Orion Group Holdings, Inc. (ORN) Earnings Call Transcript & Summary

Good day, and welcome to the Orion Group Holdings' Second Quarter 2026 Financial Results Conference Call. [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, ma'am.

Thank you, operator, and thank you all for joining us today to discuss Orion Group Holdings' second quarter 2026 financial results. We issued our earnings release after the market last night. It's 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 Alison Vasquez, 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'd 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 are forward-looking statements. Our actual financial condition and 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'll turn the call over to Travis. Travis, please go ahead.

Thanks, Margaret, and thank you all for joining our call today. I want to start by acknowledging that our results for the quarter were not in line with your expectations or ours due to some client delays in our Marine business. It is a timing issue, not a performance or operational issue. These delays are now behind us. We often talk about construction being a lumpy business. This quarter is a good example. Things are going well. Our people are engaged, and we are performing. If not for these delays, results would have been right in line with our expectations. We will give more details on the quarter shortly. Bigger picture, our win rate continues to be high. Our Concrete business is operating at historic levels. We had a strong quarter of bookings. Our pipeline continues to grow, and our story remains unchanged. We have a historically strong marine construction market opening in front of us, and we remain confident in our ability to grow over the coming years. With multiple new Marine projects kicking off, we expect the back half of 2026 to be strong, and we are optimistic about 2027 as well. Turning to the market outlook. Today, our business is benefiting from powerful long-term themes that include significant long-duration capital investments, spanning defense infrastructure, port and transportation infrastructure, energy, data centers, health care and commercial construction. For Marine, we are well positioned on the doorstep of a marine infrastructure investment mega cycle that enables continued U.S. economic competitiveness, energy security, supply chain resilience and national defense. These priorities are driving increased investment in larger, more technically complex marine infrastructure projects that require specialized marine construction capabilities, highly skilled workforce and fit-for-purpose equipment, precisely the type of projects Orion is increasingly pursuing, winning and executing. The President's 2027 $1.5 trillion defense budget proposal made its way through the House last week, but has yet to clear legislative hurdles in the Senate before reconciliation can begin. While spending levels will be debated, investments across naval infrastructure modernization, Indo-Pacific Command strength, and logistics and port resilience continue to be priorities with solid bipartisan support. We are closely monitoring the U.S. defense budget as we look ahead to programs that will catalyze our long-term growth. On to the Concrete market outlook, where momentum remains very strong. We are benefiting from the build-out of physical infrastructure supporting the investment in AI, cloud computing and domestic manufacturing. As our clients seek to streamline project coordination, compress schedules and increase execution certainty, many are directly engaging with our team earlier in the project life cycle to advise on design and execution. Additionally, our expansion into site civil services is going very well, and we are seeing increased opportunities to pursue this scope on a broader set of projects. Overall, confidence in the long-term outlook across our business remains robust, and our pursuit pipeline has grown to approximately $27 billion with almost $1.6 billion in projects quoted awaiting award. As you may recall, this number was sitting right around $1 billion at the beginning of the year and reflects our nearest-term award opportunities. Our win rate during the quarter was well above industry average, and we were pleased to record over $275 million in bookings in the quarter, representing a 1.25x book-to-bill and bringing backlog at quarter end to $722 million. Bookings across our Marine and Concrete businesses reinforce our compelling competitive position in attractive end markets and include a large port terminal expansion project in Alabama, a dredging project in the U.S. Virgin Islands, a couple of nice jetty wins from [ Pacific Rock and Dredge, a.k.a. ] McAmis, who we acquired in February, and additional phases on multiple data center projects. With a growing opportunity pipeline, expanded capabilities and an outstanding team delivering projects that matter, our conviction in Orion's long-term growth trajectory is well intact. Onto some high-level comments on the second quarter results. Our results reflect the growth of Concrete alongside the temporary softness in Marine caused primarily by slower-than-expected project starts and elongated award cycles. Our Concrete business posted excellent results, reporting over 30% top line and 45% adjusted EBITDA growth in the quarter, benefiting from expansion into site civil services, favorable utilization and solid execution. Marine top line and profitability were down primarily due to the timing of project awards, start-ups and completions, and we have reset our full year 2026 guidance to reflect this timing shift. Today, we have very good visibility into the remainder of the year with nearly 90% Marine work under contract and continued Concrete momentum to achieve our updated guidance. Before handing it over, I'd like to take a moment to give a shout out to our [ Pacific Rock and Dredge ] team who are prominently featured in the new documentary movie Taming the Mouth. We had the honor of attending the premiere this past weekend, and it is definitely worth seeing. The documentary is a fascinating piece on the treacherous mouth of the Columbia River where it meets the Pacific Ocean, an area commonly known as the Graveyard of the Pacific. The movie highlights McAmis' recently completed reconstruction of the massive jetty and breakwater system to calm the turbulent seas. Starting August 4, you can stream it on Apple TV or Amazon Prime. I'll now turn it over to Alison to discuss the details. Alison?

