Orion (ORN) - 2022 Q1 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements and comprehensive notes for the period ended March 31, 2022 Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Cash and cash equivalents | $6,726 | $12,293 | | Total current assets | $186,040 | $197,934 | | Total assets | $340,876 | $351,750 | | Total current liabilities | $153,319 | $161,737 | | Total liabilities | $197,279 | $203,652 | | Total stockholders' equity | $143,597 | $148,098 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands): | Item | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Contract revenues | $174,931 | $153,309 | | Gross profit | $12,816 | $15,455 | | Operating (loss) income | $(2,855) | $2,055 | | Net (loss) income | $(4,856) | $928 | | Basic (loss) earnings per share | $(0.16) | $0.03 | | Diluted (loss) earnings per share | $(0.16) | $0.03 | Condensed Consolidated Statements of Comprehensive (Loss) Income Condensed Consolidated Statements of Comprehensive (Loss) Income (in thousands): | Item | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net (loss) income | $(4,856) | $928 | | Total comprehensive (loss) income | $(4,856) | $1,105 | Condensed Consolidated Statements of Stockholders' Equity Condensed Consolidated Statements of Stockholders' Equity (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Total stockholders' equity | $143,597 | $148,098 | | Net loss | $(4,856) | N/A | | Stock-based compensation | $370 | N/A | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands): | Item | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Net cash provided by operating activities | $10,060 | $9,118 | | Net cash (used in) provided by investing activities | $(2,810) | $772 | | Net cash used in financing activities | $(12,817) | $(6,837) | | Net change in cash, cash equivalents and restricted cash | $(5,567) | $3,053 | | Cash, cash equivalents and restricted cash at end of period | $6,726 | $4,642 | Notes to Condensed Consolidated Financial Statements 1. Description of Business and Basis of Presentation This note describes Orion Group Holdings' specialty construction services across various sectors and its operating segments, affirming adequate liquidity for continued operations - Orion Group Holdings, Inc. provides specialty construction services in infrastructure, industrial, and building sectors across the continental United States, Alaska, Canada, and the Caribbean Basin[17] - The company operates in two reportable segments: Marine (under the Orion brand) and Concrete (under the TAS Commercial Concrete brand)[18] - Management believes the company will have adequate liquidity for its operations for at least the next 12 months, concluding that substantial doubt about its ability to continue as a going concern is not raised[26] 2. Summary of Significant Accounting Policies This note outlines the company's key accounting policies, including revenue recognition, credit loss allowances, and insurance claims liabilities - Revenue from construction contracts is generally recognized over time, measured by the percentage of actual contract costs incurred to total estimated costs[30] - The allowance for credit losses for trade accounts receivable remained at $0.3 million for both March 31, 2022, and December 31, 2021[43] - Total accrual for insurance claims liabilities decreased significantly from $19.8 million at December 31, 2021, to $5.2 million at March 31, 2022[74] 3. Revenue This note details contract revenues by segment, highlighting increases in both Marine and Concrete segments for the period Contract Revenues by Segment (in thousands): | Segment | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :---------------- | :-------------------------------- | :-------------------------------- | | Marine Segment | $84,480 | $72,146 | | Concrete Segment | $90,451 | $81,163 | | Total | $174,931 | $153,309 | - Marine segment construction revenues increased from $43.94 million in 2021 to $59.15 million in 2022[75] - Concrete segment light commercial revenues increased from $64.50 million in 2021 to $76.78 million in 2022[75] 4. Concentration of Risk and Enterprise-Wide Disclosures This note outlines the company's concentrations of current receivables and contract revenues by customer type, identifying significant private sector and federal government contributions Concentrations of Current Receivables (Trade and Retainage) at March 31, 2022 (in thousands): | Customer Type | Amount | Percentage | | :---------------- | :----- | :--------- | | Federal Government | $8,380 | 6 % | | State Governments | $571 | - % | | Local Governments | $19,929 | 14 % | | Private Companies | $114,690 | 80 % | | Gross receivables | $143,570 | 100 % | Concentrations of Contract Revenue for Three Months Ended March 31, 2022 (in thousands): | Customer Type | Amount | Percentage | | :---------------- | :----- | :--------- | | Federal Government | $22,695 | 13 % | | State Governments | $7,704 | 4 % | | Local Governments | $32,402 | 19 % | | Private Companies | $112,130 | 64 % | | Total contract revenues | $174,931 | 100 % | - One customer in the Federal Government category accounted for 10.4% of total contract revenues for the three months ended March 31, 2022[80] 5. Contracts in Progress This note details the company's contract assets and liabilities, including remaining performance obligations and their expected recognition timeline Contracts in Progress (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Costs incurred on uncompleted contracts | $1,150,314 | $1,138,298 | | Estimated earnings | $164,867 | $168,861 | | Less: Billings to date | $(1,323,300) | $(1,305,628) | | Net contract position | $(8,119) | $1,531 | | Contract assets | $24,474 | $28,529 | | Contract liabilities | $(32,593) | $(26,998) | - Remaining performance obligations totaled approximately $604.1 million as of March 31, 2022, with 82% ($495.8 million) expected to be recognized in the next 12 months[84] 6. Property and Equipment This note presents the net book value of property and equipment, including depreciation expense and collateral pledges Property and Equipment, Net (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Net book value of depreciable assets | $68,256 | $72,262 | | Construction in progress | $8,833 | $6,507 | | Land | $27,885 | $27,885 | | Total property and equipment, net | $104,974 | $106,654 | - Depreciation expense was $5.2 million for the three months ended March 31, 2022, compared to $5.3 million in the prior year period[86] - Substantially all of the company's assets are pledged as collateral under its Credit Agreement[86] 7. Other Current Accounts Receivable This note details other current accounts receivable, including insurance claims and accident loss receivables Other Current Accounts Receivable (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Insurance claims receivable | $1,580 | $13,273 | | Accident loss receivables | $1,032 | $3,760 | | Other current receivables | $1,101 | $552 | | Total other current accounts receivable | $3,713 | $17,585 | 8. Fair Value This note discusses the fair value measurements of financial assets and liabilities, including life insurance policies and debt Recurring Financial Assets at Fair Value (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Cash surrender value of life insurance policy | $2,622 | $2,813 | - The cash surrender value of life insurance policies is measured using Level 2 inputs within the fair value hierarchy[91] - The fair value of the company's debt approximated its carrying value of $28.6 million at March 31, 2022, and $39.4 million at December 31, 2021, and would be classified as Level 2[93] 9. Goodwill and Intangible Assets This note provides details on the company's goodwill and intangible assets, including amortization expense and impairment testing Goodwill and Intangible Assets (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Net finite-lived intangible assets | $1,354 | $1,664 | | Infinite-lived intangible assets | $6,892 | $6,892 | | Total net intangible assets | $8,246 | $8,556 | - Amortization expense for finite-lived intangible assets was $0.3 million for the three months ended March 31, 2022[95] - The most recent annual impairment test of the indefinite-lived intangible asset (trade name) concluded no impairment was recorded[96] 10. Accrued Liabilities This note details various accrued liabilities, including salaries, insurance-covered liabilities, and sales taxes Accrued Liabilities (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Accrued salaries, wages and benefits | $9,240 | $9,879 | | Accrued liabilities expected to be covered by insurance | $5,169 | $19,818 | | Sales taxes | $3,495 | $5,113 | | Total accrued liabilities | $21,141 | $38,594 | - The company has a remaining $3.8 million of CARES Act deferred Social Security taxes due in December 2022[99] 11. Long-term Debt and Line of Credit This note details the company's total debt, including revolving line of credit and compliance with financial covenants Total Debt (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Revolving