Good day, ladies and gentlemen, and welcome to the Q1 2014 Orion Marine Group, Inc. Earnings Conference Call. My name is Mark, and I will be your operator for today. [Operator Instructions] And as a reminder, this call is being recorded for replay purposes. I would now like to turn the call over to Drew Swerdlow, Senior Financial Analyst. Please proceed.

Good morning. And welcome to the Orion Marine Group first quarter 2014 earnings conference call. Joining me today are Mike Pearson, Orion Marine Group's Chief Executive Officer; Mark Stauffer, our President; and Chris DeAlmeida, our Chief Financial Officer. Regarding the format of the call, we have allocated about 20 minutes for prepared remarks, in which Mark and Chris will highlight our results and update our market outlook. We will then open the call for sell-side analyst questions for the remainder of the time. [Operator Instructions] During the course of this conference call, we will make projections and other forward-looking statements regarding, among other things, our end markets, revenues, gross profit, gross margin, EBITDA, EBITDA margin, backlog, projects and negotiation and pending award, as well as our estimates and assumptions regarding our future growth, EBITDA, EBITDA margin, gross margins, administrative expenses and capital expenditures. These statements are predictions that are subject to risks and uncertainties, including those described in our 10-K for 2013 that may cause actual results to differ materially from those statements. Moreover, past performance is not necessarily an indicator of future results. By providing this information, we undertake no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Also, please note that EBITDA and EBITDA margins are non-GAAP financial measures under rules of the Securities and Exchange Commission, including Regulation G. Please refer to the reconciliation accompanying this earnings call available on our website at www.orionmarinegroup.com for comments on the use of non-GAAP financial measures as well as applicable reconciliations to the most comparable GAAP measures. Also, please refer to the press release issued this morning, May 1, 2014, and our quarterly and annual filings with the SEC, which are available on our website for additional discussions of risk factors that could cause actual results to differ materially from our current expectations. With that, I'll turn the call over to Mark Stauffer, President. Mark?

Thank you, Drew, and thanks for joining us this morning. First, I'd like to thank our 1,200 coworkers for all their hard work and dedication. It's because of their efforts that we continue to move in the right direction. We remain focused on executing our strategy by maintaining a high level of backlog through bidding effectively and focusing on opportunities that best suit our specialized marine assets. Given our current fleet of equipment and specialized workforce, I believe our market fundamentals can support significant growth over the long term. We are pleased with our results for the first quarter of 2014, and we believe we are well positioned to meet future growth opportunities. While we did experience a pullback in revenue as expected, we are pleased with the solid year-over-year improvements we saw in the first quarter. Although we still face some near-term challenges, our high-level of backlog and improving market drivers give me confidence in our ability to drive positive results for 2014. Turning to our market outlook, demand from the private sector to repair, expand, refurbish waterside infrastructure continues to be a solid driver of increased equipment utilization. We expect bid opportunities to remain strong in this sector for the foreseeable future. Local port authorities also continue to be a steady source of bid opportunities, as they continue to undertake capital expansion plans in anticipation of larger ships and increased cargo volume, particularly as a result of the expansion of the Panama Canal. While state DOT-sponsored bridge projects continue to come out for bid, we are closely monitoring the expiration of the current transportation funding, which is set to expire in September, and we will continue to monitor developments regarding the passage of a new funding bill. Our preference is to see longer-term visibility from any [ph] new…

Thank you, Mark. And again, thanks for joining us. For the first quarter of 2014, we reported a net loss of approximately $200,000 or $0.01 per diluted share. These results compare with a net loss of $1.1 million or $0.04 per diluted share in the prior year period. First quarter 2014 contract revenues increased 8.3% year-over-year to $81.3 million, of which 40% was generated from federal, state and local government agencies, while 60% was generated from the private sector. This compares to 58% from federal, state and local government agencies, and 42% from the private sector in the prior year period. SG&A expense for the first quarter of 2014 was $8 million, which compares to $7.7 million in the prior year period. During the first quarter of 2014, we bid on approximately $273 million worth of opportunities and were successful on approximately $89 million. This resulted in a 33% win rate for the quarter and a book-to-bill ratio of 1.1x. As of March 31, 2014, we have backlog of work under contract of $255.3 million, of which 12% is for federal projects, 17% is for state projects, 30% is for local projects and 41% is in the private sector. Our quarter end -- ending backlog represents a record level of reported backlog and reflects our continued success with our bidding strategy. Now turning to the balance sheet. As of March 31, 2014, we had approximately $46 million of cash on hand, which compares to approximately $41 million of cash on hand at the end of 2013. At the end of Q1, we had access to $11.8 million under our revolver and total debt outstanding of $31 million, of which, $22.5 million was related to -- was outstanding on a revolving credit facility related to the DMPA purchase in the first…