Thank you, Travis. In the second quarter, we generated revenue of $222 million, an 8% increase from the second quarter of last year. As Travis discussed, Concrete delivered another strong quarter, while the timing of Marine awards and project start-ups weighed on our results. Gross profit was $23 million, down $3 million from last year due primarily to lower Marine volume and equipment utilization. Specifically, we had several projects where our team's mobilization was delayed primarily due to client-related issues such as site readiness and timing of delivery of client-provided materials. When Marine productivity slows, we sometimes get a double whammy in the lost project profitability along with the correlated lower equipment utilization, and this definitely impacted this quarter's gross profit. These projects are now all in full swing, and we expect good productivity through the second half of the year. The decline in Marine gross profit was partially offset by nice volume and favorable project execution within our Concrete segment. GAAP loss for the quarter was $4.1 million compared to GAAP net income of $0.8 million in the second quarter of last year, which was caused primarily by reduced volume in our Marine business, increased depreciation and amortization, and an increase in GAAP taxes associated with VA adjustments. Second quarter adjusted EBITDA was $7.9 million and adjusted EPS was $0.02, compared to $11 million or $0.07 per share in the prior year quarter. Our balance sheet is in good shape with net leverage of 2.3x, providing us with financial flexibility to support our strategic priorities. As Travis mentioned, we have reset our full year guidance to reflect the timing shifts in our Marine segment. Revised 2026 annual guidance is revenue in the range of $900 million to $950 million, unchanged; adjusted EBITDA in the range of $50 million to $54 million, representing 15% growth over 2025 actual results at the midpoint; adjusted EPS in the range of $0.23 to $0.30, representing 6% growth over 2025 actual results at the midpoint; and capital expenditures in the range of $25 million to $35 million, which remains unchanged. With that, I'll turn it back to Travis to wrap it up.

Thanks, Alison. Orion is embarking on a pivotal chapter. We've spent the last few years refining our capabilities, expanding our geographic footprint, recruiting and upscaling our people, and embedding a culture of teamwork, safety, delivery and integrity throughout the organization. We've made these investments intentionally to seize on the vast market opportunities taking shape in the market. While timing can affect individual quarters, our confidence in where this business is headed is stronger than ever. We are on track and pleased with our business and our strategic direction. With that, I'll hand it back over to the operator to open it up for Q&A.

[Operator Instructions] The first question will come from Aaron Spychalla with Craig-Hallum.

First for us, can you just maybe talk about guidance implies a pickup in margins in the back half? And just can you speak to the confidence in achieving those and just broadly some of the opportunities you see for margin expansion moving forward?

Sure. We have some of those projects that caused the delays in the second quarter are mobilized and kicking off. We have 90% of our Marine backlog for the back half of the year under contract and 80% of our business overall is under contract for the back half of the year. And we feel really good about our ability to deliver -- recognizing that it's a big jump up from where we were in the first half. But when we get the -- all the Marine assets utilized and everybody operating, it's going to be -- it's going to make a big jump. So we're confident in the back half being a big step up.

All right. And then just good to see the orders starting to pick up. Has that carried over into July? And just again, maybe kind of talk about what you're seeing in the market as you go to bid on the margin side of things as well?

Yes. We've seen general continued wins in July. Nothing specifically to write home about or we would have talked about it, but it's been a good group of wins in the first month of the third quarter. As far as pricing, it has generally been stayed relatively steady, nothing heading in the wrong direction. So that's a good thing. And we're confident about things. Our win rate -- just to reiterate, our win rate has stepped up a bit. So that's been good. And that was in the -- it stepped up in the second quarter from the first quarter, just slightly in the Marine business. So that's good. And hopefully, we expect that to continue.

The next question will come from Brent Thielman with Oppenheimer.

I guess just on the Concrete business, it seems like the backlog there is a little misleading relative to what you're seeing within the end markets. It's been under pressure here for a few quarters now. Could you just sort of level set us on your expectations for growth for the segment into the second half?

