Good day, ladies and gentlemen and welcome to the Second Quarter 2017 Orion Group Holdings, Inc. Earnings Call. [Operator Instructions]. I would now like to introduce your host for today's conference, David Griffith, Manager of Investor Relations. Sir, please begin.

Thank you, Norma. Good morning, everyone and welcome to Orion Group Holdings' Second Quarter 2017 Earnings Conference Call and Webcast. Joining me today are Mark Stauffer orion Group Holdings' President and Chief Executive Officer; Dwayne Breaux, our Executive Vice President and Chief Operating Officer; and Chris DeAlmeida, our Executive Vice President and Chief Financial Officer. Regarding the format of the call, we have allocated about 15 minutes for prepared remarks, in which Mark and Chris will highlight our results and will update our market outlook. We will then open the call for sell-side analysts' questions for the remainder of the time. 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 profits, gross margin, EBITDA, EBITDA margin, win rates, book to bill, backlog, projects in negotiation, administrative expenses, capital expenditures, pending awards as well as our estimates and assumptions regarding future growth. These statements are predictions that are subject to risks and uncertainties, including those described in our 10-K, 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 development or otherwise. Also please note that EBITDA and EBITDA margin are non-GAAP financial measures under rules of the Securities and Exchange Commission, including Regulation G. Please refer to the reconciliations and definitions inclusive of the most comparable GAAP measures within the press release issued this morning, August 3, 2017. The release can be found on our website at www.oriongroupholdingsinc.com. This website is the principal platform for investor communications. Also, for additional discussion of risk factors that could cause actual results to differ materially from our current expectations, please refer to our quarterly filings with the SEC which are also available on the Investors section of the website. And with that, I'd like to turn the call over to Mark Stauffer, President and Chief Executive Officer. Mark?

Thank you, David and welcome everyone to our call this morning. I'd like to begin by thanking our 2,500 co-workers for their hard work, dedication and commitment to our company. Turning to the second quarter results. I'm pleased with the market opportunities we saw, our win rate, our book-to-bill ratio and our backlog. During the second quarter, we increased our total backlog by 12% year-over-year and improved sequential win rate and book-to-bill metrics for both operating segments. Additionally, we completed the integration of our recently acquired Central Texas concrete construction company, while successfully pursuing and winning multiple projects, including projects in the San Antonio market. Finally, we remain focused on developing the infrastructure, industrial and building sectors which I'll touch on more shortly. Overall, we executed well on our projects during the second quarter. However, as mentioned on our last earnings call, our customers have been experienced delays in obtaining necessary permits for the marine construction projects. This continued during the second quarter and caused unforeseen significant delays on a couple of large marine construction projects. These significant permitting delays led to increased costs due to idle crews and equipment, despite our efforts with -- to work with our customers to resequence work and take other steps to mitigate the impacts of these permitting delays. While this situation is unfortunate, we have diligently worked with our customers on these impacted projects to do all we can to expedite the permitting process and we believe the permits will be coming in the next couple of weeks. To be clear, our results are not due to execution issues or poor performance; rather, they are a result of increased idle equipment and labor costs due to these permitting delays. Without these delays, our results for the second quarter would have been above market…

Thank you, Mark and thanks for joining us. For the second quarter of 2017, we reported a net loss of approximately $2.3 million or an $0.08 loss per diluted share. These results compare with a net loss of $0.8 million or a $0.03 loss per diluted share in the prior year period. Contract revenue for the second quarter of 2017 was $137 million, of which 45% came from the marine segment and 55% came from the concrete segment. Second quarter of 2017 revenue from the marine segment decreased 23% compared to last year. This decrease was related to the permitting delays Mark spoke about earlier. Second quarter 2017 revenue from the concrete segment increased 25% from the prior year period. This increase was primarily driven by solid execution of operations as well as better weather conditions compared to a year ago. In total, 37% of our consolidated second quarter 2017 revenue was generated from federal, state and local government agencies, while 63% was generated from the private sector. This compares to 29% of consolidated revenues being generated from federal, state and local government agencies and 71% from the private sector in the prior year period. The change in mix of customers is primarily driven by the timing and mix of projects. Consolidated second quarter gross profit was $15.4 million or gross profit margin of 11.2% which compares to prior year gross -- prior year period gross profit of $16.9 million for a gross profit margin of 12.1%. During the second quarter of 2017, we saw decreases in consolidated EBITDA and EBITDA margin. Second quarter EBITDA was $5.1 million or a 3.7% EBITDA margin. This compares to second quarter 2016 EBITDA of $8.9 million or a 6.4% EBITDA margin. SG&A expense for the second quarter of 2017 was $17.5 million as…

[Operator Instructions]. Our first question comes from Matt Duncan of Stephens Inc.

