ORN
#Thank you, <UNK>, and welcome everyone to our call this morning.
I'd like to begin by thanking our 2,500 coworkers for their hard work and commitment to our company.
Additionally, I would also like to welcome our new colleagues from Tony Bagliore Concrete or TBC.
The TBC acquisition executes on our strategy to expand the TAS brand into Central Texas.
And we look forward to working with ---+ together with Tony and the TBC team to build upon the services they've been providing in the Austin area over the last several years.
Turning to the first quarter.
I'm pleased with the market opportunities we saw during the quarter.
Highlights of the quarter include: a 7% year-over-year increase in contract revenues; bidding on $668 million worth of project opportunities; maintaining an elevated level of backlog and further developing our targeted infrastructure, industrial and building sectors.
Overall, we executed well on our projects during the first quarter.
However, as anticipated and mentioned on our fourth quarter earnings call, our first quarter reported results were impacted by customer-related delays on certain jobs in our Marine segment.
This impacted our margins during the quarter, which Chris will touch on later.
Our Concrete segment continued to execute well and generated strong results for us in both the Houston and Dallas-Fort Worth markets.
As previously stated, we believe the Central Texas market is an attractive market for our concrete segment and possesses the necessary keys for success in the light commercial and structural concrete construction business.
As I mentioned in this morning's press release, we've have begun to integrate TBC into our TAS operations, and we look forward to the long-term growth opportunities presented by the growing market in, and around Austin, Texas.
As we look ahead, we will continue to execute ---+ 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.
Today, we are specifically focused on solidifying and improving our operational results in the Marine segment, while also working to expand and grow our concrete segment.
Additionally, we are actively pursuing opportunities in the industrial sector through collaborative efforts between our Marine and Concrete segments.
Through this collaboration, we can leverage our skill sets and customer relations to expand our addressable markets and deliver quality services that meet our customers' needs.
We will continue to execute our strategic vision for the greenfield expansion, vertical integration opportunities and other acquisition opportunities.
We expect to continue to see solid market fundamentals and good bid opportunities for our services.
Additionally, we are poised to take advantage of overall economic improvement and potential increases in infrastructure spending.
Our Marine segment continues to see demand opportunities from both the private and public sectors.
Our emphasis remains on effective execution on projects, improving dredge and equipment utilization and controlling costs in order to maximize profitability.
In the private sector, recreational customers are seeking construction, restoration and enhancement of marinas, piers and dock infrastructure.
Additionally, we continue to see demand from downstream energy customers to accommodate increased shipment barge traffic and for expanded storage facilities for waterside terminals.
In the public sector, demand from federal, state and local agencies continues to offer opportunities for our services.
Additionally, the new administration has signaled an expansion of public-private partnership, or PPP initiative, which we believe could provide opportunities ---+ more opportunities in the next 2 to 4 years.
At the federal level, we are monitoring budgeting and funding developments, and we continue to expect to see federal opportunities throughout our operating areas.
We are pleased to see progress being made on funding for the remainder of fiscal year 2017.
And are hopeful our appropriations bills will be passed for fiscal year 2018 prior to October 1, which would provide better visibility to the market.
At the state level, we continue to see opportunities for bridge construction with funding under the FAST Act.
And we are also seeing opportunities for work related to the RESTORE Act.
Additionally, we continue to see demand for infrastructure improvements from local port authorities throughout the markets we serve, as they execute on their expansion strategies much of which is being driven by larger ships and increased cargo volumes related to the expansion of the Panama Canal.
This activity will be a driver of opportunities for our services for dredging projects, infrastructure improvements and associated maintenance services.
Moving over to our Concrete segment.
The Houston and Dallas-Fort Worth metropolitan areas continue to provide opportunities, as apparent through our record high $415 million worth of projects bid in the first quarter.
We expect demand in our market to remain steady throughout 2017.
In the Dallas/Fort Worth market demand is currently being driven by warehouse and distribution facilities, office space, retail and grocery stores.
We will continue our efforts to capture market share and improve efficiencies in this market.
In the Houston market demand is currently being driven by warehouse and distribution facilities, education, retail and medical expansion.
Strengthening economic conditions could provide ---+ could prove to be an incremental catalyst for this market.
Turning to our newest market, with the acquisition of TBC, we are expanding our TAS brand into Central Texas.
The Austin, Texas metro area consistently ranks at the top of surveys for U.S. cities, with the highest population growth rate.
As a reminder, population growth is a key driver for concrete construction opportunities.
We are very excited about this new platform that allows us to leverage expertise from our other concrete markets into this area.
As stated in our release announcing the TBC acquisition, we expect significant development along the I-35 corridor from San Antonio through Austin to Waco.
And we will now be well positioned in this market.
