Orion Group Holdings Inc Q3 FY2025 Earnings Call

Good day, and welcome to the Orion Group Holdings Third Quarter 2025 Conference Call. This event is being recorded. I would now like to turn the conference over to Ms. Margaret Boyce of Investor Relations. Please go ahead.

Thank you, operator, and thank you all for joining us today to discuss Orion Group Holdings Third 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 of Orion; and Alison Vazquez, 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. With that, I'll turn it over to Travis. Travis, please go ahead.

Thank you, Margaret, and thank you all for joining us today. I'll cover our financial highlights and market update, and then I'll turn it over to Alison to discuss our detailed financials. Before I start, I'd like to highlight that Orion was recently recognized by E&R Magazine as #2 in the top contractors in transportation in the marine and port facilities category and #15 in the top 20 concrete contractors in the U.S. This recognition reflects the strength of our team, the quality of our work and the growing reputation we built in both the marine and concrete markets. Now onto the quarter. I'm excited to announce that we delivered another strong third quarter marked by top and bottom line results, robust cash generation, good bookings and market-leading safety metrics. We have also continued to advance strategic priorities, including expanding our bonding capacity by another $400 million, continuing to strengthen our Board with the appointment of Robert Ledford, being shortlisted on strategic INDOPACOM MAX and closing the sale of the East West Jones property in October. With a strong balance sheet, disciplined capital deployment strategy and a focus on long-term strategic execution, our team is laying the foundation for Orion's next phase of growth. As we enter the fourth quarter, Orion is well positioned to take advantage of multiple growing tailwinds that span robust AI investment, increasing domestic focus on reshoring manufacturing, commercial and public investment in marine infrastructure and defense expansion across the Pacific. Our talented team is poised to build on our momentum and capture the exciting opportunities on our doorstep. Following another strong quarter of performance and with a favorable outlook, we are pleased to raise our FY 2025 annual guidance for revenue, adjusted EBITDA and adjusted EPS that Alison will cover in detail in her remarks. Moving on to our opportunity pipeline, bookings and outlook. Our aggregate pipeline is a healthy $18 billion with over $1 billion of opportunities that we have submitted and are awaiting award. During the third quarter, we booked over $160 million in new contracts and change orders that were balanced across our Marine and Concrete segments with each of our operating regions contributing wins. Starting with our Marine segment. Recent awards included installation of a crane trestle for a major transportation project and maintenance dredging for the Army Corps. Across our marine markets, activity remains strong with multiple opportunities advancing across all regions. In the Pacific, we are pleased that NAVFAC recently selected teams on which Orion is a key marine construction contractor on strategic multiple award or MAC contracts. As most of you know, these selections shortlist a group of prequalified contractors who can compete on future task orders, limiting the competitive landscape. Having been shortlisted based on our team's proven technical expertise, performance and safety record, we are now eligible to pursue work in the Pacific that leverages our core marine capabilities. Most recently, in September, our team was shortlisted on the $15 billion Pacific Deterrence Initiative contract or PDI MAC. This MAC streamlines the acquisition process for major infrastructure projects throughout the Pacific, enabling faster execution of essential projects across the INDOPACOM region. Larger opportunities under this MAC are expected to be procured in mid- to late 2026. In June, our team was shortlisted on the $8 billion Hawaii Wake Island MAC. These bidding vehicles are important milestones in our long-term growth strategy, and we expect that much of the Navy's specific infrastructure investment over the coming years will flow through these contract vehicles, along with several other MACs that we are also pursuing. Our Atlantic business continues to be hot in both project delivery and opportunity outlook. Constant focus on operational excellence, commercial discipline and pursuit prioritization combined to deliver strong profitability and a durable growth outlook ahead. The Gulf business is equally exciting with expanding backlog and an opportunity pipeline that gives us confidence in our growth outlook. We continue to see a healthy mix of negotiated private marine construction and dredging work supporting energy, chemical and bulk material clients, along with robust public sector federal, state and port authority opportunities. In summary, our Marine business is well positioned in growing markets that value our proven track record of executing safely with predictable excellence. Moving on to Concrete. Our concrete business continues to benefit from a strong growing near-term opportunity pipeline that spans data centers, multistory buildings, medical, warehouse and industrial manufacturing projects. Concrete awards in the quarter were led by multiple data center projects, a large cold storage facility and a handful of manufacturing and health care projects. Demand for data centers shows no sign of slowing and our deep partnerships and track record with major hyperscalers and general contractors in this space position us well from a competitive standpoint to continue to win work and capture that growth. Having delivered 39 data center projects, we've earned a strong reputation for reliability and performance, which we're now using to fuel expansion into Florida, Arizona and other high-growth data center markets. And finally, I'm very pleased to share that we closed on the sale of our East West Jones property in October for a purchase price of $23.5 million, something our team has been advancing for quite some time as many of you are keenly aware. We intend to use the proceeds to reduce debt and for general corporate purposes. In connection with the sale of this property, we also entered into an exclusive dredge spoils agreement with a buyer that gives Orion the right to deliver dredge spoils to the property for 10 years, giving our team a competitive advantage in the Houston Ship Channel. In summary, as we look ahead, I'm confident in our positioning and optimistic about the future. The AI boom, combined with lower interest rates and lucrative incentives for our clients to invest domestically are catalyzing our Concrete segment. On the marine side, increased federal investment in military infrastructure, as well as port expansions and dredging that are required to keep pace with maritime transportation and logistics are clear catalysts to growth. I couldn't be more pleased with our talented team, and I'm excited about Orion's positioning to build on our momentum and capture the significant opportunities ahead. I'll now turn it over to Alison to review our financial results. Alison?