So look, the obvious question is what needs to happen for the project delays to stop? And sort of how are you guys adjusting the expense structure in the near term until you can kind of give visibility to start-up on these bigger projects?

Right, great question. Well, the first thing that needs to happen is the course needs to start issuing permits. It's been very frustrating for us. Given that, to the second part of your question, we're focused on adjusting our unabsorbed labor and equipment to adapt to the environment that we're finding ourselves in. We do expect permits to come forward. We do think that we will get into a new rhythm with permits. Some of this that we're seeing right now has been a result of a sort of a confluence of events. We've seeing permitting delays sort of increase and I think, we've had a number of things go on within the core in certain districts that have exacerbated that problem the last several months. So we do think we'll get into a new rhythm there that will help out. But in the meantime, we're looking at, again, things that we can do to control what we're doing. Looking at what equipment we own versus rent is a big part of that and just being more efficient in how we flex our workforce between projects and to address -- reducing the impact of the unassigned labor and equipment or idle labor and equipment costs.

Okay. So, Mark, what kind of quarterly revenue should we expect out of that marine segment over the remainder of the year? Is it going to continue to run at this much lower level than, I think, you or any of us were anticipating? Or is there a chance we'll see it pick up over the rest of the year? I mean, do you have any visibility to these bigger projects actually starting or are they still in delay?

Well, we do have visibility with, as I said in the remarks, we've been working very diligently with our customers to do all we can. I mean, there is a -- we're doing all we can, being in the private sector, to get the government to issue permits here. We also work with them to resequence events and things like that and to do other work to mitigate the impact of the effect of these delays. As Chris mentioned in his remarks, though, a big impact that we saw in the second quarter though was related to some turnkey projects that had significant components of dredging and disposal efforts in those. And kind of just want to explain what the issue there is. It's not that the job is not profitable; it's not that it's not going to be a great job for us. But dredging and disposal, it's already a 24/7 business. So Chris' point about difficult to make that up in the back half is, once the project gets going -- projects get going, they will be good projects. But, again, since it's already a 24/7 business, we really don't have that ability to claw back what we didn't achieve previously for the full year of '17. Going forward, on a run-rate basis, it will be very positive, but we do expect projects to get moving on some of these that have been delayed relatively quickly here and as we go into the third quarter. And we do expect an improved revenue in the marine segment in the back half of the year.

Can you give us some feel for how improved? I mean, can it get up into the $100 million a quarter range? Or is that optimistic? I mean, I know I think you guys were thinking that was doable before. But it sounds like some of these things are still getting delayed. So any help you can provide in helping to dial that in, I think would be beneficial to all of us.

Yes, Matt, let me jump in. I think there's a couple of different things to say there. As you know that some of the delays have increased or continued into the third quarter, we do expect those, to Mark's point, we expect the permits to be forthcoming. We expect those to pick up here towards the end of the quarter. So I think, from our original expectations, we would expect to see not quite as much revenue growth, particularly in the third quarter. As we look out to the fourth quarter, I think, it's -- that's very doable. Keep in mind, seasonally, Q3, Q4 is going to be our strongest period. So that is there. And we do expect that we've got a lot of activity outside of these permitting delays. We have great activity. Good job execution. Things are progressing very nicely across both segments. So we have no complaints other than these couple of big job issues. So what I would say is, I would hamper the growth just a little bit in the third quarter, just because those jobs we don't expect will start until the end of the third quarter and then we expect that we can't hit that range in the back end of the year.

So, Chris, does that work then just slide into the first quarter? If it's moving out of the third quarter, does it just slide into 1Q '18?

Yes, it does.

