Good day, and welcome to Orion Group Holdings First Quarter 2023 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] On today's call, management will provide prepared remarks and then we will open up the call for your questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Margaret Boyce, Investor Relations for Orion. Please go ahead.

Thank you, operator, and thank you all for joining us today to discuss Orion Group Holdings first quarter 2023 financial results. We issued our earnings release after market last night. It is available in the Investor Relations section of our website at oriongroupholdingsinc.com. I'm here today with Travis Boone, Chief Executive Officer of Orion; and Scott Thanisch, Chief Financial Officer. On today's call, management will provide prepared remarks and then we'll open up the call for your questions. Before we begin, I would like to remind you that today's comments will include forward-looking statements under the federal securities laws. Forward-looking statements are identified by words such as will, be, intend, believe, expect, anticipate or other comparable words and phrases. Statements that are not historical facts, such as statements regarding the current and expected status of our negotiations regarding a replacement credit facility are forward-looking statements. Our actual financial condition and the results of operations may vary materially from those contemplated by such forward-looking statements. Discussion of the factors that could cause our results to differ materially from these forward-looking statements are contained in our SEC filings, including our reports on Form 10-Q and 10-K. With that, I'd now like to turn the call over to Travis. Travis please go ahead.

Thank you, Margaret. On our last earnings call, we outlined our strategic plan for improved performance. And today, we have a lot of positive news to share. Before that, I want to acknowledge that our first quarter results did not meet expectations. The main issue was volume and continued ramp-up of problem projects. We had several marine jobs that experienced owner delays in the quarter. And I know no one wants to hear us talk about weather, but we did, in fact, have some abnormally bad weather that impacted our business in Texas in January, and this significantly impacted our production rates and volume for the quarter. As we've said, we are working toward closing out legacy underperforming projects by midyear. This resulted in revenue declining 9% to $159.2 million with a gross profit margin impact of around $5.8 million. In the construction business, we are used to lumpy quarters, both on the upside and downside due to project timing and weather and other unforeseen delays, and we saw some of that this past quarter in both our concrete and marine businesses. We were very successful in winning significant contracts early in the quarter that will drive our volume later in the year, but we are seeing slower activity from major customers like the Army Corps of Engineers, especially for dredging in the Gulf. Generally, we have seen some bids as well as contract awards slipping to the right. Overall, we think some of the hesitation with agencies revolves around funding availability from the infrastructure investment in JOBS Act especially with marine and transportation infrastructure projects. However, on the concrete side of the business, we are continuing to see attractive bid opportunities from our key clients and partners, although we are hearing indications of possible slowing somewhat later in the…

Thanks, Travis. As Travis just addressed, we're not satisfied with our first quarter results. We expect to deliver substantially stronger financial results throughout the rest of the year as we complete our exit of Central Texas jobs as we realize the benefits of our margin improvement efforts, and as we begin to ramp-up our work in Hawaii and on other recently won projects. Our confidence is rooted in the meaningful progress we are making, executing our three-point strategic plan to improve financial performance. I'll cover some highlights and then review the first quarter results. The first piece of important news is we are very near the successful completion of our ABL credit facility. As Travis mentioned, we have reached final agreement on terms and signature pages are in escrow, while we work to complete the final loan documentation. The close of this facility will provide us with a term loan of $38 million and a revolving credit facility up to $65 million. We expect to have further news to report on this in the near future. Second, as you know, we've been in discussions for several quarters to monetize our real estate assets, including sale-leaseback transactions or sales of our non-core real estate assets. In April, we signed a $36 million sales contract for our East West Jones property, which is 341 acres adjacent to the Houston shipping chain that we formerly used as a dredge placement area. We expect to close this transaction in the third quarter and we will use the proceeds to reduce debt and for general corporate purposes. Furthermore, we have two properties, our Baytown Pipe yard and Port Lavaca South Yard, under letters of intent for sale leaseback. We are pleased with the progress on our real estate monetization initiative and look forward to redeploying…

Thanks, Scott. While we had disappointing results this quarter, we remain optimistic about the year and about the future of Orion. The actions we are taking to make our business healthy are working and will drive long-term stockholder value. I want to recognize the tremendous contribution and dedication that our employees have shown as we continue this journey together to reenergize and transform our company. We know there is still hard work ahead, but we are fully committed to realizing Orion's full potential and are very excited about our future. We are grateful for the support of our shareholders and look forward to sharing our progress as it unfolds. Operator, we're ready to open the line for questions.

The floor is now open for your questions. [Operator Instructions] Our first question comes from the line of Julio Romero from Sidoti. Your line is open.

Thank you. Hey, god morning, Travis and Scott.

Good morning, Julio.

