Good day, ladies and gentlemen, and welcome to the Q2 2018 Orion Group Holdings Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session, and instructions will be given at that time. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, Mr. Preston Graham [Ph]. You may begin.

Thank you, Operator. Good morning everyone, and welcome to Orion Group Holdings' Second Quarter 2018 Earnings Conference Call and webcast. Joining me today are Mark Stauffer, Orion Group Holdings' President and Chief Executive Officer; and Chris DeAlmeida, Executive Vice President and Chief Financial Officer. Regarding the format of the call, we've allocated about 15 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 questions. 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, backlog, projects in negotiation, and pending awards, as well as our estimates and assumptions regarding our future growth, administrative expenses, and capital expenditures. 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 performance is not necessarily - 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 adjusted net income, adjusted earnings per share, EBITDA and EBITDA margin are non-GAAP financial measures under the rules of the Securities and Exchange Commission, including Regulation G. Please refer to the reconciliations and definitions, inclusive of the most comparable GAAP measures and reconciliation tables accompanying this earnings call within the press release issued this morning. The press release can be found on our Web site at www.oriongroupholdingsinc.com. Also, for additional discussion of risk factors that could cause actual results to differ materially from our current expectations, please refer to our quarterly and annual filings with the SEC, which are also available on the Investors section of our Web site. And with that, I would like to turn the call over to Mark Stauffer, President and Chief Executive Officer. Mark?

Thank you, Preston [ph], and thanks everyone for joining us this morning. I'd like to start by thanking our 2,500 coworkers for all their continued hard work, dedication, and commitment to our company. It's through our combined efforts we strive every day to safely meet our customers' needs while working towards our strategic objectives. I'm pleased with our strong results for the second quarter and our performance in the first half of 2018. During the second quarter we had solid execution with continued strong market drivers. Our Marine segment performed well during the second quarter as a result of continued strong demand and solid execution as well as the timing and mix of projects. In our Concrete segment, we continue to experience some margin pressure, particularly in Houston. But expect this pressure to begin to abate as we head into 2019, and we remain confident in the long-term outlook for this segment. Finally, we continue to see strong end market drivers across our business. We are continuing to execute our strategy of being a premier specialty construction company focused on providing solutions for our customers across the infrastructure, industrial and building sectors while building our market share and enhancing our operations in these areas. We will continue to look for opportunities in these areas through both Greenfield and M&A efforts. The changes we've made within our Marine segment are helping to produce improved operational performance and leading to solid bottom-line improvements. We are very pleased with the performance of our Marine segment and continue to be committed to providing quality services to meet our customers' unique needs. Within our Concrete segment, we are continuing our efforts to expand our services and market share in our central Texas and Dallas-Fort Worth markets, while focusing on maintaining market share in Houston. We…

Thank you, Mark, and thanks for joining us. For the second quarter 2018, we reported net income of $2.2 million or $0.08 diluted earnings per share. These results compare to a net loss of $2.3 million or an $0.08 diluted loss per share for the same period a year ago. Contract revenues for the second quarter 2018 were $160 million of which, 51% came from our Marine segment and 49% came from our Concrete segment. Within the Marine segment, 37% of second quarter 2018 revenue was generated from federal, state and local government agencies while 63% was generated from the private sector. This compares to 64% of second quarter 2017 revenues being generated from federal, state, and local government agencies and 36% from the private sector. In the Concrete segment, over 80% of second quarter 2018 revenue was generated from the private sector as compared to 84% in the prior year period. As we move forward, we expect to continue to see a higher mix of private sector revenues driven by the contract we are pursuing, and the overall mix of our concrete and industrial business. Second quarter 2018 gross profit was $21 million or a gross margin of 13% which compared to second quarter 2017 gross profit of $15 million or a gross margin or 11%. SG&A expense for the second quarter 2018 was $17 million or 10% of contract revenue. This is compared to second quarter 2017 SG&A expense of $18 million or 13% of contract revenues. As we move forward, we expect to continue to see leverage from our SG&A expense as a percent of revenue. Second quarter 2018 EBITDA was $12.5 million or an 8% EBITDA margin. This compares to second quarter 2017 EBITDA of $5.1 million or a 4% EBITDA margin. For the second quarter…

Thank you [Operator Instructions] And our first question comes from Jon Tanwanteng from CJS Securities. You may proceed.