Okay. And then on the commercial concrete business, you obviously had very good growth there versus last year. But I want to kind of break that down a little bit. I mean, you had done an acquisition that should have accounted for about half of the year-over-year growth that you saw and you had a very easy comparison last year because of all the rain that you had in Texas. So taking those things into account, I guess that revenue number still came in a little below what we were expecting you to be able to do this quarter. What kind of growth should we be looking for on an organic basis out of that commercial concrete business, based on what you see in those three key Texas markets?

Well, good question. Let me take the first part of that first. With respect to Central Texas, we're very pleased with our efforts over there in ramping up business there. We did secure several new projects in that market since we closed it in -- at the first part of April. A lot of those projects were ramping up. So they're -- from a revenue standpoint, we got some benefit in the quarter, but the bulk of the benefit in the quarter was from existing -- the bulk of the increase in the quarter was from existing markets, Houston, Dallas/Fort Worth. In other words, there was a ramp up in those operations in we're securing work and then beginning to burn that work. We're on a nice run rate cycle of burning that work now as we get into the third quarter in Central Texas. So looking at the overall market, again, we kind of -- this is no change from what we talked about before. We expect to remain relatively steady in the Houston market in terms of our market share and our revenue. We expect to see growth in the Dallas/Fort Worth market as we sort of expand the types of projects that we go after in that market and -- including structural. And then, of course, we expect nice steady growth in Central Texas. Obviously, we want to be very careful that as we ramp up in Central Texas that we don't get in front of our skis -- out in front of our skis in that event. We want to make sure that we're growing that smartly, but ultimately we think that the Central Texas market will long term -- will, if not be quite as large as we see in the Dallas/Fort Worth market, it'll certainly get close to that. So we expect significant growth in the long run over what we're doing today. We acquired that business. It was around a $25 million, $30 million business. We think we can have substantial growth in that area over time to target $75 million to $100 million range for that business. So again, we expect growth in that -- in Central Texas, Dallas/Fort Worth and to kind of maintain what we have in the Houston market.

Your next question comes from Bobby Burleson of Canaccord.

So, just curious. you guys have the $583 million in bids outstanding. Curious -- your win rates have been pretty nice here recently. How do you feel about win rates on that amount of outstanding bids? Do you feel like they're going to stay kind of elevated? Or should we be looking at kind of long term average win rates?

I think over time you look at long term averages. I mean, we -- as you know, historically we're sort of in the 25% range on win rates. Again, timing can affect that. And in particular with work in the private sector which virtually all of our work in the concrete segment and roughly about half of it in the marine sector is -- the segment is in the private sector. And private sector work kind of doesn't get awarded on quite the same regimented schedule that it does in the government sector or government-driven projects where there's specific dates when things are going to be done in the private sector, of course. The customers can kind of operate at whatever pace they want to, to award work. And it's a much more business development effort on our part, obviously, in the -- from private sector-driven work. So we feel confident about the bids we have outstanding. We think over time, we'll average about that 25%. But as we saw kind of in Q1 and Q2, sometimes we might be a little bit lower than that average and sometimes we might be a little bit higher. We were very pleased with -- we were well above average in the concrete segment in Q2. And we were pretty close to average, but up sequentially in the marine segment. So, again, we're confident about that, but some of this -- a lot of this is in the private sector. So it sometimes takes a little while to land those fish in the boat, but we feel good about all that we have out there.

Okay, great. And then in terms of the permitting delays, can you help us understand kind of the institutional or structural issues there that maybe you aren't anticipating? And you talked about a new rhythm hopefully going forward. So what's changed kind of structurally or with personnel or process-wise, if that gives you comfort?