Okay. Excellent. Really good stuff, Travis. Thank you. Let's dive into the numbers. So first, the consolidated results for the quarter. We're pleased to report revenue of $225 million, operating income of $5 million, adjusted EBITDA of $13 million and adjusted EPS of $0.09 per share in the quarter, which results were generally in line with management's estimates and in line with our updated full year guidance, which I'll cover shortly. From a sequential perspective, these results represent 10% growth in revenue, 20% growth in adjusted EBITDA and 27% growth in adjusted EPS. The sequential top and bottom line growth were driven by increased volume, strong execution, favorable utilization, primarily in our Marine segment and reduced borrowing costs. As compared to the third quarter of 2024, our 2025 results were comparable for revenue, lower for operating income, adjusted EBITDA and adjusted EPS. This reduction was caused primarily by favorable project closeouts in 2024 that did not reoccur this quarter, an increase in SG&A to support and invest in business growth, a decrease in gain on sale of disposals as compared to 2024 and partially offset by reduced borrowing costs in 2025. I'm pleased to report that we generated $23 million in operating cash flow in the quarter and $14 million year-to-date. We wrapped up the quarter with $21 million of net debt or just under 0.5 turn of leverage on a TTM EBITDA basis, which is a very healthy place for Orion. As Margaret covered earlier, in October, we were very happy to close on the sale of the East West Jones property. The transaction resulted in a significant cash upside of over $22 million, net of commissions and taxes and a nominal book charge, which will be reflected in our fourth quarter results. We expect to use the proceeds to pay down debt and for general corporate purposes. From a backlog perspective, we added approximately $160 million in new awards and change orders in the quarter. And at quarter end, backlog stood at $679 million. Moving on to segment results. From a segment perspective, Marine revenues increased just about 2% over the third quarter of 2024 and 6% sequentially to $143 million in the quarter. And Marine adjusted EBITDA grew over 50% to $18 million in the quarter, which represents a 12% margin this period compared to 7% in the same quarter of 2024. Strong marine margins are attributable to a greater mix of higher-margin revenue, excellent execution and project closeouts and favorable equipment utilization. Concrete revenues decreased 5% over prior year and were up 17% sequentially to $82 million in the quarter, and Concrete incurred a $4 million loss in adjusted EBITDA for the quarter compared to a $4 million profit in the third quarter of 2024. The reported adjusted EBITDA reduction is primarily attributable to favorable project closeout benefits in 2024 that did not reoccur in 2025. Some weather issues in the quarter also impacted chargeability in our concrete business this quarter. For reference, Concrete's contribution EBITDA margin in the quarter was right at 2%. I'll wrap up with our guidance update. We're very pleased to update our full year 2025 guidance as follows: increasing our revenue guide to $825 million to $860 million; increasing our adjusted EBITDA guide to $44 million to $46 million; increasing our adjusted EPS guide to $0.18 to $0.22 and reiterating our CapEx guide of $25 million to $35 million. I'll now pass it back to Travis to wrap it up.

Thanks, Alison. We have all the pieces in place to finish the year strong, and I'm even more excited about what lies ahead in 2026 and beyond. I want to thank our shareholders for their continued confidence in us and our people for the exceptional work they do every day in the field to deliver safely for our customers. Operator, we're ready to take questions.

Our first question today will come from Aaron Spychalla with Craig-Hallum.

First for me, I noticed a slide in the deck on the pipeline detail on award dates and opportunity size. Can you just maybe talk a little bit about that? Has that split by opportunity size been pretty consistent? And just any thoughts on expected traction with some of those larger opportunities?