Thank you, Chris. We would now like to open the call up for questions. Mark, would you please review the procedure for placing your question?

[Operator Instructions] Please standby for your first question, which comes from the line of Jon Tanwanteng of CJS Securities.

This is actually Jack O'Brien filling in for John this morning. I was wondering if you could give us a little more detail on the Houston contract that you guys won, in regard to the expecting timing of it, and whether or not there's more to come from the Barbours Cut?

Well, I think it's publicly out there, what the port has published on that. We expect a word on that any day. But that is, as you may know, they put word out on that. And I think, back in January, I believe the issue has been a Corps permit issue. I don't want to say issue, I think it's timing, where they have been waiting on their Corps permits for both Barbours Cut and Bayport. They do have the first permit issued. They are expecting the second permit issued momentarily. And once that occurs, we will get the award.

Okay, great. And then going over to gross margins. I know you guys are experiencing a little near-term noise sequentially, but what do you guys think the upper load for gross margins are as you look out to the second half of this year and further into 2015?

If we look back to the fourth quarter of 2013, we saw a low double-digit gross margin at that point. We definitely think that that's possible in this environment, as we head into the back of the year and things get generated. And then, given the level of activity we see today, and also the addition of the DMPA that we purchased in the first quarter, I think as we look into 2015, we should see that kind of steadily improve from there.

The next question comes from the line of Trey Grooms of Stephens.

Can you talk a little bit about pricing? How bid margins are trending, and kind of your expectation there? Are we at a point now where we can start to see some improving pricing going in, in the backlog?

Well, I think it's been slow steady progress. As we've mentioned on the last few calls, we have seen pricing -- pockets of pricing improvements, that continues. We still have some areas or some types of work where, while not improving, it's stable. But I think overall, we've seen steady improvement in bid pricing and what we've been getting in the backlog. And hopefully, as we get into -- as we said in the remarks, as we get into the back half of the year, if we do see some improvement in the core lettings, with respect to some of the catalysts that are there, just what they've got published out there. Plus if we see an appropriations bill in place by September 30 for fiscal year '15, that could improve that even further. But I think it's fair to say that steady improvement there. Again, price -- bid pricing has not been widespread -- widespread improvement in it, but pockets of improvement that continues. And we're making a slow, steady progress on that front.

Okay. And just kind of back to Chris' comment earlier about the back half margins, is that in a -- is that improvement driven more by just simply better utilization? Or is there some pricing in that improvement -- margin improvement?

It's actually a combination of both. So we do expect to have better utilization of equipment in the back half of the year, and that's hence the point of the -- for the second quarter gap, which is just a couple of jobs that have moved out, that will make up, as we head into the back end of the year. So we expect to have better equipment utilization in the back end of the year. And then also coupled on top of that, what Mark just talked about, we have continued to see the process [ph] of improvement, which is reflected in the backlog margin.

Yes, and just further to that forming, the earlier question about the port project, I mean, that's kind of a good example of a little bit of lumpiness that's impacting the second quarter.

Sure, sure. And then one last one, and I'll move on. All the energy activity in the Gulf, with the large plants expected to be built in, I guess, in '15 -- starting in '15, do you guys see any opportunity there, either indirectly or directly?