Hi, good morning. It's Pete Lucas for Jon.

Hey, Pete.

Hi. You touched on your prepared remarks talking about the new credit agreement, just wanted to know what you expect your run rate interest expense to be under the new agreement.

As it currently sits there with our current leverage ratio, it will not change. So that's a LIBOR plus 175 level. So we do not expect that to change going forward. The only change is that we have reduced one of the top tiers, and made the clip levels higher on raising the interest rate throughout the facility, so that pricing grid [ph] changed a little bit, which does save us on the interest, but today since we are at the lowest level already, that will change.

And then, how do you think about your priorities for cash flow in terms of debt pay down, M&A, share repurchase, any changes there and how should we think about that?

No changes there. I mean we will continue to always look at all of those uses of cash as we go forward. We will continue to focus on paying down debt. We will be opportunistic with respect to any M&A activity, and certainly consider all other uses for cash as we go forward.

And then, in terms of trends in the concrete and marine business, if I heard correctly, you talked about more of expect to see a higher mix towards private from public; any trends that we should be thinking up there, reason for the shift, is it private picking up or public falling down?

No, it really has to deal with just the way we are set up now. So in the marine business, roughly it's a 50-50 mix between public and private. But as we look at our concrete business, it's predominantly in the private sector with the exception in the public sector is generally in the education space, which has picked up for us over the last year or so. You will see that in the percentages Chris gave earlier. But we have that in the mix. And then as we pursue industrial opportunities, those are also in the private sector. So it's just as a result of more industrial work and more concrete work in our overall mix is why we expect the private sector to be a little more outsized there. But there is still a lot of great government opportunities in our marine business at the federal, state, and local level. And again, as I touched on in my remarks, the $5 billion from the Corp is going to be injected into Texas. It's very positive sign for us. So we will still have a nice amount of government work in our mix as we go forward.

Great, thanks. And last one from me, on the recent Texas coastal restoration work after the flooding, anyway you can quantify how much of that Orion can still bid on, and what you would expect to win, what we can look for there?

Well, the $5 billion that the Corp announced to me, we're going to take a hard look at all of that. So we think a lot of - most of that, not quite all, but virtually all of it is going to be opportunities that we can pursue. But I think, again, I will just remind that as I said in the last couple of calls, since the events of last year, we expect this to play out like - I'm going to rephrase that, this is playing out like we expected. We have seen some modifications to some of our addressing contracts as a result of that. That's usually what we expect to see in the first several months or couple of quarters after an event like that, and then we started seeing the longer term fixes if you will, which is again, let's say, $5 billion the Corp has announced for disaster recovery in Texas. That will be set over the next period of time. So as we said before, we expect to see opportunities driven by those events last year over the next one to four or five years. And so, again, that - this announcement by the Corp and the governor in Texas just kind of fits right in with what our narrative has been, what our expectation has been. So we look forward to having a lot of opportunities to help correct and fix some of the issues that occurred from the store events last year.

Very helpful, thank you very much guys.

You bet.

And our next question comes from Ben Klieve with NOBLE Capital Markets. You may proceed.

All right, thank you. So, few questions from me; first, current if you can elaborate a bit more in the bookings strength - your the marine segment both during the quarter and then also [technical difficulty] end of the quarter? And I know you talked about a lot of demand driver in multiple areas of this segment, but where is that demand really [technical difficulty] to bookings at this point?

Well, yes, we are really seeing kind of strength across the board, and we touched on this in our remark. So, again at the federal level, state local level, we are seeing opportunities from the U.S. Navy, from the Corp of engineers at the federal level. Opportunities at the state level from DOTs, local port authorities are in that mix. We have got work outstanding, bids outstanding on that. We are executing work today for port authorities. Private sector on the marine side, again from recreational customers, from downstream energy, so we are seeing opportunities kind of across the board from all of the various federal, state, local, private sector customers we service, and seeing it really in all regions that we are in. So very - a lot of positive opportunities that we are bidding on and we see upcoming and including in the Caribbean we've got a lot of activity down there that we are tracking, pursuing, we are executing work in the Carib right now. And we have got additional opportunities that we are pursuing down there. So just very pleased with the opportunities we have seen on the marine side, and you have seen that in, I mean again, with the win rates and things of that nature, it's a timing of when bids go in, when we see awards and that influences that. So we look at the win rate, we look at the backlog, we look at the low bid, we look at the opportunities we see in front of us, we look at all of that to kind of us a picture. We don't look at any one single thing, but we look at it all holistically. And we are pleased with where we are as we look at all of that.

