Orion Group Holdings Inc Q2 FY2025 Earnings Call

Good morning, and welcome to the Orion Group Holdings Second Quarter 2025 Financial Results Conference Call. Please note this event is being recorded. I would like to now turn the conference over to Margaret Boyce, Investor Relations for Orion. Please go ahead.

Thank you, operator, and thank you all for joining us today to discuss Orion Group Holdings Second Quarter 2025 Financial Results. We issued our earnings release after market last night. It's available in the Investor Relations section of our website at oriongroupholdingsinc.com. I'm here today with Travis Boone, Chief Executive Officer; and Alison Vasquez, Chief Financial Officer. On today's call, management will provide prepared remarks, and then we'll open up the call for your questions. Before we begin, I'd like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate or other comparable words and phrases. Statements that are not historical facts are forward-looking statements. Our actual financial condition and results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-Q and 10-K. I'd also like to let you know that a reconciliation of unburdened EBITDA for our segments is available on the Investors section of our website at oriongroupholdings.com. With that, I'll now turn the call over to Travis. Travis, please go ahead.

Thank you, Margaret, and good morning, everyone, and thank you for joining our second quarter 2025 conference call. Before we cover the financial results, I'd like to introduce our new CFO, Alison Vasquez, who joined us last month. Alison has deep leadership experience across finance, M&A and the construction industry with several Fortune 500 public companies. With the first phase of our transformation largely complete, Alison brings the right blend of financial discipline and strategic insight to help guide us through the next phase of our growth strategy. After my market overview, I'll turn it over to Alison to discuss our financial results for the quarter. We've delivered another strong performance in the second quarter with revenue increasing 7% to $205 million and adjusted EBITDA doubling to $11 million from the second quarter last year. On a sequential basis, revenue grew 9% and adjusted EBITDA increased 34%. Our results were primarily driven by new contract awards in both segments and reflect our commitment to disciplined profitable growth. We continue to see strong demand across the markets we serve as evidenced by our backlog for both operating segments growing over the first six months of the year. Our opportunity pipeline also grew from $16 billion last quarter to $18 billion today, fueled by diverse growth drivers with multiple sources of public and private funding, which gives us continued confidence in our plans for growth. We remain focused on our business development strategy that prioritizes mission-critical projects with good margins for high-quality clients. In our Marine segment, we see robust opportunities resulting from the U.S. Navy strategy in the Pacific, port expansions, maintenance, coastal rehabilitation, and energy infrastructure. Our pipeline remains robust with several large-scale opportunities under active pursuit that represent potential work over the next couple of years and align well with our strategic growth objectives. Overall, we are encouraged by the breadth and quality of the prospects ahead and momentum remains strong. In the quarter, our marine business was awarded a contract for an export dock replacement project in the Pacific Northwest to remove and replace an existing timber berth structure and replace it with a new concrete structure supported by large diameter steel pipe piles. This project is expected to be completed in the third quarter of next year. We also won two projects with the Port of Tampa Bay. The first is a three-year maintenance dredging contract for the port, which is estimated to begin later this quarter and continues our long history of providing maintenance dredging for the Port of Tampa Bay. The second award is for a critical port infrastructure improvement project to support the rapid population growth in the Tampa region and increasing demand for construction and bulk materials. In our concrete business, we have strong opportunities with an expanding base of clients. Data center investment from hyperscalers and the AI race remains exceptionally strong. While we're experiencing increased competition on data centers from new market entrants in the concrete business, we continue to win a healthy share of opportunities coming to market by consistently exceeding client expectations, particularly in schedule, quality, and safety performance. Our pipeline is diverse. And in the quarter, we were awarded contracts for new projects spanning energy, consumer goods, and transportation. These projects are expected to commence in the third quarter of 2025 with an estimated duration of about a year. Last year, we expanded into Florida with minimal upfront investment and the results have been very encouraging. Both of our operating segments are now actively executing projects across the state of Florida. Building on that momentum, we recently opened an office in Phoenix to capitalize on continued data center investments and other commercial growth in Arizona. As we look ahead, we are enthusiastic about our long-term growth opportunities, which are driven by multiple concurrent sources of public and private funding. The recent move to our new headquarters in Central Houston has brought our teams across Houston together under one roof, fostering stronger collaboration and a unified culture. With the best operations teams in the industry and outstanding safety record and high barriers to entry that limit competition, we are well positioned to capitalize on the significant demand for marine infrastructure and concrete construction projects. The political winds are blowing in our favor with President Trump and the federal government focused domestically on reshoring manufacturing and shipbuilding in the U.S. and internationally on investing in military infrastructure in the Pacific over other geopolitical regions. In addition, we believe that the recently passed One Big Beautiful Bill Act will have several notable positive impacts for our Marine and Concrete businesses. Specifically, the bill appropriates $4.4 billion for shoreside infrastructure, including ports, maintenance facilities, and training centers. It also includes wide-ranging benefits for our energy and industrial clients to make their projects more financially compelling. For example, the bill includes provisions to lower operating costs, expedite permitting, and minimize taxes. Also, last week's executive orders were intended to further American AI dominance by incentivizing fresh investments in new data centers and related infrastructure. Combined, these tailwinds are expected to benefit the bookings environment over the next several years and will serve as a significant catalyst for our long-term growth. I'll now turn it over to Alison to discuss the second quarter financials. Alison?

