ORN
#Thank you, <UNK>, and welcome to our call this morning.
I'd like to begin by thanking our 2,500 coworkers for their hard work, dedication and commitment to our company, as well as the generous support and outreach provided during the recent hurricanes, as they helped coworkers, family, neighbors, schools and charitable organizations to collectively clean up and move forward.
I'm extremely proud of the way our team has responded to these devastating events.
Excluding the one-time impacts we experienced during the quarter, all operations performed well and we experienced solid drivers for overall growth of the business long term.
As you are aware, during the third quarter, we experienced unprecedented impacts from three major hurricanes ---+ Harvey, Irma and Maria ---+ which affected over 85% of our operations.
This resulted in ongoing project delays, the delayed start of newly-secured projects and had a significant impact on our third quarter results.
Specifically, the impact was approximately $16.5 million in EBITDA during the third quarter.
However, because of the destruction caused by these hurricanes, we are experiencing higher demand for our services in the marine segment and we expect to see additional opportunities related to the storm effects over the next couple of years.
As an example, the rain event in Texas, due to Hurricane Harvey, brought significant levels of siltation into Texas ports and waterways driving increased need for dredging services.
To date, we are processing and working on multiple emergency call-out projects and are ready to meet our customers' needs.
While our business this quarter was significantly impacted by the storms, the underlying fundamentals of our business remain healthy and strong, and we continue to see good (inaudible) opportunities going forward.
Currently, our backlog remains at high levels with some increasing job margins in solid-bit opportunities.
As we look ahead, we will continue executing on our strategic vision of being the premier specialty construction company focused on meeting the needs of our customers across the infrastructure, industrial and building sectors while building our market share and enhancing shareholder value.
We will continue to execute this strategic vision through organic growth, greenfield expansion and strategic acquisition opportunities.
Specifically, as we increase our service offerings, we will continue to deploy capital to high return, high free-cash-flow businesses with a focus on increasing our return on investment capital.
We expect demand drivers to continue to lead the high-quality-bid opportunities across the infrastructure, industrial and building sectors.
The infrastructure sector, which today our marine segment services, continues to provide both public and private opportunities to maintain and expand marine facilities on U.S. waterways.
Throughout our operating areas, market fundamentals remain positive and we are seeing pockets of margin expansion.
As I previously mentioned, we anticipate increased bid opportunities in the near term related to the third quarter weather event.
This should provide an additional catalyst for increased asset utilization.
Additionally, private sector bid opportunities continue from downstream energy customers as they expand their waterside facilities associated with refining and storage.
Also, recreational demand continues from private-sector customers as local marinas are being expanded and remodeled, and bid opportunities related to cruise lines remain promising as we track projects related to new destinations or refurbishment of existing destinations in the Caribbean.
As we have mentioned before, volatility in the marine segment has been much greater than anticipated and we have and will continue to take the necessary steps to address idle labor and equipment costs because of this increased volatility.
However, the underlying fundamentals of this business remain sound with solid demand drivers, bid opportunities and a solid backlog.
Additionally, during the third quarter, permits related to the delayed project we discussed on our prior call were received.
This work has commenced as planned and is progressing well.
The building sector, which today our concrete segment services, continues to have solid long-term demand drivers as well.
The markets we currently serve continue to retain their positions as leading growth areas for business and population.
Population growth throughout our markets continues to drive new distribution centers, office expansion, retail facilities, multifamily housing units, educational facilities and medical facilities.
In Houston, we are experiencing some tightening in the market, but we expect to continue to maintain market share.
We are focused on expanding our market share in the Dallas-Fort Worth market, including adding structural opportunities.
Finally, we expect to continue to see solid growth in the Central Texas market as we continue to expand with fundamentally strong end-market drivers.
In the industrial sector, we will continue our greenfield expansion by combining talent and resources from the marine segment and concrete segment to continue to pursue foundation work inside the industrial environment.
The massive long-term, petrochemical-driven opportunities along the Gulf Coast provide significant potential to expand our addressable project opportunities.
In fact, the U.S. is on pace to become a net exporter of natural gas by 2018 as a result of the shale revolution which has led to increased domestic natural ---+ production of natural gas.
This will lead to an outpaced growth in the petrochemical industry, which should account for more than half of the construction spending in the manufacturing sector.
In closing, our fundamental business drivers remain solid.
We are working to reduce the volatility in our business by executing our strategic plan and focusing on complementary services with high returns.
While the severity of the third quarter weather impacts were unexpected, we will focus on meeting the opportunities these events create while continuing to right-size our marine fleet and reduce overhead cost.
We believe we have a strong business with good, long-term drivers and opportunities for solid shareholder returns.
Now, I'd like to turn the call over to Chris to review the financial results in more detail.
Chris.
Thank you, <UNK>.
And thanks for joining us.
For the third quarter of 2017, we reported a net loss of $5 million or an $0.18 loss per diluted share.
These results compare with a net income of $4.7 million or $0.17 earnings per diluted share in the prior year period.
Excluding impacts from the storm <UNK> mentioned, the income for the third quarter 2017 would have been $7.3 million or $0.26 earnings per diluted share.
Contract revenues for third quarter 2017 were $140.2 million, of which 49% came from the marine segment and 51% came from the concrete segment.
Third quarter 2017 revenues from the marine segment decreased 17% compared to last year.
This decrease was primarily driven by weather events that <UNK> mentioned earlier.