Well, yes, absolutely. Directly, I mean we're seeing a significant amount of that activity today. I mean, you referenced the comments that we made in the remarks about private sector and I think for the quarter about 60% of the revenues in the quarter were from the private sector. A good bit of that is being driven by the energy sector. We're seeing -- and working on opportunities today in that regard, and we expect that to continue. There's a lot of opportunities out there that we're tracking and we're bidding on today, and then there's some that we're working on today as well.

And is it your take that, with this increase in activity in the Gulf especially that, that will help the competitive environment on both sides of your business, where we might can see additional pricing improvement?

Yes, absolutely. And again, I mean I've said, for the last few quarters, at least, pricing today, to me, should be better than it is. There's a lot of activity out there. There's utilization improvements, not just for us, but we see that for our competitors. Again, we've seen wage pressure for quite some time now. So again, it appears to me that all the ingredients are there and it should be better today than it is. But again, we're optimistic that with all this activity, and in particular, if we can see an improvement in the consistency of Corps lettings as an example and increased utilization there that, that will lead to more improvement in the bid-pricing front.

The next question comes from the line of Jack Kasprzak from BB&T.

On the win rate of 33%, I don't want to extrapolate too much from one quarter, but that's on the higher end, if you go back in time for you guys. Often, it's been in the teens, low- to mid-teens even. Is there anything going on there in terms of that number, and why might you be winning at a higher percentage? Just curious about that.

Well, if you remember, kind of our historical average is about 25%. So while this is a little bit above that, it's just -- partially, that's just a matter of timing. But I think we have been, as we stated and have stated, we've been focused on maintaining backlog. And I guess it's kind of a function of: a, focusing on that; b, the level of work that's out there for us to go after; and then some of it's just timing of when we get awards.

Okay. Private sector is strong. It's been strong for a little while now and 60% of your revenue, as you say, in the quarter. Can you talk about what you're seeing there? I know we've mentioned it in previous quarters, but is there anything incrementally different in the private sector? Or is it just kind of more of the same?

Well, I think it's more of the same. It's a combination of, again, as I just responded earlier, there's a lot of stuff going on in the energy sector, which has been good. We expect that to continue. We've got work going on down in the Caribbean that's nonenergy sector related, and we've got a lot of activity there. So that's been good for us. And again, as we mentioned, the DMPA, that will be coming online towards the end of this quarter, that's, again, will be benefit the private sector, and we'll see continued revenue and a healthy percentage of revenue coming from the private sector as a result of that. So -- but nothing different from what we've talked in the last couple of quarters.

Okay. Last question is -- Q1 gross margin, 9.4%. Was that above your kind of own expectations or more or less in line with where you thought you'd be when you started the quarter?

Generally speaking, we did have some projects that finished a little bit early, and they finished with that. They had some positive improvement to it. So it was a little bit above kind of where we thought it would be for the quarter.

The next question comes from the line of Veny Aleksandrov of FIG Partners.

My first question is on the backlog, correct current level of backlog. What's the backlog mix right now? Is it gross what it has been historically? And how many -- in terms of how many months [indiscernible]? You have 6 to 12, 3 to 6, what's sort of the mix right now?

Well, I guess as far as the mix goes, I would say, based on historical, it's a little bit more in the private sector than -- and which I think is a reflection of the remarks I just made with the activity and the buoyancy of the private sector. So that's a little bit more than maybe historical levels, keeping in mind that a lot of private sector revenues kind of book and burn within a quarter on shorter-term maintenance work. But...

And then on the term side of things, it's stretched out just slightly, just as we've gone over some larger projects, but we've seen that over the past couple of years anyway. So it's probably more of a 6 to 9 range, than the 3 to 6 range.

6 to 9? Okay. And the follow-up question, you talked about some of the projects coming into the quarter and getting burned into the quarter. If we look at the year as a whole, how much would you say you have into a year? Like how much do you burn that doesn't leave you [indiscernible] if we look at the backlog, until the end of the year?

That's tough to say. That varies from period to period, and it's kind of tough to say what that is. But there is -- there's always some element of that, particularly again with the smaller projects. It's tough to kind of give a specific number on that, because it varies from period to period, but we know it's there. We know it's going to occur. It's tough to say how much that's going to be.

The next question comes from the line of Scott Levine of Imperial Capital.