Thanks, Travis. I'm delighted to be here. There's a real sense of momentum throughout the organization, and I've been thoroughly impressed by the caliber and commitment of the team. Top to bottom, the people of Orion are aligned and energized around our strategy to be the premier specialty construction partner, delivering with predictable excellence. It's clear that a great deal of work has gone into professionalizing both front and back offices, and the team has built a solid foundation, maturing the organization such that today, we are well positioned to pursue disciplined growth in attractive expanding markets. Broadly, I see tremendous potential for Orion to capitalize on favorable tailwinds across multiple mission-critical themes: infrastructure modernization, AI investment, defense, and energy security; great people, differentiated capabilities, happy clients and healthy end markets - what's not to love? And I definitely know that I made the right choice in joining Orion. I now will turn to the second quarter results. As Travis highlighted, we delivered an excellent second quarter with consistent execution that translated to top line growth, improved margins, and meaningful earnings growth on both a GAAP and adjusted basis. I'll start with the consolidated results, where revenues increased 7% over Q2 2024 and 9% sequentially to $205 million in the quarter. The increase was driven by new bookings and increased volume across both of our business segments. GAAP net income for the second quarter was $800,000 or $0.02 per share, and adjusted net income was $2.7 million or $0.07 per share. Adjusted EBITDA doubled to $11 million in the quarter compared to Q2 '24 with margins improving 240 basis points to 5.3%. The overall increase in profitability is primarily attributable to strong performance across both segments that I'll touch on momentarily as well as moderation of G&A, reduced borrowing costs, and some benefits from taxes coming through the quarter. In this quarter, we used about $5.6 million of cash for operations, primarily attributable to working capital timing on a couple of large projects, and we used about $6 million of cash for investing activities. We ended the quarter with approximately $31 million of net debt. From a backlog perspective, we added approximately $111 million in new awards and change orders in the quarter, as Travis mentioned earlier. And combined with a particularly strong first quarter, we reported a backlog of almost $750 million, which is up modestly for the first half of 2025. From a segment perspective, Marine revenues increased 3% over Q2 '24 and 6% sequentially to $135 million in the quarter, and Marine adjusted EBITDA grew to $12.7 million for the quarter, a 9.4% margin for the Marine operations. The Marine EBITDA dollar and margin growth from last year are primarily attributable to efficiently closing out projects in 2025 and project delays in 2024 that did not recur in 2025. For the Concrete segment, revenues increased 14% over Q2 '24 or 14% sequentially to $70 million in the quarter, and Concrete adjusted EBITDA was a $1.7 million loss compared to $4 million of profit in 2024. The EBITDA reduction year-over-year is primarily attributable to favorable project closeout benefits in 2024 that did not reoccur in 2025. It's worth noting that our reported segment EBITDA margins are fully burdened with both segment SG&A and corporate SG&A. If we exclude corporate SG&A from the operating segments, Concrete stand-alone contribution EBITDA margin would have been right at 5% and Marine would have been 13%, both generally in line with management expectations. Moving on to our financial outlook. We're pleased to reaffirm our full-year 2025 guidance of revenue in the range of $800 million to $850 million, adjusted EBITDA in the range of $42 million to $46 million, adjusted EPS in the range of $0.11 to $0.17 and CapEx of $25 million to $35 million. Now back to Travis to wrap it up.

Thanks, Alison. We've delivered a strong quarter of revenue, EBITDA, and EPS growth and are tracking nicely with our 2025 guidance. We have a healthy pipeline of private and public opportunities to support multiple enduring growth themes. The recent consolidation of our offices to our new headquarters has brought our teams together under one roof, fostering stronger collaboration and a unified culture. And we have the right team to execute on the next phase of our strategy. Finally, I want to thank all of our employees for continuing to execute safely and with predictable excellence and to our shareholders for continuing to believe in us. Thank you for attending our earnings call, and I'll now turn it over to the operator for questions and answers.