Okay. So, you are seeing opportunity across the board, and those opportunities across the board are translating to bookings, is that…

Correct, yes.

Okay. In the industrial segment, is there any increased to bookings in the quarter that's - if you broke out industrial as a separate segment, sort of - would you have had any bookings that would have been classified as industrial, had been in the separate segment; excuse me.

Well, we have a backlog, we are continuing to - this is a Greenfield effort on us - for us, excuse me; we are continuing to pursue work. We would have had some bookings if that was reported out. Obviously it's not to the point where it's [indiscernible] being reported as separate, but we are pleased with where we are. We have done a lot of laid work in the last 18 months, getting us to where we are. We are executing work, as I said in my remarks, we completed our first project very successfully, and very much to our customer's satisfaction. So we got lot of step that we are tracking, and hope to be increasing bookings in revenue as we go forward.

And then, with regards to the performance during the second quarter, [technical difficulty] timing in the marine segment being one of the drivers with really strong performance, that phrasing imply that there is any work that was pulled in from the second [technical difficulty] year or does that just imply that you had a particularly strong set of [technical difficulty] that work was being done during the quarter?

Well, I think there is nothing - I think when we say timing and mix, that's the phrase we use often because it just depends on the timing of when work is executed and what work you have in backlog and what the schedule is, so that's really just a term we used for comparison purposes between year-over-year comparisons. We're executing different work this year than we did last year, so there's no kind of deeper meaning I think than just as I look. We were executing different type of work this year than last year, also obviously we've made a lot of changes in our marine business in the last 24 months, last 12 months that's paying off for, so again we're pleased with the execution of the marine business we had a good quarter we've had several good quarters with marine. And we're looking forward to building on that as we go forward.

And then last one for me with regards to the competitive margin pressures that you're seeing on the side. That you believe those margin pressures are going to subside looking in 2018 what are the dynamics of these pressures and that's give you sense that there will be improvement and a couple quarters and how, what gives you that confidence?

Yes, great question, and I think both from a macro level and from a in the trench level we're seeing that, we're seeing reason for optimism as we go forward. So I've been in here and I just began it we had a big disruption in the market with the hurricane last year and all the flooding we've seen and in Houston last Q3 last year. There has been some delays that we've seen out there with work as a result of new flood control efforts by the city of Houston and Harris County locally. So I think that's delayed some stuff, push them the right word and that's had an impact on the available activity of work that we've seen and that's made it's just been a real competitive environment and it's I would say that nothing's really changed in that regard from what I've talked about the last couple calls, where we've seen that, you see that in reflected in a win right that we had is a little bit lower than what we'd like to be seen. For, having said all of that we do think a lot of that changes in flood control stuff is working its way through the system. There's a lot of projects that are now going forward that we're very excited about. We're starting to see what we've been seeing an uptick and architectural activity which is kind of the cursor for work coming out in the future that's kind of the tip of the spirit if you will, so there's been a high level of increase in that and we think some stuff on that where the architectural index for the south Texas area is the highest in the nation, so a lot of the signs that we're seeing from a macro level are very encouraging but also down like I said in the trench level we're getting the indication that will start seeing improvement and that as we go through the back half of the year get into '19, so we're very, very encouraged and remain very confident and in a market that we're in over the long-term but we do expect the margin pressure that we're seeing to abate as we go forward.

That's very helpful, Mark. Thank you. Thank you both. I'll jump back in queue.

Thank you.

And our next question comes from Marco Rodriguez of Stonegate Capital. Sir, you may proceed.