line of credit (principal) | $27,400 | $39,000 | | Other debt (current) | $272 | $141 | | Other debt (long-term) | $929 | $259 | | Total debt | $28,601 | $39,400 | - Effective March 1, 2022, the Ninth Amendment to the Credit Agreement reduced the commitment on the revolving line of credit to $42.5 million and waived certain covenant defaults[102] - The company was in compliance with all financial covenants as of March 31, 2022[114] 12. Other Long-Term Liabilities This note outlines other long-term liabilities, including sale-leaseback arrangements, deferred compensation, and insurance-covered accruals Other Long-Term Liabilities (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Sale-leaseback arrangement | $15,773 | $15,969 | | Deferred compensation | $2,508 | $2,759 | | Accrued liabilities expected to be covered by insurance | $249 | $214 | | Total other long-term liabilities | $18,530 | $18,942 | 13. Income Taxes This note details income tax expense and the effective tax rate, explaining the impact of valuation allowances and permanent items Income Tax Expense and Effective Tax Rate (in thousands): | Item | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Income tax expense | $1,324 | $150 | | Effective tax rate | (37.5)% | 13.9 % | - The effective tax rate for the three months ended March 31, 2022, was (37.5%), primarily due to the movement in the valuation allowance for current year activity, state income taxes, and non-deductibility of other permanent items[120] - Management believes that a valuation allowance on the net deferred tax assets at March 31, 2022, remains appropriate[121] 14. Earnings Per Share This note presents basic and diluted earnings per share calculations, noting the impact of net loss on potentially dilutive securities Shares Used to Compute (Loss) Income Per Share: | Item | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Basic weighted average shares outstanding | 30,971,379 | 30,465,475 | | Diluted weighted average shares outstanding | 30,971,379 | 30,499,978 | - Basic and diluted loss per share for the three months ended March 31, 2022, was $(0.16), compared to earnings per share of $0.03 in the prior year[11] - Potentially dilutive securities were antidilutive in the current period due to the net loss[125] 15. Stock-Based Compensation This note details stock-based compensation expense and the unrecognized compensation related to unvested stock - Stock-based compensation expense was $0.4 million for both the three months ended March 31, 2022, and 2021[128] - Total unrecognized compensation expense related to unvested stock was approximately $2.7 million at March 31, 2022, expected to be recognized over approximately 2.0 years[130] 16. Commitments and Contingencies This note discusses liabilities and reimbursements related to the August 2020 dredge fire incident, confirming settlement within insurance limits - The company recognized $206.5 million in total liabilities related to the August 2020 dredge fire incident, including $206.0 million paid to date for settlements and wreck removal costs[133] - Insurance carriers have reimbursed the company $203.9 million to date, and all claims arising from the incident have been settled within insurance coverage limits[133] 17. Segment Information This note provides segment-level performance data, highlighting revenue growth and operating income changes for Marine and Concrete segments Segment Performance (in thousands): | Segment | Contract Revenues (3M 2022) | Operating Income (Loss) (3M 2022) | Contract Revenues (3M 2021) | Operating Income (Loss) (3M 2021) | | :---------------- | :-------------------------- | :-------------------------------- | :-------------------------- | :-------------------------------- | | Marine | $84,480 | $1,840 | $72,146 | $2,848 | | Concrete | $90,451 | $(4,695) | $81,163 | $(793) | - Marine segment contract revenues increased by 17.1%, but operating income decreased by $1.0 million[136] - Concrete segment contract revenues increased by 11.4%, but operating loss widened by $3.9 million due to project write-downs and unabsorbed indirect expenses[136] 18. Leases This note details the company's lease assets and liabilities, along with the components of lease expense for operating and financing leases Lease Assets and Liabilities (in thousands): | Item | March 31, 2022 | December 31, 2021 | | :----------------------------------- | :------------- | :---------------- | | Operating lease right-of-use assets, net | $15,006 | $14,686 | | Financing lease right-of-use