Our first question comes from Aaron Spychalla of Craig-Hallum.

Maybe first for me, good to see the pipeline grow to $18 billion. Can you just kind of talk about some of the key drivers of the expansion there? And then just thoughts on converting some of that to orders in the back half. Are you seeing any slowing or extending of kind of quote to orders?

I believe part of the reason for the growth in the pipeline is that we experienced a slightly lower level of bookings in the second quarter compared to the first quarter. This decline is largely due to private sector clients who may be hesitating due to uncertainty around economic conditions or tariff issues. Consequently, some private sector clients have been cautious about awarding projects. I think we are seeing a shift from the second quarter into the latter half of the year as confidence returns. Some clients are waiting to make significant decisions regarding project awards until they observe more stability and possibly some relief from interest rates.

All right. I appreciate the color there. And then maybe second on concrete. Can you just maybe give a little more color on the data center opportunity, what that pipeline looks like and growth outlook there? And then just on margins, it sounds like some closeouts and some of the corporate burden, but just maybe talk about the confidence in hitting some of the targets you've laid out for high single-digit margins there.

Yes. I guess, first on the high single-digit margins when we talk about that for Concrete, that's not necessarily immediate term, that's more in the longer term. So keep that in mind. But as far as the data center pipeline and activity there, it is still fairly hot. We haven't seen it slow down a lot. What we have seen is a few new entrants into the market, as I mentioned on the call, that are adding some additional competition, but we're still feeling really good about our opportunities, our partnerships with general contractors, and our ability to continue to do data center work.

All right. And then just maybe last on the balance sheet and cash flow. How are you thinking about free cash flow conversion in the back half? It sounds like there was some working capital in the second quarter.

Thanks for the question, Aaron. There definitely was some use of capital in the first half of 2025. I would say that it's a bit modulated or a bit improved over what we saw last year. But we are seeing some good indications just in the month of July, we've seen some good traction from a collections perspective. So some reverting back to the norm from a balance sheet and working capital perspective. We also ended July or we're ending July with a paydown of the borrowings that we had on the revolver. So that's nice to see in terms of just strength of the overall balance sheet and working capital focus across the organization, and we are seeing some improvement in that area. So we do expect the back half of the year to be good.

The next question comes from Julio Romero of Sidoti & Company.

Last quarter, I think you had mentioned four large pursuits with decisions expected in the next couple of months. I wanted to ask if you had any additional visibility into those specific pursuits and the decision timeline for those particular projects?

Yes. The projects I mentioned earlier experienced some delays in decision-making within the private sector, causing all four to be pushed slightly beyond the second quarter. One has been submitted, and we anticipate a decision in the next month or so. A few others are expected to finalize later in the third quarter.

Okay. Great. And does the new tax reform guidance passed in July help at all with regards to customer decision-making going forward?

I believe it will. As I mentioned, there is some uncertainty. The more certainty customers have, the more likely they are to invest in capital projects. It's really about comfort, clarity, and certainty regarding the variables that have been presented over the last six months. When people feel more assured about the future, they tend to open their wallets and start projects.

Yes. And I'll add to that by just saying that the bill absolutely makes permitting easier just from a deregulation perspective. There are definitely some tax benefits to make some of the investments a lot more financially attractive quicker. So it does help from an outlook perspective as our clients are thinking through what investments they make and where it will help them expedite some of those decisions by making those capital decisions a little more financially feasible in the near-term.

Got it. Very helpful. And then one more, if I could, just on the Concrete segment. I know you spoke a little bit about the competitive environment and some new entrants coming in, especially on the data center side. Can you maybe just talk about Orion and how you're positioning yourself to win as that environment has evolved?

Yes. I mean the good thing about the relationships we have with the general contractors that do a lot of data center work. We've got deep, long relationships. We've done a large number of data center projects, well over 30 projects that we've either completed or are in the process of completing with very strong work on the safety side and the quality side, meeting schedules, all the things that owners and general contractors care about on the data centers. So we're still in great shape from the relationship perspective and proof that we can deliver. And so that gives us a lot of credibility. And as we see some of these new entrants come in, I think they'll either fail and find their way out or I'm not concerned about it. I guess, I wanted to point it out because it's just in the interest of transparency, but we're still feeling really good about data centers and the number of opportunities in our relationships.