So hoping for a little bit more color on -- because of the choppiness of the Army Corps here, I know they the passed budget for '14. You've got the water bill potentially here this quarter. Has trends there been worse than you would have expected, say, 6 months ago? And what do you think might be driving that?

I don't think -- I'm honestly am not really surprised on what we're seeing, because while we did get the budget deal towards the end of last year, beginning of this year, then we still kind of had the debt ceiling issue that didn't get resolved until February. And again, kind of couple -- those 2 things, coupled with just the pace of how things work, it's not surprising. And if you go back to what we said, we expect the choppiness through the first half of the year. Having said that, it looks as though, based off the published work schedule that we should see an uptick as we go into our Q3 and the government's Q4, and that would be driven off of the funding that was put in place as a result of the 2-year budget deal back in December and January. So that's not really a surprise. And then looking forward again, we'll be monitoring real closely to see where we wind up with a appropriations for fiscal year '15, which would be under the 2-year budget deal. The budget framework's in place. They just need to pass the appropriations bills. And clearly, if that's in place before October 1, that would be a very big positive, we believe. And then secondarily, again, if the water bill comes out of committee, gets signed into law this quarter, then in theory, that impact, with respect to the Harbor Maintenance Trust Fund, could be factored in to the appropriations for fiscal year '15. So we're going to be watching that real closely, but based on that, again, we could see an improvement in the choppiness of the core lettings as we move through the back half of the year.

That's very helpful. As my follow-up, can you give a little bit more color on the implications of the ship channel and the thought process behind that acquisition? And I think you mentioned that in terms of the positive impact from margins, is that due to the tie-in with some of the dredging work that you have booked in the private sector? Is that due to some disposal activity you expect to do with third parties? Maybe a little bit more color on that?

Yes, well it's really a combination of both. I mean, again, a lot of activity going on in the upper Houston Ship Channel, and we had identified a need of -- a placement area for the dredge material that needed to go to. In other words, there was more material that we could see upcoming than there was place for it to go. And that drove us to look for a solution there, and we did that by closing on the property. So again, it benefits us in a couple of different ways, is one, it allows us to get some utilization on this with the dredging assets on some of these private sector work. And it solves the solutions -- solves the problem, provides a solution for our customers, where -- who are looking for places to put their material. And then the additional benefit is the disposal fees that we'll generate on placing the material on the property, which is a -- occurs all the time. It's just, we don't typically participate in that. They're still collected by somebody, but now, that's a fee for a material that we put in that site, we'll collect those disposal fees there. So that'll provide some additional revenue for us on that front, so it helps us in a number of different ways.

Got you. Maybe one last one really quickly on G&A. What are your expectations there? Should we just kind of -- you flat-lined, you kind of come up a little bit. Any thoughts on how the quarter's tied up from a G&A standpoint in 2014?

Generally speaking, I think you'll model on something relatively flat compared to what we saw in the first quarter, maybe a slight uptick in the fourth quarter, as we kind of finish out the year. And hopefully, we're at a bonus payable situation by that point, but that's kind of how we've modeled out.

The next question comes from the line of Chris Snyder of Sidoti & Company.

So my first question is kind of on bid margins. As you guys noted, it seems like with all the activity, bid margin should be better than they are. Is this just -- you guys think it's just -- people are afraid to move pricing? Or you think there's a couple of catalysts or events we need to happen to get that pricing to improve?

I think it's kind of a combination of the 2. I think partially, and I've felt this for a while, is I think it's kind of a business confidence thing, and that's kind of a tough one to measure and a tough one to say when that's going to jump in. We certainly have the business confidence, and we'd be moving pricing ourselves, if it was solely up to us. But I think that's some of it. I think it depends on the sector. I think as we said in the remarks, in particular with the DOT work, I think longer-term visibility is what's impacting the bid margin improvement there. To the extent we saw a longer-term funding bill that gave visibility to the marketplace, that would be a positive catalyst, we believe, to improved pricing. But again, we're seeing areas and pockets of it. While it's not widespread, I mean we think it's moving in the right direction. But again, I think one of the bigger things, just overall, is sort of -- I just kind of chalk it to business confidence. So hopefully, as we see some of the things going on at the macroeconomic level and potentially see improvement in general economic conditions, maybe that's the catalyst we need to see the psychology of bid pricing change. But we're going to be out there slugging away at it, looking for opportunities every chance we get and as we have been. So again, we're long term, we're optimistic about returning to historical levels.