Well, just from a structural standpoint, I mean, again, this has sort of been an issue that's been building for a number of years, as we've seen it, just with sort of the, I'll call it, kind of the increase in sort of the administrative and regulatory state that we've seen over the last several years. It's kind of been building; this is not something that has sort of switched overnight. So we've been seeing that for some time, but I think what we've seen more recently is just sort of some different layers of process that have been instituted in the permitting process. And again, this is primarily focused on what I would call -- what we would call capital type projects. In other words, a lot of the work that is for dredging services that is done, is maintenance work, maintenance dredging. Those are covered under nationwide permits that -- for our customers that are long term permits and where they can continually do their maintenance work. And then -- and so there's no issues there. Any new projects in the government sector or private sector, it doesn't -- irregardless of who the customer is, any kind of in-water work is going to require a permit from the Corps of Engineers. So that affects sort of the capital projects. And so again, I think, there's just been some new processes instituted. There's been just a confluence of kind of changes that we've seen that have exacerbated what we've already been seeing over time. And that's why we think as some of these things, some of these processes become sort of the norm and both the permitting group in the government and then customers adapt to sort of the new processes, that's what sort of gives us the confidence that we should get into a new rhythm around what we're -- the current environment. But, again, unfortunately, there's just sort of been a pretty big impact that we didn't expect. Some of these projects, I mean, we've been waiting 9 months to a get permit on. So again, we've kind of never thought in our wildest dreams that it would wait -- we'd be waiting that long to get a permit issued on something or have our customers get a permit issued on something. But again, we do think some of these that we've been waiting on are coming imminently. And we do think we'll get in a good rhythm here as -- or better rhythm as both -- as people adapt to sort of this new environment.

You made the case earlier that -- in the prepared comments, that it's not really an execution issue, your business seems to -- demand looks good. It's strictly this permitting delay problem is kind of outside of your control. Can we also sink on a project-by-project basis within marine construction that there is nothing particular, so the projects themselves that could make certain projects down the line experience permitting delays again? Or is it just simply, once we kind of get on this new rhythm, it'll be more predictable kind of across all the projects that you guys have won?

Well, I think it's the latter. We feel good about the projects that we have. Obviously, there is going to be the normal ebbs and flows, ups and downs on various projects, but we feel very confident in the margins and the estimating efforts that we have. And we feel very good about our execution on the projects. There is nothing that we see that leads us to believe that we anticipate any kind of problems in executing the work. So it's really just a matter of adapting to -- to do all we can to adapt to sort of the environment that we're in. And we started that during the quarter. I mean, we did -- our business development people, our project managers, our senior folks did an outstanding job, in my view, to try to mitigate the issues that we started seeing come. We expected to get some permits and get some jobs kicked off. That didn't happen. We were able to resequence some things to execute some work, but clearly we weren't able to liquidate what we were expecting to liquidate. And it's pretty hard to pivot that much labor and equipment. A couple of these projects, one in particular, it's a very large project with a tremendous amount of dredging in it and disposal of dredge flows in it. And it's very hard to pivot that quickly when we didn't get the notice to proceed when we thought we would get that. So, again, but even having said that, again, we undertook a lot of effort trying to get some different work. Actually with the same customer, we were able to get some maintenance dredging work, trying to offset some of that. We did resequence some of the work from a construction standpoint to try to do what we could do there to mitigate it, but obviously, it wasn't enough to offset the entire impact that we experienced. But as we go forward, that's why I say we're focused on addressing the things that we can control and that's to focus on how do we address being more efficient with our labor and equipment in the marine segment to try to not have the outsized impact by these permitting delays.

Just one more quick one. You mentioned that 24/7 kind of character of some of the dredging work. How capacity constrained do you become given the delays? Does some work start to need to happen in the same time frame where maybe you guys aren't able to handle all of it? Or is there no other option but Orion in some of these markets, where it just sort of delays the whole project waiting for you guys to be able to fulfill the work?

Well, one of the ongoing things that has been a truism of our business is managing the logistics of when we execute work and how we execute work. So I think the answer to your question is that we feel confident about being able to address the needs of our customers. Even given these delays and sort of the pushout to the right of the projects we're talking about, we're very adept at managing the assets and the capacities we have to take care of not only the project that's slid to the right, but other work that we see out there that we're going after. The point that I was making on that is, is that for a given piece of -- unlike sort of traditional construction stuff, where you can maybe add a double shift; you can work extra days; if you were working a 5-day shift, you can work 6 days; or if you're working 6 days, you can work 7 days, there is an ability on some of the construction activities to increase production to get to catch up, if you will. When you're talking about a dredging asset, where you are executing -- where your production on a daily rate is as it is. It's already a 24/7 business. So you have no -- you can't really -- you can't work more than 24 hours a day and you can pump only what you're pumping around today. So that's really what I was speaking to. It's a good question, yes, but we feel confident in having that capacity and the agility, if you will, to schedule the various projects with our customers to make sure their needs are taken care of and are not impacted by anything that may have pushed to the right.