And you said Concrete, correct?

Yes, on the Concrete segment.

Yes. The Concrete, it's tough to tell from pipeline or backlog with Concrete what's happening because things happen so fast. In Marine, we see it coming for a long time. And then there tends to be quite a few delays, et cetera. There's a longer kind of lead up to actually getting to work with Concrete. Oftentimes, we hear about an opportunity, and we're working on it 2 weeks later, 3 weeks later. It's a really quick turnaround. And so not seeing it in the backlog is not an indication of our expectations of what it's going to be just because it comes in quick and converts fast. We got over $1 billion in our Concrete business outstanding -- bids outstanding. So quite a bit of work we're waiting to hear on and feel really good about our Concrete business. I mean I was on a bid review this morning for a large project. There's a lot of things happening.

Okay. Excellent. And then Travis, you did express confidence in the growth opportunities into 2027. Obviously, a lot going on in both business groups. Maybe you just kind of highlight some of the factors in particular that you're seeing. I know there's some larger naval-related programs out there you're pursuing. Should we expect to see kind of a build in the book of the business through the second half as we go into 2027?

We're -- that's what we expect, albeit there's been a lot of slides and delays and opportunities that we think are going to happen and they slide. So I do want to caveat it with our expectations versus reality sometimes is a little different just based on clients pushing procurements and awards and things like that. But it's -- we're -- our pipeline is very strong for the rest of this year as well as the first half of next year. So we're feeling really good about our ability to continue to grow the business and build what we've been talking about for a long time.

Yes. And I'll just add to that, that you mentioned the naval side, Brent, the pipeline and the opportunities that we're pursuing are quite balanced across the Department of Defense or Department of War as this is a piece of it. But I mean, just in this quarter alone from a second quarter perspective, the largest project that we won was a large port modernization project in Alabama. So we're seeing a nice balance between defense, between port modernization, between commercial and energy, oil and gas, chemical clients really looking to make investments in a more regulatory light environment while they can press forward. And so we're seeing good momentum really across a number of different fronts. So I wouldn't pigeonhole it back into just naval opportunities, not that you would, but...

The next question will come from Min Cho with Texas Capital Securities.

First question has to do with the Concrete margins. They were obviously below 1Q. I know that was a high watermark for you, especially given the weather. But is 2Q -- are the 2Q margins a good run rate for the rest of the year? Or what could lead to some expansion there?

The 2Q margins came in right in line with what we expected, right? I mean they're just between 5.5% and 6%, and that's generally what we pencil out for them for the year. Do they have opportunities to bump that up to the extent that they can have additional capacity flow through that? They do. I would say from a second quarter perspective, we did see a downtick from the first quarter really associated with just some weather and starts and stops and things that happen with that. But from a momentum perspective, we're seeing good momentum in that business overall, good pipeline, as Travis mentioned earlier, opportunities that we're waiting on and really strong backlog as we enter into the third quarter. So the Concrete team is busy and out and executing, and I don't see any issues with that team really hitting close to that 6% margin from a full year perspective, which is what we are really targeting for that business.

Great. And then can you just tell us what percentage of Concrete revenue and Concrete backlog is currently from data centers?

It's roughly 50% this quarter for data centers on Concrete, the revenue this year -- or this quarter.

Yes. And I would say the pipeline probably is in line with that, maybe a little bit slightly higher.

Potentially. And just as a reminder, it was 40% in the first quarter.

Great. And then if I just slip one quick one in here. Your pipeline of opportunities has increased to $27 billion now, up from the last quarter. Can you talk about any notable trends that you're seeing? What was kind of added? Yes, just any additional information about the growth in the pipeline?

Alison's point about kind of a good balance of Department of War type, whether it's Corps of Engineers or Army pursuits as well as private industry energy type work as well as state and local agencies, whether it be ports or DOTs, it's pretty well balanced. We are seeing continued shifts to larger, more complex projects as well as shifts toward more alternative delivery, meaning not a kind of traditional design bid build, but more of the whole variety of different types of alternative delivery, be it design build or progressive design build or CMGC or all the different other nomenclatures that are used for different delivery models. But -- so we've seen an uptick in those as well. So -- and that's typically with the larger, more complex projects, they typically have some sort of alternative delivery component, and that's what we're seeing more and more of those.

The next question will come from Tomo Sano with JPMorgan.