I think keep in mind that one thing that can take our margins down is not having the utilization that we'd like to have. And I think that could have as big an impact to what we deliver for the quarter as what we're bidding. I think on the whole, we're pretty pleased with the bid margins we're getting in today's market.

Yes, that actually kind of leads in to my next question. I don't know how much clarity you guys have on this, but I was hoping you could give some color on where do you think gross margins could go without any bid margin improvement? Just on getting higher utilization of both -- I guess of all the fixed assets including the dredging.

Chris, that's probably a little bit difficult to nail down completely. I mean, I think we could easily get into the low- to mid-double-digits or mid-teens level number. But it kind of depends on what are the types of projects, where they're located, what's the risk factors involved with those. There's a number of different items that play in to getting that done.

But I think just further to that point, if you're talking about, absent bid margin improvement, in other words, just kind of status quo, I think you've seen flashes of that in the past. Like if you go back to like Q4 last year, we kind of saw that in Q4 in the prior year, where we had an uptick in utilization, in particular, of the dredging assets. You would see it's in kind of that low-double-digit type range. So again, to the extent we see improvement there and see kind of a smoothing out of this choppiness of Corps lettings in particular, that could lead to better utilization there, and we can just see -- naturally see an uptick in margin to that level, absent any further broad bid margin improvement. So bid margin improvement, I think, would then lead us to more -- moving on up from there.

[Operator Instructions] The next question comes from the line of Min Cho of FBR.

Just a quick question on the DMPA. Any change to your expectation to revenue for the second half of the year? Do you see any upside to that $7 million?

Well, there's definitely a potential for upside. But at this point, I think that $7 million is a pretty good number.

Okay. Can you talk about generally [ph] what you're seeing in terms of increased bid opportunities, as a result of the DMPA?

Well, there's a number of projects that have been ongoing in terms of where they are in the process or the pipeline. There are certain projects that we have in hand that we'll be utilizing the site for, so we anticipated that at the time we went after that work. There's other projects that are continuing to bid or either -- they're either in the bid stage, or they will bid later on this year, that we would be able to utilize that site for. And of course, then there's just the normal maintenance work that we would expect to see in whatever cycle a particular dock is at, that we would be able to utilize the site for. So again, we think that once we have that online and that'll help get some dredging assets back to work and provide some scheduling ability for us to plan out our schedule and stuff on getting some of those assets utilized.

Okay. And then just a final question on as we go through the year and if it seems like a long-term transportation bill is not going to happen before the end of MAP-21? Do you think there's any risk to your current backlog, especially the backlog tied to your bridgework? Or do you feel pretty comfortable with the funding of what's in backlog?

Yes, we feel very comfortable with everything that's in backlog. I think, again, I suspect what will occur is what occur -- in the absence of a long-term funding bill, I suspect what would occur would be some sort of continuing funding like they did in between the current Highway Bill and the one prior. Obviously, as you're aware, there was a pretty wide gap between those 2 bills, but yet they continue to fund. I think the big impact we would see at that point is just not seeing a catalyst for pricing improvement. I don't know that we would say, given where we are today, I don't think that just overall, that would depress pricing. But I don't think it would necessarily help improvement of bid pricing in that eventuality. But in terms of the backlog we have, I don't think that -- we don't think that has any impact on the backlog we have.

There are no further questions. So I would now like to turn the call over to Drew Swerdlow for closing remarks.

On behalf of Orion Marine Group, we would like to thank you for taking the time to talk with us this morning. And we look forward to speaking with you in the future. Also, if you have any follow-up questions, please feel free to give me a call. Thanks, and have a good day.

Thank you for your participation in today's conference, ladies and gentlemen. This concludes the presentation. And you may now disconnect. Have a good day.