Good morning guys. Thank you for taking my questions. I wanted to take you back on the last question regard to the segments here and then also in relation to guidance the increase in your EBITDA for the remainder of fiscal 2018, just kind of looking at the segment margins obviously the marine construction is doing much better and seems to be kind of at that mid teen level, kind of in line with presentations that you guys have made in the past as far as the a normalize level obviously on the concrete side I'll lower here at the single digits. I'm assuming that's mostly primarily resolved around the pressures in Huston and so first as I want to make sure I'm confirming that and then also with the increase in the EBITDA got guidance going forward just kind of given the fact that marine is kind of that run-rate level if you will. I'm assuming that most of then the expansion on the EBITDA side is going come from the concrete side is that fair?

Well, I'll answer the first part. I think that again I think you stated it correctly on your analysis of the margins in the both segments. I think on a go forward basis we expect to see abetment as we go forward, I don't know that we're going to see a lot of margin expansion on the concrete side in the back half of the year. We could be see some but I think as we go forward we will see that improved as again as some of this bid pressure abet.

Yes and just a follow on to that Mark, I mean if you look at the EBITDA margins on the marine business on a trailing 12 months reported EBITDA for about $46 million in total amount that includes all the effects of the hurricanes that we had in Q3, $2 million of EBITDA in Q3, 2017 so naturally year-to-date were about $26 million of EBITDA I think as you look at the just hopefully the continuation of that and how we're looking at the business for the rest of the year. That's puts you nicely into that kind of $45 million to $50 million range on a steady run rate. Even with concrete and its performance today then I think as we start to look into 2019 we at least mentioned we start to see margins improved on the concrete side just from the demand and that should contribute to further growth of our EBITDA as we look on 2019.

Got it, that's helpful. And then just a kind of clarify on the abetment of the margins pressures in Huston, so if I'm want to saying you guys correctly just all the weather issues that cause lots of problems done in Huston for last 12 months or so that kind of pushed a lot of construction work to the right, if I heard you guys correctly and so if I'm understanding you that has the environment if you will has sort of normalize where you had normal work schedules going and projects are moving along the normalized rate and so you're getting just normal bidding then is that what I'm understanding or is that what you're expecting to happen?

Well, I think it's a couple things one at you can see the level of bid activity and it's been healthy. We continue to bid on work; it's just there have been a lot of competitive pressures of bidding on the same work. But we are expecting that to improve some of the things that you mentioned that I mentioned earlier, we are expecting and are seeing signs and you know just about the macro and micro level that we expect that to improve as we go forward. In other words, we expect additional opportunities come forward again as I said we're seeing the lead indicators leading indicators are showing us that we expect opportunities to increase as we go forward and we think that increasing opportunities will abate that pressure as we go forward.

Okay, understand. Then moving here to the cash flow statement just wanted to take a look here or talk a little bit about the cash flow from operations, how to pretty significant hit sequentially here just from working capital usage, can you just talk little bit about the drivers there what kind of cause those issues if you will?

Yes, no, absolutely that's really surrounded around we've got a couple jobs in particular but then we're just mobilizing through one is a multi-season job but re mobilized through that at the end of the quarter, so is a timing effect as when we can built for that and actually look at the receivable and so the increase in working capital purely of the surrounding around timing of some larger mobilization. I would expect that to come fast out in the third quarter and of course I will translate into a reduction of that as well.

Understood. And is there a expectations that cash flows from operations for fiscal 2018 are similar to 2017 are you expecting an increase that also kind of looks like your CapEx spend is bit accelerated?

Now on the capital CapEx side of things it is the timing of when those are occurring, so we still expect that the $20 million or below full-year per CapEx from a standpoint of Corps as far as that timing of all that has been a little more front end loaded. So we expect that to cool off a little bit as we go into the backend of the year.

Got you. And last quick question. On the industrial project that you guys here, can you talk a little bit about that as far as what sort of margin profile maybe you saw? I am not necessarily looking for specific numbers. But, was it to expectations or was it kind of a little bit lower than expected just so that you can kind of get your foot in the door and show that you successfully completed something?