Sure, we can discuss that slide. We've been talking about our pipeline for some time now and its growth. We've been working to provide more clarity on the pipeline due to numerous questions about it. We aimed to present it in a way that gives people a better understanding of what’s included, when it's expected, and the size of the opportunities. Overall, I would say it's fairly consistent. Our pipeline for the upcoming year is very strong, and we still have some solid opportunities this year that we're focused on bringing in, along with very promising opportunities for 2026. Is there anything else to add to that?

Just to reinforce the earlier statement about the more than $1 billion in awards, projects, and opportunities that are pending decisions, the figure has remained quite stable at around $1.2 billion, which is a very positive position for us. This amount has actually increased throughout the year, reflecting some delays and pauses from our clients. It's encouraging to see that the number of bids submitted and awaiting awards continues to remain a robust $1.2 billion.

Understood. And then does that include the opportunity in Washington with the Estuary? Or maybe just can you give an update there on how that's progressing?

Good question. The Deschutes Estuary project that we won almost a year ago is expected to start around late 2024 or early 2025. It's not included in the pipeline because it's an awarded but not booked project. While we've won it, it doesn't appear in our backlog or pipeline. It sits in a sort of limbo until we actually get under contract to do the work, which will likely be about a year from now before we begin. Good question.

Got it. And then can you just give a little bit more detail on the data center opportunity? Just how much of the concrete business does that represent today and maybe the pipeline there? Are you seeing quoting pick up? An average deal size pickup and just how you're thinking about opportunity there as we head into 2026?

It's remained very steady in terms of the data center opportunities. We have been bidding on a significant number of data center projects. Specifically, about 27% of our pipeline consists of data centers, and this also represents approximately 27% of our current revenue for the quarter. In terms of concrete, 27% of its revenue for Q3 came from data centers, and there is a lot of ongoing activity with bid opportunities.

Travis, Alison mentioned the negative operating profit for concrete. Are we expecting to see a more profitable mix in the backlog as we approach the fourth quarter?

Yes, we expect concrete to remain strong. While comparing it to last year may not seem favorable due to significant gains at this time last year, we are confident in the profitability and solid performance of our concrete business.

Great. And have you seen any either good or bad movement on major projects due to policy changes with the administration?

We haven't seen any movement related to policy changes. Some of the activity we've observed has been associated with the private sector in the last couple of quarters awarding projects due to uncertainty around tariffs and similar issues. There have also been some shifts in opportunities, like those with the Navy in the Pacific that I mentioned last quarter, which have been pushed back a year due to funding from Congress and other factors, but there have not been any shifts or changes related to policy.

Yes. I would just add that from a regulatory perspective, I mean, the deregulation that we're seeing happening is a benefit to our clients and some of the tax benefits that are coming in on deductibility of interest and deductibility of fixed assets, the acceleration of those things, those things should continue to the outlook for our commercial clients, especially.

I guess, Travis or Alison, maybe the first question just back to Marine. I'm trying to think through these really strong results here, the contribution from your two big projects to those margins. And then I guess, when we get into the point of what we think is kind of a sustainable margin threshold going forward for the segment, especially considering some of the somewhat slower bookings here in the last couple of quarters.

Sure. I'll start on that. From a margin perspective, we were really pleased with the Marine's performance in the quarter. We noticed some benefits from upsides, but these were not unusual in terms of amount or magnitude. We had great performance across the business, especially in the Atlantic and the Gulf. Dredging also showed strong performance, which will be reflected in our Q report later today. The strong performance in dredging positively impacted both our top line and bottom line due to favorable equipment utilization. While there were a few upsides recognized in the quarter, they were not particularly significant. The more meaningful driver of our performance was the operational performance, primarily led by dredging, so hats off to that team.

Okay. And then the elevated SG&A, Alison, as you mentioned, is sort of a factor for the lower year-on-year EBIT performance. I guess your thoughts on where that goes going forward? What is that predominantly focused toward sort of how do you harvest that investment you're making in the business as we think about that going forward?

Sure. I would say that a couple of million of that SG&A uptick from a year-over-year perspective is related to investments in the business, like just directly advancement of or the expansion into the Atlantic or region for concrete into Phoenix, some of those offices that we're investing in that we're setting up so that they will fuel some of the organic growth that we are expecting going forward. And then I would say that probably the other big driver is there is some lumpiness associated with how certain employee costs were recorded last year as compared to this year that created a quarter-over-quarter increase, but from a sequential perspective, pretty consistent and in line.