Third quarter 2017 revenues from the concrete segment decreased 12% from the prior-year period.
This decrease is also primarily driven by the impacts of hurricanes, particularly Hurricane Harvey in the Houston and Central Texas markets.
In total, 26% of our consolidated third quarter of 2017 revenues were generated from federal, state and local government agencies, while 74% were generated from the private sector.
This compares to 28% of consolidated revenues being generated from federal, state and local government agencies and 72% from the private sector in the prior year period.
Consolidated third quarter gross profit was $7.8 million or a gross margin of 7.7%, which compares to prior year gross profit of $24.2 million or a gross margin of 14.7%.
During the third quarter 2017, we saw decreases in consolidated EBITDA and EBITDA margins due to the weather events.
Third quarter EBITDA was $2 million or 1.5% EBITDA margins.
This compares to third quarter 2016 EBITDA of $18.1 million or 11% EBITDA margins.
Excluding the impacts from the weather events, third quarter EBITDA would have been $18 million or a 13% EBITDA margins.
SG&A expenses for third quarter 2017 were $16.5 million as compared to $15.3 million in the prior year period.
SG&A was 12% of revenues, up from 9% in the prior year quarter.
This increase is primarily driven by the inclusion of the recently-acquired Central Texas Concrete <UNK>.
Going forward, we would expect SG&A as a percent of revenue to decline as revenue growth outpaces SG&A expenses and as we continue to reduce our overhead costs.
For the first quarter of 2017, we bid on $752 million worth of opportunities and were successful in approximately $110 million.
This resulted in a 15% win rate for the quarter and a book-to-bill ratio of .
79 times.
On a year-to-date consolidated basis, our win rate was 19% to book-to-bill of .
88 times.
As of September 30, 2017, we had a backlog of work under contract at $383 million, which compares to $388 million or relatively flat as compared to the prior year period.
Of our September 30, 2017 backlog, $199 million is related to the marine segment, while $184 million is related to the concrete segment.
Additionally, we are the apparent low builder or have been awarded subsequent to the end of the third quarter an additional $140 million worth of opportunities.
Of that, $100 million is related to the marine segment, while $40 million is related to the concrete segment.
In total, (inaudible) we currently have over $520 million of projects in backlog and low bids.
This level of activity gives us optimism about where we are headed for the remainder of 2017 and 2018.
Now, turning to the balance sheet, after making payments during the quarter of $15 million on a revolving line of credit, we have approximately $2.7 million of cash on hand and access to approximately $49 million under our revolving line of credit.
We ended the quarter with approximately $82 million in total debt outstanding.
Subsequent to the end of the quarter, we drew $20 million on a revolving line of credit to fund ongoing working capital needs.
We believe that our combined liquidity position is adequate for general business requirements and for servicing our debt going forward.
Year to date, the company has produced approximately $32 million of cash flow from operations and paid down approximately $22 million of total debt.
Since entering into our credit facility, we have reduced our total debt outstanding by $67 million as of September 30, 2017.
As we go forward, we will continue to focus on paying down debt with excess free cash flow.
As a result of the weather events experienced during the third quarter, we amended our credit agreement to provide more room with regard to our leverage ratio requirement as well as some other minor changes, including an add back of the weather-related events during the third quarter of 2017.
Regarding leverage ratio, going forward, our leverage ratio cannot exceed 3.0 times our (inaudible) 12-month adjusted EBITDA basis.
By making this amendment, we provide adequate cushion within our covenants going forward.
We are pleased with the continued support from our lenders and look forward to continuing a long relationship with our bank group.
Finally, our bonding program remains solid and is more than adequate to support our bid activities.
Turning to our outlook, we continue to see strong demand for services across our business.
As <UNK> mentioned, while the weather events have caused short-term disruptions during the third quarter, they will provide a catalyst for increased demand drivers in the future.
We are seeing this increase in demand for certain services now and expect to see additional demand in the future.
Our elevated backlogs (inaudible) remains at near record level and we are optimistic, given the same sitting opportunities we continue to see.
Currently, we have $970 million worth of total business outstanding of which $295 million are related to the marine segment, $675 million are related to the concrete segment.
As we look at full-year 2017 guidance, we recognize the volatility of marine-segment experience this year, plus the weather events during the third quarter has led to changes in the (inaudible) of cost, and, therefore, has led to changes in the goals we set for the year.
We expect the fourth quarter will see increased activity and a return to normal profitability levels with higher asset utilization and solid project execution.
Our goal is and always will be to deliver profitable returns for our shareholders.
The company is proactively adapting to the changes in our market and we are focused on growing profitable business lines.
Orion has a strong future and we are adapting to reduce volatility in our earnings and results.
As we look at 2018, we will continue to adjust our business to reduce volatility.
Demand from the weather events plus ongoing strong demand in our in markets will provide a catalyst for some bottom-line improvement in 2018.
This bottom-line improvement should expand more significantly in 2019 and beyond.
Overall, we remain optimistic about our prospects for long-term profitable growth and we remain committed to delivering improved results as we move forward.
Additionally, we look forward to continuing to expand our infrastructure, industrial and building sectors as we adjust the business where necessary to deliver improved shareholder value.
With that, I'll turn the call back over to the operator to begin the q-and-a portion of the call.
Thank you.
We thank you all for joining us on the call today, and I look forward to speaking with you next quarter.
In the meantime, if you have any questions, please feel free to reach out.
