markets that we have and will expand into. We will continue executing on operational improvements and know we can deliver strong and predictable results. My observations have been that we have an environment in our end markets that will lead to successful outcomes. We're winning high-quality work and we're winning more of it. We have tremendous people who are loyal and doing very good work every day. And we have opportunities to expand our business. Some of our areas for improvement, we will be working on our processes systems and tools. We will continue focusing on rigor and discipline in both project bidding and delivery to bring in higher margins. We're looking at our costs, and have already identified some ways to reduce our overhead burden. And lastly, we have opportunities to grow and improve with targeted investments into the business. We have a qualified team to transform this business. We aren't looking at it short term. This is going to take some time to get it right. We are building something that will be successful year-in and year-out for the long haul. We have been working aggressively toward a stronger business with higher returns, and making the necessary investments to achieve success for our business. I'll turn this over to Scott Thanisch, our Chief Financial Officer, to discuss our results for the quarter.

Thanks, Travis. Before turning to our financial results, I'd like to introduce myself and like Travis, give my first impressions from the six weeks that Travis and I have been on board. I joined Orion because I see a tremendous potential in this company. Having served as Chief Financial Officer of a Texas commercial construction services company and a transport services company, I am operationally focused and I have a passion for this industry. Over my nearly 30 years as a finance professional, I've been fortunate to work in organizations that recognize the value of finance leadership that is deeply engaged with the operations. Travis and I share this view of the finance function's role, and I'm prepared to apply the same discipline and rigor to my role here at Orion with finance and operations working hand-in-hand to achieve results. Throughout the past few weeks getting to know the team, I'm encouraged that we have a group of talented finance professionals with the capability and experience to effectively partner with operations to capture the transformational opportunities on the horizon. Another thing that excites me is the opportunity to transform Orion's business performance by leveraging data to provide business insight. Orion generates a wealth of operational and financial data in day-to-day operations. World-class finance teams can turn data into business intelligence, intelligence that is critical to making strategic and timely moves in a dynamic environment. I believe our finance organization at Orion has the ability to be a crucial business partner to Travis and to our operational leaders. Throughout my career, my passion has been to create high-performing finance teams that helped transform business results. Here at Orion, I will be focused on developing our people, retooling our processes, and aligning our systems to drive value for our business. Over the past few weeks as Travis and I have traveled to meet many of our team members, customers, investors, and financing partners, we've heard from our stakeholders about areas where we can improve and we've also heard a great deal of optimism about our business. For me, one of the most impactful of these interactions was our opportunity to join the TAS team in Dallas on a recent Saturday for our annual safety barbecue and awards. Hearing the passion and commitment of our frontline team members, some of whom have been with the company over 40 years, really brought home our ability to deliver safe, high-quality work for our customers. We have the right attitude and the right capabilities. Our focus will be on improving our planning, managing excellent execution, and delivering consistent results. Now, turning to our quarter. Revenues for the quarter were $183 million compared to $140 million in the third quarter of 2021 and $195 million in the second quarter of this year. The year-over-year increase was primarily driven by the contribution of large marine projects that were awarded in the fourth quarter of 2021, higher volume in our concrete segment, and the impact of claims and unapproved change orders related to work performed in previous periods. Third quarter gross profit was $13.4 million compared to $6.6 million in the prior year period. This increase was the result of the claims and unapproved change orders recognized in the quarter, lower discretionary project bonus expense, and increased dredging activity compared to the prior year. Third quarter gross profit was down 6.3% as compared to the second quarter. And year-to-date, 2022 gross profit of $40.5 million is up 18% compared to year-to-date 2021. As a percentage of revenues, gross profit margin was 7.4% in the third quarter, up from 4.7% in the prior year period and in line with the second quarter's gross margin. Turning to the segments. In the third quarter, the marine segment had revenues of $76 million and adjusted EBITDA of $11 million, equating to an adjusted EBITDA margin of 14%. And our concrete segment had third quarter revenues of $107 million and adjusted EBITDA loss of almost $2 million and an adjusted EBITDA margin of negative 1.7%. During the third quarter, we continued our focus on closing out concrete jobs in Central Texas. This region contributed less than 15% of our concrete segment revenue in the quarter, but at significantly lower margins than we achieve in other markets. We expect to complete most of the remaining Central Texas backlog during the fourth quarter. SG&A expenses for the third quarter were $15.4 million, or 8.5% of revenues, compared to $15.7 million, or 11.2% of revenues, in the prior year period. And net income for the third quarter was $0.2 million or $0.01 in diluted earnings per share. Excluding $0.5 million of nonrecurring items, adjusted net income was $0.8 million or $0.02 diluted earnings per share. Third quarter adjusted EBITDA was $8.8 million, representing an adjusted EBITDA margin of 4.8%. This compares to an adjusted EBITDA loss of $0.5 million in the prior year and adjusted EBITDA of $5.7 million and adjusted EBITDA margin of 2.9% for the second quarter. Turning to our bidding metrics. In the third quarter, the company bid on $1.2 billion worth of opportunities and were successful on $128 million of new work. This resulted in a win rate of 10.5% and a book to bill ratio of 0.7 for the quarter. At the end of September, backlog was $549 million, down from $573 million at the end of the prior year period. Of the quarter-end backlog, $280 million was in the marine segment and $268 million in the concrete segment. We will burn 83% or $456 million of the quarter-ending backlog during the next 12 months. In addition to this backlog, there's $39 million of new work that has either been awarded subsequent to the end of the third quarter, or for which the company is the apparent successful bidder. Of this, $36 million is related to the marine segment while $3 million is related to the concrete segment. As Travis mentioned, our increased bidding discipline is yielding results. We want to win jobs on the basis of our ability to deliver quality, timely projects at a good price, not merely by being the low-cost bidder. Our recent wins in both segments are benefiting from this discipline. And we will continue to focus on those opportunities where we have higher job margin potential. Moving to the balance sheet. The company ended the quarter with $31.1 million of outstanding debt and $2.7 million of cash, resulting in a net leverage ratio of 2.88x adjusted EBITDA as measured under our credit agreement. The company is in compliance with our credit agreement covenants. And at the end of the quarter, we had almost $11 million of available capacity under our revolver. We have initiated discussions with current and potential financing partners as we evaluate options for the extension or replacement of our existing credit facility. With that, I will turn the call back to Travis for his closing remarks.