assets, net | $17,472 | $14,561 | | Total assets | $32,478 | $29,247 | | Total current lease liabilities | $8,675 | $7,263 | | Total noncurrent lease liabilities | $24,314 | $22,545 | | Total liabilities | $32,989 | $29,808 | Components of Lease Expense (in thousands): | Item | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Operating lease cost | $1,317 | $1,654 | | Short-term lease cost | $316 | $690 | | Interest on lease liabilities (financing) | $167 | $126 | | Amortization of right-of-use assets (financing) | $760 | $781 | | Total lease cost | $2,560 | $3,251 | 19. Subsequent Events This note discloses post-period events, including the departure of the CEO and the appointment of an interim successor, along with related separation expenses - Effective April 6, 2022, Mark R. Stauffer, President, CEO, and Interim CFO, separated from the company in all capacities[143] - Austin J. Shanfelter, Chairman of the Board, was appointed Interim Chief Executive Officer and Interim Chief Financial Officer[144] - The company expects to incur approximately $1.1 million in expenses, primarily in Q2 2022, related to Mr. Stauffer's separation agreement[146] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition and operational results for the three months ended March 31, 2022, covering business overview, Q1 performance, segment results, and liquidity Overview This overview describes Orion Group Holdings' specialty construction services, revenue recognition methods, and factors influencing contract performance and profitability - Orion Group Holdings provides specialty construction services in infrastructure, industrial, and building sectors, primarily through competitive bidding on fixed-price contracts[152][154][155] - Revenue is generally recorded over time, measured by the percentage of actual contract costs incurred to total estimated costs[156] - Factors such as completeness of bids, commodity price increases, customer delays, labor availability, and equipment/material proximity can impact contract performance and profitability[156] First Quarter 2022 Recap and 2022 Outlook This section recaps Q1 2022 performance, noting revenue growth despite a net loss, and outlines the company's strategic focus and macroeconomic considerations - In Q1 2022, revenues increased by 14.1% to $174.9 million, but the company recorded a net loss of $4.9 million, compared to a net income of $0.9 million in the prior year period[157] - Consolidated backlog reached $604.1 million at March 31, 2022, with $2.1 billion in quoted bids outstanding and $112 million awarded or apparent low bidder post-quarter[157][168][170] - The company continues to focus on organic growth, greenfield expansion, and strategic acquisition opportunities, while monitoring macroeconomic impacts like inflation, labor concerns, supply chain delays, and COVID-19[158][159][166] Consolidated Results of Operations This section presents the consolidated financial results, highlighting revenue growth, a decrease in gross profit, and a shift from operating income to loss Consolidated Results of Operations (in thousands): | Item | Three months ended March 31, 2022 | Three months ended March 31, 2021 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Contract revenues | $174,931 (100.0%) | $153,309 (100.0%) | | Gross profit | $12,816 (7.3%) | $15,455 (10.1%) | | Selling, general and administrative expenses | $16,170 (9.2%) | $14,630 (9.6%) | | Operating (loss) income | $(2,855) (-1.6%) | $2,055 (1.3%) | | Net (loss) income | $(4,856) (-2.8%) | $928 (0.6%) | - Contract revenues increased by 14.1% due to large job startups in the marine segment and increased production in the concrete segment[173] - Gross profit decreased by 17.1% and gross profit margin declined from 10.1% to 7.3%, primarily due to concrete segment write-downs, reduced dredging volume, and a change in work mix[174] Segment Results This section analyzes the performance of the Marine and Concrete segments, detailing revenue changes and shifts in operating income or loss Segment Performance (in thousands): | Segment | Contract Revenues (3M 2022) | Operating Income (Loss) (3M 2022) | Contract Revenues (3M 2021) | Operating Income (Loss) (3M 2021) | | :---------------- | :-------------------------- | :-------------------------------- | :-------------------------- | :-------------------------------- | | Marine | $84,480 | $1,840 | $72,146 | $2,848 | | Concrete | $90,451 | $(4,695) | $81,163 | $(793) | - Marine segment revenues increased by 17.1% to $84.5 million, but operating