Hey, good morning. Maybe to start on the marine side. I know you talked about weather and customer delays. I think last quarter, you had mentioned one particular project with higher job costs. I'm just curious if that project had an impact in the first quarter. And then if it did, are you complete or near completion on that one project?

Yes, the project that you're talking about, we are very near completion on that. And that wasn't a significant contributor to the underperformance of the first quarter that we experienced. So that we're getting ready to wrap that one up.

Okay. That's very helpful. And then for my follow-up on the concrete side. Congratulations on getting that profitable in March. Was the driver of turning concrete profitable in March, just better bid cycling through the backlog, or were there other drivers that you did right? And then if you could talk about how concrete performed through April from a profitability standpoint? Thank you.

Sure. So definitely, the plan is coming together, if you will. Definitely part of it was on the front end with the bidding side of it. And then the other part of it is better execution and better management of the business. And so it's kind of several parts that are coming together. I don't think we're going to say exactly what April looks like yet, but it's…

We see continuing trends in April, and we're encouraged that, that business has kind of reached a place where it can start to perform the way we expect it can.

That's right. We're confident.

Great. Thanks very much.

Thanks, Julio.

Our final question comes from the line of Joe Gomes from Noble Capital. Your line is open.

Good morning, Travis and Scott. Thanks for taking my questions.

Good morning, Joe.

So I'm just wondering, if you could maybe break out a little bit, approaches a couple of ways here. So you kind of call out the three things for impacts for the decline in revenue, weather, customer delays and obviously, the concrete segment reductions. Just trying to get a better feel for the -- what kind of impact the weather and the customer delays had on the revenue on the revenues for the quarter? And would we anticipate or expect to see those coming in, in the second quarter.

Yeah. So in terms of weather, I guess, what we experienced kind of straddle January, February with winter storm Lara, affecting pretty significantly the Texas market. And when you look across both businesses, it really cost us about two weeks' worth of production, so, a fairly significant impact to revenue. Now, we always want to catch those things up and deliver within the same quarter, if we can. But in this particular case, we just couldn't catch-up on that much of a delay. So anytime you have a weather delay, you are going to realize that production in the future. And so, we're essentially working to backfill as much as we can and work the hours that can really do that in any given time when we experienced that. But in this next quarter coming in, I think that there's probably not a big uplift that you'll see spilling over from the first quarter as it is going to take us a little bit more time to kind of work through and pull in all of that production.

But ideally, that wasn't out of -- I mean, it was a named winter storm in Texas, right? So it's out of the norm, type of impact on us, we're hopeful that the second quarter will be I mean, so far, so good with weather this quarter and hopefully, for the rest of the quarter and beyond will be good. And we won't have to worry about that anymore. And I recognize that weather has been a sort of a sore subject with investors in Orion, but we're hopeful not to have to talk about weather again.

Okay. Great. Thanks for that. And then, on the East-West Jones and the other properties on East West Jones, so you're selling it for $36 million. How much of that do you think comes in on an after-tax basis that you're able to apply to pay down debt and/or for corporate purposes. And can you give us any indication for the other two properties, as to what ballpark figure what they could be bringing in?

Yeah. So we are expecting that there's going to be kind of nominal cost to close that transaction as you have in any real estate transaction. In terms of the tax bite, we have losses that enable us to shield our earnings related to that sale. So I don't expect that taxes are going to take a significant chunk of the proceeds down the road. So we intend to utilize the largest portion of that proceeds really to fund the working capital investments and investment in equipment that we need for Hawaii. And we will also be using a good portion of that to pay down debt. On the other properties, we've got -- we've been marketing those for some time, as you know. We feel very good about these transactions have had very good meetings with these buyers who understand these properties. We'll talk more about proceeds and amounts next when we announce the close of those transactions. But I would say that, it's consistent with the prices that we've marketed those properties and talked about them in the past.

Great. Thank you very much.

[Operator Instructions] We do have a question from the line of Dave Storms from Stonegate Capital Markets. Your line is open.

Good morning. This is John stepping in for Dave.

Hi, John.

So what are you seeing in the market bid volume-wise? What are your expectations for the volumes? How do you see them changing for the remainder of 2023 and going into 2024?

It kind of varies by different portions of our business, John. We've got -- we've got on the concrete side, things have continued to -- we've seen a steady volume of bidding on the concrete side. That's been good. We're hearing indications that there may be -- it may slow down a little later in the year, but so far, so good on the concrete side. On the marine side, dredging is definitely slow right now on the bidding -- bidding front with the core of engineers in the Gulf. That's definitely something that we're keeping an eye on and concerned about, quite frankly. And then kind of marine construction, there's been a -- it's -- there's been a decent steady flow of marine construction bids. I wouldn't say a plethora of bids, but we've been -- it's been a steady flow. We've got some good outstanding bids that we're hoping to hear positive news on in the near future. But it's with the exception of, I would say, our dredging business it's been a decent flow of bids.