Thanks, Scott. There are a few items about which I'd like to provide an update. As Scott commented, we are continuing our exit strategy in Central Texas which will enable our refocus concrete business to perform better in our Houston and Dallas markets. Our new dredge to Lavaca will be operational and working in the next couple of weeks. This was a major investment for us over the past year or so. We have a signed purchase agreement for sale leaseback of one of our Port Lavaca properties, which will close in December. We are continuing to make progress with interested parties on the East West Jones property on the Houston shipping channel. We're also looking at ways to monetize some of our other assets to further reduce our debt. As we turn our attention to delivering fourth quarter and planning for next year, Scott and I and the team will be developing a strategy for this business to facilitate growth, deliver better returns more efficiently and diversify our portfolio to help safeguard our business. We will be focusing on strong project delivery, disciplined decisions on proceeds to make the best use of our BD dollars, continuing to bid with strong margins, expanding our client base, identifying overhead efficiencies, streamlining our systems tools and reporting, evaluating opportunities to assist with Hurricane Ian recovery and capitalize on the IIJA which is the Infrastructure Act as it comes online. And finally, building contingency plans for supply chain issues and inflationary and recession concerns. I'd like to say thank you to our longstanding customers, suppliers, and vendors. Your support of our business and our relationship with you are crucial to our success. In closing, I'd like to reiterate my excitement about joining Orion and leading this team to reach the huge potential that we have as a company. We have a lot of hard work ahead of us. We have investments to make, and we have some things we need to do better. But I'm very confident in our ability to maximize the potential that we have. I'll turn it back over to the operator for your questions.

Certainly. Joe Gomes with Noble Capital, your line is open.

Good morning, Travis and Scott. Congratulations on the quarter.

Thanks.

Thanks, Joe.

So first question, in the press release you mentioned a couple of times about the impact from claims and unapproved change orders. I was wondering if you could kind of maybe give us a little more color or detail on how much impact those have on revenues and gross profit for the quarter? And maybe kind of as a follow-on to that one, you also had about a $3.4 million gain on disposal of assets. Perhaps you could just give a little more color on what assets that came from?