Okay. My concern is just that you start to get a lot of permitting going through. And then you have certain projects that want to get started at the same time. And maybe there's a capacity constraint at some point, but it doesn't sound like you see that?

It doesn't and you, again, keep in mind on the horizon what we're seeing and given what we see out there with projects and the capital projects. And the difference between some of the capital projects, particularly with dredging services which is what your question was about. A lot of the work that we anticipate being scheduled is more maintenance work. So there's not a permitting issue with that, as I said earlier. That's under account of their nationwide permits which are not -- are long term permits that are not required to be re-permitted every time you go do that maintenance dredging work. It's maybe like getting a permit, so no impact there.

And next question comes from Jon Tanwanteng of CJS Securities.

It's Pete Lukas for Jon. You mentioned seeing pockets of margin expansion. Just wondering if you could update us on the bid margins and improvement that you're seeing there?

Well, I think overall, again, it depends on the sale on the marine side. We're seeing some pockets of improvement there. In the concrete market, we've seen over the first half of the year some areas where we've seen a bid margin improvement. We've seen other areas where it's been a little bit tighter. We talked about Houston in the last quarter and it kind of remains the same this quarter is. A little bit of tightening in the Houston market, but we do still anticipate maintaining our market share in Houston. And in the long term, we're very bullish on Houston and the rest of our markets in Texas on the concrete business. The marine side, again, as we -- we're comfortable and confident in the margins that we have in the backlog, some of the work that we see upcoming. We anticipate, again, continuing to see some areas of margin improvement. I'll say it, again, as is that our view is, that a lot of projects that we go after, people should be a little more expansive in their margins. I think we still got a few players that are bidding a little bit like it's 2010 instead of 2017. So we're focused on trying to press those margins up as much as we can and think others should as well. But in any event, it depends on where we're, what market and what service we're doing as to whether or not we see improvement or not.

So as a follow-up there, would you say the margins for the Central Texas concrete operation have come in line with your legacy concrete business? Or are we still working to get there? And if not, when then?

I think they're in line. I think, again, we had a little bit of a ramp-up again. Timing of -- one of the earlier questions was about when we expect to see work come in, in the number of bids outstanding. In that business, prior to us acquiring it, they had a lot of work, lot of bids, work bid they had expecting to come in. So we had a relatively -- pre-acquisition, they had a relatively quiet awards in the first quarter, but they had a lot of work to bid in the first quarter. So as we came in after post-closing, a lot of that work became awarded. We had a nice amount of work awarded since the date of the acquisition and we started ramping up on that work. We do think that the margins are in line with the rest of the business. Obviously, though, we've said that we expect to be kind of neutral to slightly positive impact for 2017 just because it's an integration year; it's a ramp-up year. There's costs associated with the amortization expense associated with the acquisition in the short term. So that's our reason for saying that. But we're very pleased with where we're. We're on track. We're excited about the group there. And the team that we acquired and they have bid in very nicely with our TAS group. And they couldn't be more pleased with how that's going and how the teams are working together in that area and with the -- in absorbing the TAS.

And last one for me. In terms of the permitting delays, there's been an issue for a couple of quarters here and you admitted you never thought it would -- you'd be waiting this long. Can you just give us any sense of what gives us -- what gives you guys the confidence that you think this will all start to move forward within the next couple of weeks?

Well, based on where we're in the permitting process, we've been -- as you can imagine, we've been working with our customers very, very closely, with our personnel and our engineering team's personnel to do everything we can. So based on where we know we're in the process, that's what leads us to say that we feel good about getting these in the next few weeks. But, again, that's why we're also taking a hard look at how we can be more efficient in addressing any idle labor and equipment costs, so that we don't -- so that we can do all we can to be as efficient as we can give the permitting environment.

Great. And I'm sorry, just one last one. As far as the amendment to the credit facility, so that's an expansion for this quarter and next, is that correct, to $2.75 million?

That is correct.

Thank you. Ladies and gentlemen, this concludes the Q&A session. I'd like to turn the call back over to David Griffith for closing remarks.

Sure. And just thanks again, everyone, for listening today. If you have any follow-up questions, please feel reached -- feel free to reach out to me. Have a great day. Thank you.

Ladies and gentlemen, thank you for your participation in today's conference. You may disconnect. Have a wonderful day.