Our next question comes from Brent Thielman of D.A. Davidson.

I guess I wanted to pick a bit more on what the major drivers were to the strong bottom line performance at Marine this quarter. What sort of carries forward for you in terms of projects into the second half? How much do you still have to go out and get, I guess, ultimately to drive this kind of reaffirmed guidance here for that business group?

Sure. I think the biggest driver is we've got multiple good-sized projects going at once, kind of beyond just last year, we talked about two major projects that were real contributors on the marine side. That was the Hawaii project with Pearl Harbor as well as the Grand Bahama Shipyard. Well, we've got those two going, plus we've got multiple other fairly large projects that are underway and contributing a lot to the mix here. So it's more than just a tale of two projects. It's multiple projects contributing strong delivery by our teams, good discipline, and focus on the bids and bidding at the right numbers. And I think that's going to continue as we see all of these opportunities coming in front of us in the next six, twelve, eighteen months.

And Travis, presumably Hawaii and Bahamas wind down in the second half, but you've got a lot of other things going that I would think, maybe help smooth that transition. Is that fair?

That's fair, Brent. Yes, Hawaii and Grand Bahama will start to kind of ramp down, but not a ton until kind of late in the year and into next year, but they will start winding down, but we've got several other good projects that are contributing.

Yes. And I'll say I'll just add to that by saying that from a work under contract perspective, as we enter the second half, the work under contract outlook is quite good, as Travis mentioned in his opening remarks. And then also from a margin perspective, the margin performance through the first half of the year has been right in line with what we expected, right in line with the guide, and we expect to see just a continuation of the consistent delivery of both top line and the bottom line from an overall perspective.

Okay. I mean I know there was some pretty atrocious weather in some parts of your Concrete business this last quarter, I guess, as the sun shines again. Maybe you could just talk about maybe the pickup you're seeing in that business group here this summer?

Certainly. You mentioned the weather, which we acknowledge had an impact in the first half of the year. Our Concrete division faced challenges, particularly in Texas and Florida, due to adverse weather conditions. This has affected our revenue. However, we are hopeful that the second half of the year will see improved weather conditions in these regions, which typically have better weather during this time. We anticipate recovering some of the revenue we lost in the first half of the year for our concrete business.

Okay. Maybe just one more. The federal military kind of naval opportunities are vast, I know. As the update Travis, on timing, maybe I know is normal for these things to move around. But what are the award timing opportunities here for those things you're tracking and particularly in the Pacific?

Yes. We are definitely noticing some delays with the Navy opportunities. They seem to take longer to award than expected, and we are experiencing more of these delays. Regarding the timing, I am confident that we won't receive any awards this year. In fact, based on the latest update from last night, I don't anticipate any projects will be awarded in this fiscal year. Hopefully, by the middle of next year, we may see a couple of those opportunities come through, but it will be next year at the earliest.

I apologize, but without that information, do you feel confident there are good opportunities to build the backlog into the end of the year? Does the hesitation from the private side make you pause on that? Could you comment on this?

Yes, there are still plenty of opportunities, Brent. This applies to both the private and public sectors of our business, and we remain confident in our ability to build our backlog. While we may not have the same ambitious targets we set earlier in the year due to a quarter of slower opportunities, we are still optimistic about the year ahead and expanding our backlog.

Our next question comes from Laura Meyer from B. Riley Securities.

My first question is, you mentioned developing relationships with strong partners in data centers. Are you seeing opportunities to expand these relationships into other verticals?

Good question. Yes, definitely, we've got some of our strongest relationships with some of these general contractors. We are leveraging those to work on a medical project, for example, with one of our strong partners doing some higher education as well as some more commercial type industrial projects. So definitely, we've been able to leverage those relationships in other types of opportunities.

Great. And then one more. Are your order wins coming from market growth or more taking share from competitors? And how sustainable is this competitive advantage?

Are you referring to Concrete or Marine or all of the above?

All of the above, Travis.

Okay. I would say it's probably a mix where we're taking from competitors as well as having a better approach to winning the work by putting a lot of effort into upfront development of our bids and proposals and doing the work upfront necessary to create a better mousetrap, so to speak, to win the project.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Travis Boone for any closing remarks.

I just want to thank everybody for joining. Appreciate everybody sitting through our call today as well as also want to, as always, thank our guys out in the field working in the elements day in and day out to help us deliver our business. Have a good day.

This concludes our presentation. Thank you for attending today's conference. You may now disconnect.