Sure. In terms of our customer contracts, we're not going to comment on details of some of the workings of those. But these were change orders and some claims that we have related to some large projects on the marine side. They were costs that were recognized in previous quarters. So these are essentially the impact of those claims and the margin from those claims flowing through on the quarter. In terms of the gain on sale that is recognized in the quarter, we sold a couple of assets. One was a spud barge, I believe, and the other was a ringer crane. Those were assets that were not being utilized in our operations. And it was a great opportunity for us to turn those assets into cash.

Okay. Thank you for that. In the concrete segment, last quarter, I know you guys weren't in charge then, but Austin talked about how the concrete segment in June had turned profitable and expectations were that in the third quarter, we could see profitability on the concrete segment. Looking again at the press release, it wasn't on an operating income level profitable. Instead, it reported about a $4.1 million loss. I was wondering what changed between the second quarter call and the rest of the quarter in that segment that was not able to show profitability?

Yes. Joe, part of this relates to our ongoing efforts in Central Texas, where we are working to exit the market. We are focused on completing some projects as efficiently and profitably as possible, but this has continued to impact our concrete business negatively. That's the main factor contributing to the situation. Additionally, there are several projects we bid on last year that we are still completing, and their margins aren't meeting our current guidelines. We are also looking to finalize these projects. Overall, we're experiencing continued challenges from previous work that we need to clear from the pipeline.

Yes. As we work towards exiting that business, there are associated costs related to the equipment and personnel.

The Central Texas business.

The Central Texas business, right. We'll need to reallocate to other parts of our business or find some other way to shed those costs. So that will be a continuing impact as we continue to exit. But our plans are essentially to reallocate where we can those assets to much more profitable use.

Okay. And obviously, at the end of the quarter, we had Hurricane Ian come through Florida. I know you guys had a number of projects scheduled to start in the fourth quarter or were started in the third quarter. Just maybe if you could give us high level of detail on what kind of impact the hurricane had on your business, either positively or negatively?

So it was, I would say, neither positive nor negative for the impacts during the storm. We were prepared and braced for the hurricane to hit the Tampa area where we had quite a bit of work going on. Unfortunately for Fort Myers, it took an abrupt turn and didn't hit Tampa as expected. And we didn't have a ton going on in the Fort Myers area, so we were braced for it but were relatively unimpacted and we're back to work pretty quickly after the storm went through. We are looking to assist with Hurricane Ian recovery in the coming months and probably years. So we are doing a lot of work preparing for assisting in the recovery down there.

And there's a number of governmental organizations and private organizations that we've been in contact with that we see positive developments coming out of those conversations.

Okay. I have one more question, and then I'll step back in the queue. I realize it's early in your tenure, but I'm sure you're aware of the Kiewit purchase from about a month or six weeks ago. I'm curious about how you think that will affect the competitive landscape for your company.

We're still assessing that situation. Kiewit is both a partner and a competitor in some instances, and we're analyzing what the effects will be for us. Clearly, there are other competitors as well. We have been discussing this matter and don't expect any significant changes in the near future. I am aware of Kiewit's public statements indicating that they do not plan to alter their operational approach for the foreseeable future. Therefore, at this moment, we do not anticipate any major impacts.

Thanks, guys. I appreciate the answers to the questions. I'll pass it along.

Thanks, Joe.

Alex Rygiel with B. Riley, your line is open.

Hi. Good morning. This is Min Cho for Alex. Welcome, Travis and Scott. I look forward to your leadership in turning and growing this business going forward. I just wanted to get your general thoughts on Travis, maybe your general thoughts on the concrete business longer term. I know you talked about more disciplined bidding. But are you thinking about new geographies or just focusing on the two in Texas right now and in new industries, different types of contracts? Just any thoughts there would be helpful?

Sure. First of all, let's say we have a lot of confidence in our concrete business going forward. I think there are numerous opportunities that we have. As far as the markets go, we will continue to focus primarily on Houston and Dallas. We will be opportunistic in other locations as opportunities arise that make sense for us. We've got some great teaming partners in that business that if they ask us to come help in another location, we're ready to go. I'll also say that in this business, we have historically always worked with private developer-driven projects. My background includes heavy public sector experience, and I anticipate that we will start working on expanding more into some public sector work to help supplement the private sector work that we do already. I think that's a big opportunity for us to grow that business in a place that we have historically not worked. So I believe there's great opportunity there for us and I look forward to helping drive that business in an additional direction.