Opportunities in the industrial sector are being driven by billions of dollars of expansion underway or planned along the Gulf Coast.
Our efforts include pursuing projects that leverage our skill sets and customer base to expand our addressable market by meeting additional customer needs related to petrochemical expansions, terminal expansions, storage expansions and LNG facilities.
In closing, the market fundamentals in both our segments remain sound.
We believe we have the backlog and bid opportunities to achieve our 2017 objectives.
We continue to focus on improving operational results in our Marine segment, growing our Concrete segment and pursuing opportunities in the industrial sector.
Now I'd like to turn over ---+ the call over to Chris to review the financial results in more detail.
Chris.
Thank you, <UNK>, and thanks for joining us.
For the first quarter 2017, we reported a net loss of $1.8 million, or a $0.07 loss per diluted share.
These results compare with a net loss of $1.2 million or a $0.04 loss per diluted share in the prior year period.
Contract revenue for the first quarter 2017 was $139 million, of which 48% came from our Marine construction segment and 52% came from our Concrete segment.
First quarter 2017 revenue from our Marine segment increased 8% compared to last year, primarily due to improved operations in our Tampa office.
First quarter 2017 revenue from our Concrete segment increased 7% from the prior year, primarily driven by solid execution and continued strong demand.
In total, 40% of our consolidated first quarter 2017 revenues were generated from federal, state and local government agencies, while 60% was generated from the private sector.
This compares to 22% of consolidated revenues being generated from federal, state and local government agencies and 78% from the private sector in the prior year period.
The change in mix of customers in the first quarter was primarily driven by timing of certain jobs, which were impacted by customer permitting delays in the Marine segment.
Consolidated first quarter gross profit was $13 million, or a gross margin of 9.4%, which compares to gross profit of $14.7 million or a gross margin of 11.3% in the prior year period.
This decrease is primarily a result of the timing and mix of awards.
Specifically during the first quarter 2017, our Marine segment experienced changes and the start of some projects due to customer permitting delays.
As a result, we saw a change in the mix of our business leading to an increase in revenue, but at a lower margin profile than the prior year due to underutilized equipment and people.
This resulted in a decline of gross margin during the first quarter of 2017.
EBITDA for the first quarter of 2017 was $6.1 million or a 4.4% EBITDA margin.
This compares to EBITDA of $8.1 million or a 6.2% EBITDA margin in the prior year period.
SG&A expense for the first quarter 2017 was $15 million or 10.8% of revenue as compared to $15.5 million or 11.4% of revenue in the prior year period.
For the first quarter 2017, we bid on $668 million worth of opportunities and were successful on $100 million.
This resulted in a 15% run rate for the quarter and a book-to-bill ratio of 0.72x.
The win rate for the first quarter 2017 was affected by the timing of awards and a significant amount of quoted and low bid work for which we're expecting award.
As of March 31, 2017, we have backlog of work under contract of $395 million, of which $238 million was related to the Marine segment and $157 million was related to the Concrete segment.
Additionally, we are the apparent low bidder or have been awarded subsequent to the end of the first quarter, an additional $41 million worth of opportunities.
Of that, $32 million is related to the Marine segment, while $9 million is related to the Concrete segment.
In total, this means we currently have $436 million of projects between backlog and low bids.
This level of activity gives us optimism about where we are headed in 2017 and 2018.
Now turning to the balance sheet.
As of March 31, 2017, we have $1.5 million of cash on hand and access to $47 million under our revolving line of credit.
We ended the quarter with $96 million in total debt outstanding of which $1.5 million was related to the revolver and $94 million was related to the term loan.
Subsequent to the end of quarter, we drew an additional $15 million on our revolving line of credit to fund ongoing working capital needs.
As we go forward, we will continue to focus on paying down debt with excess free cash flows.
We believe our liquidity position is adequate for general purpose requirements and for servicing our debt going forward.
Additionally, we were in compliance with our financial covenants at the end of first quarter 2017, including being below the required 2.75x leverage ratio.
Going forward, we believe we will be in compliance with our covenants including the final leverage step-down to no greater than 2.5x to 1 on the leverage ratio, which occurs in the second quarter of 2017.
Finally, our bonding program remains solid and is more than adequate to support our bid activities.
As we look ahead, we continue to see strong demand for our services across our business.
Our high backlog portfolio bid remains at a record level, and we're optimistic, given sustained bidding opportunities that we continue to see.
Currently, we have $863 million worth of total bids outstanding, of which $281 million is related to the Marine segment while $582 million is related to the Concrete segment.
As we look at full year 2017, we continue to expect EBITDA to grow a minimum of 40% as compared to full year 2016.