No, actually - to be honest with you, I am not going to get specific, but it exceeded our expectations. So we are very well pleased. Again, we did a lot of laid work last year. We bid out some work that we missed down on last year, but those were learning experiences for us. We have recalibrated. We have won work and had backlog coming into the year. We have executed on it now, as I said, on that one project. And it's actually exceeded our expectation. So we are very well - very pleased with where we are. We still got a lot of work to do to land additional work and execute it. And we are focused on that. But we are pleased with where we are and pleased with the margin profile.

Thanks a lot, guys. I appreciate your time.

You bet.

[Operator instructions] And our next question comes from Alex Rygiel with B. Riley. You may proceed.

Hi, good morning. This is Min for Alex. How are you?

Hey, Min.

How are you?

Good. I actually have two quick questions. First regarding the Army Corp; the Army Corp, the $5.2 billion that you had referenced I mean it sounds like that you are seeing some modifications to dredging contracts. So what do you expect the bids to be like? And do you expect it should be steady or just volatile like they have been past? Any additional comments you have on that contract would be helpful.

Well, it is two separate things. So I think that the - the modifications that we have seen on several of our contracts since the storms has been kind of out of one pot of money and one way for them to get some of the emergency work done that's really more revolving around dredging. So that's one thing. Second thing is kind of the normal letting of work that they have that we are typical addressable market that still remains very volatile up and down. And we are seeing sort of the typical - we are here at the end of their fiscal year, the next couple of months here. So we expect a several projects to be let and that sort of has an abnormal - they are normal budgetary stuff that - so we are still sort of seeing that you know, hit or miss bid schedule out of that normal budgetary stuff. The $5 million of disaster recovery stuff is a separate pot of money. So we expect that will be - and that's centered around a list of projects. Flood control projects around a lot of the tributaries in and around the upper Texas coast. So that work we expect will come out over time. And it will be separate and apart from the other two kinds of buckets of stuff that we have seen and that I just talked about. So we expect that will be additive. We do not - we don't know exactly what the letting schedule on that is going to be. But we think that will be additive. And it will be separate from sort of a normal type of work that we bid on. And it will be different types of activities and won't necessarily involve dredging although some of it could involve some form of dredging. But it could involve more construction than dredging. But certainly it's something that is going to be additive to our opportunities and something that we are going to pursue.

Okay. Got you. And then if you could just talk a little bit about what your M&A pipeline looks like right now. I am assuming that you are looking more on the concrete side. Are you looking to add more markets or services? Or just kind of grow your presence in your existing markets at this time?

Well, I think on the concrete side, we are really looking more to grow organically through our existing operations that we have today. As always, I will say never say never. We will be opportunistic. If the right opportunity comes along in any of the segments, we would certainly take a real hard look at it. I think at this juncture, we have been focused on the things that have talked about in my remarks on improving our operations in marine, expansion in the concrete market, Dallas, Fort Worth, Central Texas, and standing up on industrial capabilities. So that's what our focus has been on. Having said that, as we think about M&A going forward, it's - high on the list I think would be looking at potential opportunities that would enhance or expand, accelerate our industrial effort. I think that would probably be the thing that would be at the top of our list at this juncture. Again we would opportunistic in the other segments as well. But I think that's the area that we would take the hardest look at for M&A opportunity. Having said all of that though we are still moving forward with our strategic plan whether it's M&A or Greenfield, it's the same plan either way. And the last thing I will say is - that just as underlying - just what we are very pleased with the amendment to our credit facility. Very appreciative of the support we have with our bank and - but gives us a lot of flexibility now having a $100 million revolver. As we continue to pay down debt as Chris talked about in the back half of this year and in the next year, we will expect to have that full revolver available to us to the extent we have M&A activity. We are very pleased with that facility.

Right. Well, congratulations on your backlog and apparent little bid. Nice to see the number up like it was in the quarter.

Thanks.

Thank you.

Thank you. Ladies and gentlemen, that concludes our Q&A portion of today's call. I would now like to turn the call back over to your host Mr. Preston Graham [Ph]. You may begin, Sir.

So this concludes our call. Thanks for your time today and we look forward to speaking with you next quarter. Have a great day.

Ladies and gentlemen, thank you for attending today's conference. This does conclude the program, and you may all disconnect. Everyone have a great day.