Okay. And then last one, just considering the balance sheet here. You've obviously got the property sale, which comes in at the end of the year. Maybe just your expectations for cash flow in the fourth quarter, especially as some of these larger projects wind down and presumably receivables come in. Should we expect to see a significant increase in cash flow by year-end?

The East West Jones results in $23 million of cash that contributes directly to our bottom line. This will be classified as an investing activity rather than an operating one, but it is cash that we have already received, which is beneficial. From the overall business standpoint, I do not observe any decline in our cash collection pace. Our team is diligently focused on identifying, targeting, and reducing our overdue balances while optimizing working capital on the balance sheet. Although we report on a quarter-to-quarter basis, you can notice the impact in the drop in interest expense this quarter. This reduction is due to the substantial effort put forth by our team to optimize the balance sheet, allowing us to minimize borrowings under the revolver. In terms of fourth quarter expectations, we anticipate receiving good cash flow from East West Jones. There hasn't been any slowdown in cash collection in the rest of the business. We have a few months left to monitor, but thus far in October, it has been positive.

Congratulations on the sale of East West. That's great news.

Alex. You've been hearing us talk about that for a lot of years.

Good to see you got the sale done. Quick question for you on that. Is there a way for us to think about what the present value of the dredge spoil sort of 10-year agreement is at that site?

Yes. We are likely going to keep the specifics to ourselves for competitive advantage. One reason we were comfortable accepting a lower purchase price is that we found a way to repurpose the property for future use as a site for dredge spoils.

That's good news. And then as it relates to your expanded bonding capacity, can you talk about the value of bonds you have outstanding right now? And I guess what I'm trying to get to here is just what is the kind of remaining opportunity balance that you have with that new bonding capacity?

We had a decent amount of available capacity before this increase. This increase allows us to pursue larger projects and supports the growth we expect in the coming years. We will continue to work on increasing our bonding capacity to ensure we can keep up with our growth and bid on bigger projects.

And then lastly, as it relates to the data centers, have you seen a notable increase in the size of the project opportunity for these data centers? And how does that compared to, say, two or three years ago?

Compared to two or three years ago, there are definitely some larger projects in the mix now. We completed a significant project a couple of years ago in North Texas, which was somewhat unique. However, it appears that now we have more visibility and are bidding on larger data centers. We've mentioned the large data center project we're currently working on in Iowa, which is considerable in size.

Our next question will come from Jason Ursaner with Bumbershoot Holdings.

Congrats on finally closing the East West Jones sale and a great quarter. It was about a year ago that I was asking you during the World Series about this Field of Dreams vision, and there was kind of clear daylight for significant growth in demand for the marine services coming over the next couple of years and just not a lot of contention, it felt like that you've kind of built the right platform to capitalize it. And so the question I have then was kind of really around execution and margin profile. And so it feels like kind of this year, some of those big pursuits with the Navy slid out a little bit, kind of started to talk about the transformational growth in 2026 and beyond. And so not a lot of change in the vision, but just kind of maybe this delayed onset. So just kind of to update on the overall long-term vision that you're building it and that it's coming. on the demand side, everything from your prepared script, the bonding, the preapproved MAC team kind of sounds like there's still a lot of clear catalysts that all the growth is coming and answered it a little bit in the Q&A, but maybe just reiterate anything that could cause shocks to that investment in the Pacific and just sort of this whole vision of demand materializing. And then to the extent that it does kind of come the way you're envisioning, whether you still think it's likely to translate to some of those long-term profitability targets that you previously laid out?

Sure. Thanks, Jason. I think you partially addressed your question for me, but we still see everything the same as we did a year ago, perhaps with even more confidence now because we've achieved some important milestones over the past year. Our vision remains unchanged. The only notable difference is that some larger contract opportunities in the Pacific have been delayed by a year. This is really the only change compared to a year ago. We are actively investing and working towards the growth opportunities we see ahead of us. Everything is progressing as planned, and I would say that everything within our control is exceeding expectations. The main challenge we face is those opportunities being pushed back. However, we believe we have executed our plan effectively, and we are committed to continuing this trajectory. When those opportunities arise, we are ready to seize them and keep moving forward.

Yes. I would just add that the great aspect of this business is its multifaceted nature. The opportunities in the Pacific are exciting and present significant growth drivers for the future. However, we are currently engaged in a large project in Texas focusing on a major bridge over water and an important port project in South Carolina. We are actively pursuing and successfully executing various other opportunities outside of the Pacific. While the Pacific is thrilling, it is not the sole focus of our efforts.

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

Thank you all for joining our call today. We're super excited about where we are as a company and looking forward to coming back to you with our year-end results here in a few months. And I also want to thank our team, all of you guys working hard every day to make this business work. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.