We believe we will generate a significant improvement in EBITDA through sustained bid opportunities, high backlog and a return to growth from our Tampa operations.
As I have commented previously, we could see our performance in this year-over-year EBITDA growth target if permitting delays ease quicker than anticipated, growth in our concrete business accelerates, Tampa operations growth accelerates, or we experience higher bid margins as a result of the increasing focus on infrastructure repair and upgrades that is currently being anticipated in the U.S. Additionally, any expansion or vertical integration of our existing operations or future operations in the infrastructure, industrial or building sectors could provide a further catalyst for EBITDA growth outperformance.
In closing, we are optimistic about our prospects for profitable growth in 2017, and the years to follow.
Our Commercial Concrete segment continues to perform well and the TBC transaction expands our concrete footprint into the thriving Central Texas market.
Our strategy to target projects in the infrastructure, industrial and building sectors will continue to provide us with greater diversification allowing for increased flexibility to meet our customers' needs.
Overall, we're excited about where the company is headed, and we look forward to delivering enhanced returns to our shareholders in 2017.
With that, I'll turn the call back over to the operator to begin the Q&A portion of the call.
So we did anticipate to see growth in EBITDA, as we go through the year.
And keep in mind Q1 is seasonally our weakest quarter going into the back end of the year.
So we would expect to start to see that to pick up.
On the covenant compliance, particularly, this is an adjusted 12-month look-back covenant compliance.
So we believe with the opportunities we have in hand, cash flow, free cash flow from operations, our ability to pay down debt that we will be in compliance with that in the second quarter and beyond the second quarter, as well.
We keep in mind Q2 is the final step-down, so it will drop to 2.5x.
But then going forward, we believe we'll be in compliance with that just through our normal operations.
So again, we continue to see some EBITDA growth, but then with the overall operations and debt management we should be in compliance going forward.
Well, if you look at going from Q1 to Q2, I mean, I don't know if it's fair to say double or not.
We're not going to comment specifically on that.
What I will say is, we do expect to see growth.
As we've talked about previously, the back end of our year is always our busiest part of the year.
That's both on the Marine side and on the Concrete side, although it's a little more dramatic on the Marine Construction side.
And like we talked about, we had some of the permitting delays that impacted Q1.
We've seen that lighten up a little bit here and a few of those goes through.
But there's still some that are delayed.
So I would anticipate to see growth in that, but probably a little bit more back-end loaded from the year.
I think that's fair.
Clearly it depends on the timing and the mix of the jobs that we execute throughout the year.
But given the TBC acquisition, and keep in mind what we talked about, it's a little bit of transition here as we implement a few things from SOCDS compliance, et cetera, that we expect that to be bottom line-wise neutral, maybe slightly accretive.
But from that aspect, I think, you're kind of in the ballpark from a total revenue perspective and then focused on clearly, the EBITDA.
No, the other ---+ Matt, the other part of that is just a little ---+ as we said in the release, announcing the acquisition and then again today, we expect that to be neutral to slightly accretive.
And the reason we're saying that is, it is a transition year.
I mean, we feel very good about the acquisition.
We're very pleased about being in that market and think long-term, that will provide a lot of benefits.
But we just want to be conservative for this year because it is an integration period right now, and getting that plugged into the TAS operations.
So we'd rather outperform that expectation but essentially, we just ---+ we're saying that we think neutral to slight and then hopefully, we outperform that.
Yes.
I would say we're adding a little bit of the layer of conservatism.
Our outlook for the overall business, if we go back to Q1 prior to the acquisition, has not changed.
But given some of the permitting delays we saw here in the first quarter, we want to be smart at how we look at this going forward.
We're working on that very diligently.
I can say we're making progress.
And ---+ we have made progress across the board on these, and we feel good about the direction we're heading to get these resolved.
No.
They will be part of TAS.
They ---+ we have ---+ TBC has not traditionally done a lot of work in the structural market, so that's an area for expansion for us.
We've ---+ they've also predominantly concentrated around the Austin area.
And ---+ so we'll be looking to stretch their legs a little bit to move throughout that I-35 corridor, we talked about.
But ---+ no, this will be an operation that is being plugged into TAS.
So it's just another city that TAS is operating into.
It will be reporting in through that organization.
And again, we're very excited about moving into that market.
And I think there is going to be great opportunities for us going forward.
Yes, absolutely.
On the tax side, I would still recommend looking more into a 37% tax rate.
It came in at 36% or statutory 35% but clearly with some of the state differences, I think 37% is probably a fair peg at this point for the year.
And then on the SG&A side, clearly, we are always focused on controlling our overhead expenses where we can.
We did see a percent decrease year-over-year in SG&A to total revenues, but right now we're still looking at about 10.5% to 11% full year SG&A number as compared to revenue.