Okay. And then this is for Scott, kind of staying with the concrete business. As we get through these problem projects and some of the legacy projects that have the lower margins, are you suggesting that fourth quarter concrete margins should see sequential improvement or could it be worse as some of these projects wrap up? Any guidance for the fourth quarter would be helpful?

Yes, I appreciate the question. I think it's probably too early for me to say that there's a significant change in our expectations for the fourth quarter from what you've heard before. I do think that as we roll forward and start to bring on some of the newer work that's been bid at higher margins that will help. We're also, as Travis mentioned in his remarks, looking at ways in which we can lower our overhead costs across the board. That includes in the concrete segment. So those are going to be positive tailwinds. And of course, the thing I mentioned earlier on making sure that we reallocate assets to shed expenses, that's going to be key for our execution to improve the margins of that business as quickly as we can.

All right. And then also, I mean the prior questions about the claims, are you expecting any more claim settlements in the fourth quarter? And without them, I'm assuming margins could be a little bit softer in the fourth quarter, just overall.

No, I don't have any specific expectations for claims in the fourth quarter. Of course, it's always a part of our business and it can arise at any time. We continue to work with our customers. And just as in the concrete business, we're very focused on making sure that we're bidding and executing at the right margins. So those are going to be the factors I think that drive our performance going forward. Change orders and claims just kind of go in and out with the flow of the business.

Okay. And you've talked about supply chain. Obviously, there have been some headwinds. Can you give kind of an update on where the headwinds are, or just what the supply chain situation is on the concrete, steel rebar, and how you can mitigate some of this going forward if you're seeing increased headwinds with increased infrastructure projects coming forward?

We don't have any specific instances impacting us currently, aside from the general global concerns about supply chain issues. Recently, there have been discussions regarding diesel shortages, which is worrying because it’s a new issue. We do use a significant amount of fuel in our fleet and throughout the company, so that’s a primary concern for us right now. We are exploring ways to collaborate with our partners and vendors to support the supply chain and help alleviate these issues. However, aside from the widespread concerns about supply chain challenges, there isn’t much that is new or different from what we have discussed before.

Another thing that we're obviously going to be focused on, like everybody, is making sure that we have appropriate escalation clauses in all of our contracts. So that's an important part of our discussions with future and existing customers.

Okay. And then I think you mentioned a little bit about the East West property. Can you just give us any timing on that, and just talk about how it's progressing?

Regarding timing, it would be speculative to make any predictions at this moment. However, we have made good progress with some interested parties, which gives us hope. I understand that this has been a recurring topic for several quarters, but we believe we are advancing, especially in the past few months. The current environment for selling property is uncertain for everyone due to the recession and similar factors. Thankfully, we have interest from some parties who are in a position to proceed even during a recession. We may not provide further comments on this topic, but we remain optimistic about moving towards a resolution in the coming months.

And we are actively engaged. They conduct their due diligence in answering questions. We're prioritizing that process as much as we can.

Okay, great. Thank you. That's it for me. And good luck, gentlemen.

Thanks.

Thanks.

Julio Romero with Sidoti & Company, you can now proceed with your questions.

Thanks. Hi. Good morning, Travis, Scott, and Fran.

Hi, Julio.

Hi, Julio.

I'd like to start by digging more into your thoughts on strategy. You identified some items in your prepared remarks, process systems, better discipline on bidding and delivery. If you could just speak more to what Orion needs to change from an operational perspective, and if you could give us a rank order of sorts?

Yes, you've heard from Austin for the last couple of quarters about disciplined bidding. I think that's something that we're going to be continuing to focus heavily on to make sure that we're capturing the appropriate margins, and we've been at work. We're focusing on quality, not quantity. And so that will continue going forward. I think from the perspective of overhead costs and things like that, that's part of running a business. And every company should be evaluating costs and how we're delivering our business to make sure we're doing it as efficiently and as profitably as we can. So we'll be looking at that pretty heavily here in the coming weeks and months to find ways to do our business more efficiently. And then as far as processes, systems, and tools, that's something that we have been working on for some time in our company and got a good head start on it, but we need to get some things kind of finished up over the next year or so, some internal projects on how we do our processes and systems. And so we're working on getting those fully executed.