income decreased by $1.0 million[183][185] - Concrete segment revenues increased by 11.4% to $90.4 million due to increased production, but its operating loss widened to $4.7 million from $0.8 million due to project write-downs and unabsorbed indirect expenses[186][187] Liquidity and Capital Resources This section discusses the company's working capital, cash flow from operations, and changes to its revolving line of credit - Working capital decreased to $32.7 million at March 31, 2022, from $36.2 million at December 31, 2021[189] - Net cash provided by operating activities increased to $10.1 million for the three months ended March 31, 2022, from $9.1 million in the prior year[192] - The Ninth Amendment to the Credit Facility, effective March 1, 2022, reduced the revolving line of credit commitment to $42.5 million, with $13.4 million of borrowing capacity available at March 31, 2022[190][189] Item 3. Quantitative and Qualitative Disclosures about Market Risk The company is exposed to market risks primarily from fluctuations in commodity prices (concrete, steel, fuel) and interest rates. While short project durations help mitigate commodity price risk, a 100 basis-point increase in LIBOR would increase annual interest expense by approximately $0.3 million based on current outstanding debt - The company is subject to fluctuations in commodity prices for concrete, steel products, and fuel, but the short-term duration of projects generally allows for inclusion of anticipated price increases in bids[202] - A 100 basis-point increase in LIBOR (or an equivalent successor rate) would increase the company's annual interest expense by approximately $0.3 million, based on $27.4 million in outstanding borrowings at March 31, 2022[203] Item 4. Controls and Procedures Management, with the participation of the Chief Executive Officer and Chief Financial Officer, concluded that the company's disclosure controls and procedures were effective as of March 31, 2022. No material changes to internal control over financial reporting occurred during the quarter - The company's disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022[204] - There were no material changes to internal control over financial reporting during the quarter ended March 31, 2022[205] PART II OTHER INFORMATION Item 1. Legal Proceedings This section refers to Note 16 of the condensed consolidated financial statements for detailed information regarding legal proceedings, including the August 2020 dredge fire incident and its resolution - Information about litigation involving the company is incorporated by reference from Note 16 to the condensed consolidated financial statements[206] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in Part I, Item 1A of the company's Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes to the risk factors previously disclosed in the 2021 Form 10-K[207] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds There were no unregistered sales of equity securities during the period ended March 31, 2022 - No sales of equity securities were made in the period ended March 31, 2022[208] Item 3. Defaults upon Senior Securities The company reported no defaults upon senior securities during the period - No defaults upon senior securities were reported[209] Item 4. Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable[210] Item 5. Other Information Following the departure of the company's Chief Executive Officer on April 6, 2022, Austin J. Shanfelter, the Chairman of the Board, assumed the duties of Interim Chief Executive Officer and Interim Chief Financial Officer - Austin J. Shanfelter was appointed Interim Chief Executive Officer and Interim Chief Financial Officer effective April 6, 2022, following the departure of the previous CEO[211] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including corporate governance documents, amendments to the Credit Agreement, and agreements related to the former CEO's separation - Exhibits include the Ninth Amendment to the Credit Agreement, effective March 1, 2022[212] - Exhibits also include the Consulting Agreement and Separation and General Release Agreement for former CEO Mark R. Stauffer[212] SIGNATURES Signatures The report is duly signed on behalf of Orion Group Holdings, Inc. by Austin J. Shanfelter, in his capacity as Interim Chief Executive Officer and Interim Chief Financial Officer, dated April 29, 2022 - The report was signed by Austin J. Shanfelter as Interim Chief Executive Officer and Interim Chief Financial Officer on April 29, 2022[218]