What we haven't seen probably yet is a large number of projects that are coming out of the latest federal funding mandates. And so that that takes some time to work its way down to the actual state and local authorities that are going to be spending that money. But we still see that as a pretty significant uplift of the entire market a little bit further down the road.

Thank you. That's a very helpful And I guess, as you mentioned, concrete was challenged by weather events and intentional improvements. Are you seeing any green shoots from the implemented improvements? And what are your expectations on the length and depth of the J curve as that segment improves?

We are definitely seeing improvements in just about every aspect of our operations on the Concrete business. lower issues on projects, fewer write-downs, better execution. And then in terms of our bidding practices, we've seen through latest market bids, opportunities with existing customers, repeat customers who we've done highly complex and successful projects with and we're seeing opportunities to get the kind of margins that we think that our business is entitled to, based on our capabilities and our ability to deliver for our customers. So, see a lot of really good positive trends. Ardell has done a great job really kind of shaking things up and doing things differently and is getting a great deal of support from the team in the Concrete segment. I think that the entire business is excited about where it's headed, and we think that there's a lot of room for improvement still.

Awesome. Really appreciate it.

Thanks.

Okay. And our final question comes from the line of Poe Fratt from AGP. Your line is open.

Yes. Good morning Travis, good morning Scott. Its Alliance Global Partners. Can we talk about -- nobody has asked about the credit facility? And can you -- since the terms have been -- it sounds like [Indiscernible] just subject to documentation. Can you give us a little better idea of some of the terms, how long it's the term loan, the availability under the revolver? Is there a set tenure to that too? And then also, if you could sort of give us an idea of sort of where your interest rate margin is going to come in on it and whether there might be any equity sweeteners on the arrangement with the private lender?

Sure, I'll answer what I can. Obviously, those are discussions that we're wrapping up right now. So, we expect to come back to you guys with more information on that when it's all finalized. But it's a three-year tenure on the term loan and the revolver. In terms of the rates, we have on the revolver rate fairly consistent with our previous debt on the term loan rates that are pretty consistent with what you're seeing for ABL loans of this type in the market right now. As you know, we went to market and ran a competitive process. So, we feel good that what we're achieving with this debt is going to be consistent with other market positions right now. So

Which, by the way, the market is not great for getting a loan, but it is what it is.

But a lot of flexibility in our operations with capacity in the revolver. We're expecting to -- it's like a typical ABL revolver with a borrowing base that it undergirds your borrowing capacity. So, over time, the amount of capacity we have changes, and we expect that to grow as the business grows.

Great. And then if you look at your awards subsequent to the end of the quarter, I think in the press release, you talked about $624 million the Navy contract is, what, $450 roughly of that. What are the other components of that sort of delta of $175 million?

There's both marine and concrete wins of varying sizes kind of throughout the business that make up that delta there. So, I wouldn't say there's one mega project in there. It's a variety of projects throughout the business.

And then, I think I heard Scott say that a quarter of that $624 million would be realized in -- or burned off in 2023. Was that correct?

Yes.

And if so, can you talk about the burn rate for the remainder. It sounds like it would be maybe 50% in 2024 and then 25% in 2025. Is that fairly -- is that a fair estimate?

I'd say that's a reasonable expectation.

Yes.

I didn't answer one part of your question earlier. There's no equity component to the debt.

Okay. Great. And then, along that line, you highlighted long-term margins target for marine of low-double digit, I think. Just to clarify is that on a gross margin basis or EBITDA basis? And then if you could talk about whether the Navy contracts meets that long-term goal?

That's on the EBITDA front. So, those are kind of quarter margins on the bottom of the P&L. The Navy contract is a massive contract. And I would say that we definitely achieved our margin goals with that contract. Given its size, as you might expect, it's not going to be the highest contract -- the highest margin contract that we have. But we're very pleased with where it has been, we think that when executed we'll be able to deliver a really nice result for ourselves and for shareholders.

Great. Congratulations. You guys have been really busy, so covered a lot of ground. Thanks.

Yes, we have.

Thanks, Poe.

Thanks, Poe.

[Operator Instructions] I would now like to turn the call over to Travis Boone for closing remarks.

Thank you, and thank you all for joining the call today. We enjoyed our time with you, and looking forward to continuing to have good news for you in the coming quarters.

Thank you, ladies and gentlemen. This does conclude today's call. Thank you for your participation. You may now disconnect.