And I would add that one of the things that's going to be a critical success factor for us is our ability to execute well. And so our project controls, process, and the way in which we manage projects, that's something that Travis and I are digging into deeply to see how we can improve that and really deliver our projects in a way that can delight our customers.

Got it. That's very helpful. Thank you. On the concrete side, you talked about increasing the mix of public sector projects going forward. How do you weigh the benefit of taking on more public sector work for the greater funding certainty, I assume, versus the downside of potentially lower bid margins on the public side?

Yes, I believe there are a few important factors to consider, Julio. During recessions, developers often face limitations on their activities, but the public sector typically continues to move forward. This will help us navigate economic challenges. Furthermore, pursuing public sector work will not replace our private sector efforts; rather, it will complement them and provide an additional avenue for growth in our concrete business, allowing us to remain focused on our core markets while still being profitable.

Okay, got it. And you mentioned in the quarter Central Texas made up 15% of the concrete sales. Would you happen to have what that percentage looked like, either on the prior quarter or maybe 2021 in general?

Less than 15%. I don't have the exact number right now, but we can follow up on that. Our focus on the concrete business will continue, as it currently accounts for less than 15% of our revenue for the quarter and less than 8% of the remaining backlog. Therefore, it will keep declining, and we will concentrate on markets where we have had more success.

So last year, it made up less than 15% is what you're saying?

No, I don't have the number handy with me. But I'll let you know on the next quarter, we can give you more detail there.

Okay, no, all good. And then maybe just last one is just, you might have touched on it, but on the asset sales, just if you could reiterate maybe the expected use of funds there?

Yes, we used the proceeds from those asset sales to reduce our revolver balances. And so it's now sitting in revolver availability and available to us as general corporate uses might dictate. But our strategy really is to deleverage the business over time through some of these asset sales. So as we proceed with additional opportunities, I think that's going to be reflected on our balance sheet in that way.

Appreciate the color, and thanks very much for taking the questions.

You bet.

Dave Storms with Stonegate, your line is open.

Good morning, everyone. Thank you for taking my call. I have a question for management, Travis and Scott. With your background in the construction industry, is there anything you’ve noticed during your meet and greets that could be easily improved regarding quality in your first 100 days?

Thanks, Dave. I think one of the things that I've seen is we're a company that is built of numerous acquisitions. And I'll say we haven't been as integrated as I would like us to be in, in the respect of sharing best practices and how we deliver our projects. We have a lot of great people doing great work in multiple markets. And there hasn't been a lot of sharing of resources or processes between the different groups. I think that's something that we'll be focusing on doing more going forward. I think that's the first thing that comes to mind. I don't know if Scott has something to add to that.

Yes, I agree with that. I think that there are low-hanging fruit that we've seen in some of our overhead expenses, as Travis mentioned earlier, things where just some renegotiations with vendors, some opportunities to maybe consolidate locations would be able to recognize in a pretty rapid way some real benefits for the business. And that's something that I've told Travis. One of my favorite meetings of the week is the invoice review session that I do with our IT team because it's a great opportunity to just see how the business has been spending its money and I see ways in which we can spend it better. So there are low-hanging fruit opportunities, and we're going to get out there and execute them quickly.

That's perfect. Thank you.

I have one more thing, if that's okay.

Yes, absolutely.

I would say kind of one of the things that we're looking at pretty hard is how we procure materials. I think historically, we have procured materials on a project-by-project basis. I think there's some economies of scale opportunities here where we could, for example, whether it's rebar or concrete curing compound, or whatever it might be, think of some opportunities for us to get some good efficiencies by buying more in bulk than we have historically, instead of buying project-by-project like we have done.

And that would also help in a time when we're concerned about supply chain delivery to de-risk some of our operations as well.

Perfect. Thank you. So would it be fair to say that a lot of opportunity for growth is more organic than external at this point?

Yes, absolutely. As we focus on organic growth potential of the business, which we think is tremendous.

Perfect. Thank you. And then, Scott, this might be a little more for you. As we think about the infrastructure bill and the Hurricane Ian potential for more bids coming up, do we have an expectation on timing for that? Are we going to start seeing that coming through in the fourth quarter, or are we already seeing it? How would that bell curve kind of look?