Well, I think our focus is to get them plugged into TAS.
We think going forward that we will see similar margins in ---+ as we see in TAS.
So as just as a reminder on that, I mean, we think from an EBITDA basis in the 9 to 11 type percentage of EBITDA.
Again, it's very similar, it's going to have a similar capital requirement, which is like compared to what we see on the Marine side.
So the CapEx expenditure requirements will be in line with what we expect to see at TAS.
So we think that there are significant growth opportunities there.
Our intention is to grow smartly and not just for growth sake, but grow profitably over there.
But we think by stretching out throughout that I-35 corridor, there is good room for us to grow that business and see good growth over the next several years, and kind of upper single-digit to double-digit growth is not unreasonable for us to expect in that market.
And again, as we add structural in there, we think that will just provide more opportunities for growth and to keep expanding that market over there.
Well we've seen some of them start.
So look, some of the work that got pushed out, we have gotten the permits or we figured out other ways to get moving on some aspect of the job.
We are still waiting for other things to ---+ other permits to commence so we can get some stuff started.
So we're kind of chipping away at that issue.
And again, as we said in the ---+ I think, in the release today, we hope to see a more normalization of that.
I mean, we've kind of got a little bit of a unique thing here, we talked on our last call is that just coincidentally, we have a lot of work starting in that segment, that's needing these permits.
And so that had the impact.
But as we push that stuff out, some of that stuff is getting going now.
And that will be ---+ we think more of it will begin starting soon, and so we can get to executing on that.
I think overall, <UNK>, if you look at the margin side of things, I mean, it definitely impacted Q1.
As we look at Q2, <UNK> has talked about total job ---+ house starts, we expect to see a little bit of an uptick there.
But again, depending on the timing of the execution of some of the things that we're still waiting on at this point, it could still pressure a little bit the second quarter.
But we do think, as we speed into the back end of the year, we'll be able to recover from that and be able to hit our target.
No, there is not necessarily anything that's onetime.
But it really does depend on the mix of the jobs that are executing at any one time and the timing of those jobs.
So it is possible to liquidate at that higher margin level, but it can fluctuate quarter-to-quarter, just based on the types of jobs.
So if we look at the backlog in both segments, the backlog of the margin within the backlog is solid.
We're pleased with it.
It's at, or above, where it is today.
But it will depend on how we liquidate those jobs, and the nature of the liquidation of the job, could impact that from a period-to-period perspective.
And I think I'll just follow on that, I think, just partially what was going on there, we just had ---+ just good execution.
And we were just able to get a lot of concrete placed in the first quarter.
I mean, I think weather cooperated with us in that segment.
And we were just ---+ were able to get a lot of stuff placed in the quarter.
And again, as Chris said, it's somewhat also the ---+ just the timing and mix of work that we had to execute on in the first quarter.
Yes, we do.
I mean we got a lot of stuff and we've got a lot of work out there quoted.
Again, if you just look at the single data point of the backlog win rate and stuff like that, that's not the only data point.
The other thing is what do we see in the pipeline, but what do we have quoted.
So we've got a lot of work out there quoted.
We've got ---+ in particular, you mentioned the private sector, the private sector ---+ we've mentioned this before, in the private sector unlike the public sector, it's not as a definitive process to get work awarded.
In other words, there is not a public bid date.
And then everybody knows it's been bid, like some bids have been opened and it gets awarded to the low bidder.
On the private side, it's much more of a process that is certainly, you turn bids in, but it's business development efforts, it's negotiations and things like that.
And so it's just different dynamics in there.
So the point is having a lot of that private sector opportunities, which is a great thing, we have a lot of quoted work sitting out there for which we're awaiting responses on, we feel good about a lot it.
We've got certainly, the amount of work that we have in low bid.
But I think at the end of the day, we think that we've got the opportunities out there to go after, and the stuff we've already quoted on, to hit our objectives in the year.
We do not specifically publish that for competitive reasons.
Yes, I think, yes, I mean, we have seen improvement.
We are continuing to see improvement.
The concrete side, it's pretty ---+ you know, it's pretty steady.
As we talked before, there is not a lot of opportunity.
We don't have an expectation to see big upswings and upticks in the bid margin in that backlog.
We kind of expect that to be steady as she goes.
On the Marine side, though, we've definitely seen some improvement in the back ---+ in the backlog margin.
And when I think that's ---+ we expect that to continue.
Back to your other comment though, on the first part, while Chris said which is correct, we do not talk about a specific utilization for the dredge assets.
But I can say that it was, with some of the work that did get pushed the door, was delayed because of the permitting issue.
Our utilization was down a little bit in the first quarter, but we're expecting that to improve as we go through the year here, with some of that work starting.