No. Unfortunately, I don't think we have a strong view on timing. Certainly, there are a lot of elements of hurricane recovery that are going to be more urgently needed than others. As Travis and I mentioned earlier, we're engaged in conversations with potential customers that need those services and I think there's an opportunity to realize some of those quicker than others. On the Infrastructure Act, that's going to be a long tail as there is just a tremendous amount of money that needs to be spent. It's going to take some time. So I think that that's going to be more of a lift of our business over a period of time that extends out fairly into the medium to long-term range. So they're both going to be able to deliver value for our business, short and long term. And we just need to kind of execute and prioritize appropriately.

That's perfect. And one more for me, if you don't mind. When you talk about your leverage ratio and your asset dispositions, are you thinking of that from a more point where you want to get rid of certain assets, or are you thinking of it from you want to get your revolver down to a certain spot? Are you thinking of it from assets located in certain geographies that you're more inclined to get rid of? How are you thinking about the end goal there?

Yes. So in terms of our existing debt, I don't think that we're highly levered right now. We have I think a comfortable level of debt. But it is more about making the best use of our assets. And so we have items to be used across both of our segments, where we might be able to share things better and drive utilization higher. And that may free up assets that no longer have use for us. We also have some assets where, as we mentioned, moving out of the Central Texas business, there just may be things that we don't need as we continue to do that. So it's going to be more focused on getting the right asset base to drive the growth of our company forward than it is to hit a particular leverage point on the balance sheet.

That's perfect. Thank you very much.

You bet.

Poe Fratt with Alliance Global Partners, your line is open.

Great. Good morning, Travis. Good morning, Scott. Good morning, Fran. Just a couple of quick ones, if you wouldn't mind. I know that you seem hesitant to offer an actual number for the change order impact during the quarter. Can you just give us a ballpark number or what kind of impact from a dollar value standpoint that had?

What I can tell you is it was a significant contribution to our earnings and our revenue in the quarter. And we'll have that from time to time as we work with our customers around changes that happen on work that we're working on. So that's about as much as I can give you. But certainly happy to answer any other questions you've got.

Yes, so you have identified some potential cost improvements over the last 100 days. Can you provide an approximate figure for the expected cost reductions? Additionally, I noticed that ERP spending has decreased. Does this suggest that the ERP project is either on hold or that there will be less focus on it? It seems crucial for integrating the various aspects of the concrete business to enhance the bidding process. Could you share your perspective on what you are considering regarding cost reductions?

Yes. So in terms of what kind of potential there may be, I could probably hazard a guess but I would almost certainly be wrong. And I don't know if that would be high or low. Because I see that there's a lot of potential but quantifying and figuring out what the cost to achieve those savings might be, that's going to be really the next step to figure out where our priorities are. And as we kind of think about our long-term plans in the business and ERP and where we're spending money there, certainly systems are going to be an important part of how we leverage the data to drive better decisions and execute more profitably on our contracts. And so I would expect that we'll continue to see some investment there. I think that what Travis and I are going to be focused on initially are where we can get some quick wins and that may be through relatively small investments that can drive a benefit for the business quickly. So ERP and other spending to drive cost improvements I think will be metered to where we kind of have the ideas and are able to deliver things in a short time that can really benefit the business. That low-hanging fruit that we've talked about, we want to start getting a few wins under our belts so the team gets that experience of winning that then kind of carries forward into performance and looking for all kinds of opportunities that we can improve.

Poe, so we've been here just right at six weeks or so in the business and we've been focusing on getting our arms around what all is here. I think the next step for us will be identifying more specifically what those savings might be able to be achieved. We'll probably be better positioned here in a few months to give you a better, more direct answer on how much we think we can save. But we have in the short amount of time we've been here learned a lot but we've got some more to go before we could speculate on how much we can save.

You seem to suggest that you have made more progress on that. If you consider the challenges we've faced, one of the weaknesses has been in our bidding discipline. Do you believe one business needs improvement in its bidding practices, or do you think both do?

I think both have already improved significantly, Poe. I think Austin instituted some guidance a while back that has been followed and will continue to be followed. So I think both businesses have made improvements over the past couple of quarters on how we bid our work. We'll continue focusing on that and finding ways to be even more disciplined about how much we pursue, what we pursue, the quality of the work that we're going after.

Can you give us an idea of sort of the margin targets that you have for both businesses? And then I'm not sure you have this detail, but for Central Texas, would concrete have been profitable during the quarter, either from an operating standpoint or an EBITDA standpoint?

I'll answer the first part and let Scott answer the second part. I think from the perspective of competitive advantage, it would be foolish of us to start advertising too much about margins and things like that. So I'll hold back on that. I'll say we're confident that we're bidding projects with healthy margins.

Yes. And in terms of the concrete business and our exit of Central Texas, yes, that's been a drag on the business in the quarter. In the absence of that drag, that would have been a profitable segment.

That's helpful. In your press release, you mentioned Port Lavaca, which we've been discussing for about five or six quarters. My understanding was that the targeted proceeds from Port Lavaca were around $5 million. Has the scope of that transaction changed at all? Did it shift from a straight sale to a sale leaseback? Can you provide some insight on that? Additionally, how confident are you about the closing of that deal given the history there?

I'm not entirely sure what the previous plans were for the property. What I do know is that it is a sale leaseback. We do need that property to operate our dredge business, so we will continue to operate under a leaseback arrangement for that property. As far as the scale of it, to my knowledge, it has always been more than $5 million. I'm not sure what has been discussed historically, but I think we are confident that we secured a good price on it. Scott, do you want to add anything to that?

I think that it's as you said. We think that we got a good price. It's a good transaction for us. I have a good deal of confidence that we can execute that in a timely way. So that's our focus is really getting that done, and then finding those other opportunities that we can go execute.

And we do have a signed purchase agreement that says we'll close in December of this year.

Okay, great. Regarding East West Jones, the initial expectation was that it would generate around $30 million in proceeds. Is that still a reasonable estimate, or is it too early to determine since you essentially had to restart that process?

We are currently evaluating our marketing strategy for that property in collaboration with our partner CBRE. As we proceed and they engage with the interested parties we are working with, I don't anticipate any changes in value unless negotiations necessitate them. If this process extends, we will reassess the current economic conditions and our market position to decide how to move forward. For now, our focus remains on the buyer we have and finalizing that transaction.

Great. And just one last one if I can squeeze it in. Your outstanding bid levels or I think you said $1.8 billion, can you break that down between marine and concrete? And then successful bids to date, $36 million on the marine side, $3 million on the concrete side, the concrete side seems a little light so far as far as successful bids, a third of the way into the quarter. Any cause for concern there?

I think what you're seeing there is that more discipline in bid margin that we're putting in there. It is intrinsically going to lead to fewer wins when we're being disciplined about our minimum bid margin. So we're focusing on working with quality partners and where we have great relationships and moving forward with doing work that is a healthy margin.

And in terms of the outstanding bids and how that mix looks between the segments, it's more tilted towards concrete, maybe two thirds of that outstanding bid total is concrete. But our bid activity is always ongoing. And I would expect that as we report our next quarter, the mix of that bid, our outstanding bids could change pretty significantly. So the current shift is towards concrete, but we'll see how things progress going forward.

Great.

Sorry, one more thing I'll add just since we're talking about bids. We are in the process of submitting the largest bids in our history in both concrete and marine currently.

The largest bids ever. Can you provide more details about that?

No. They're ongoing bids, Poe. I can't talk about them. But I did want to put that out there. We're being aggressive about what we're going after and finding projects that are good fits for us. These are both great fit projects, and we're aggressively pursuing them. So I prefer not to talk further about it.

Hope to have good news.

Later, we can tell you about good news.

You sort of dangled some red meat out there. Can you just maybe give us a timeframe on when you expect the bidding to wrap up, or the bid process to wrap up? And are these negotiated situations or are they competitive bid?

Let's say they're competitive bids. One of them will take a few months for us to know. The other one will be a little sooner than that. And there may be some negotiation on one of them.

Got you. So stay tuned. Really appreciate your time. Thanks for your help.

Thanks, Poe.

I will now turn the call back over to the management team for closing remarks.

Thanks everyone for joining and your interest in our third quarter earnings conference call. We look forward to speaking with you again in February to discuss our fourth quarter and year-end results. Have a great day.

This concludes today's conference call. We thank you for your participation. You may now disconnect.