UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☑ | |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
☐ | |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from ________ to_________
Commission File Number: 1-33891
ORION GROUP HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware State of Incorporation | 26‑0097459 IRS Employer Identification Number |
12000 Aerospace Avenue, Suite 300 Houston, | |
Address of | (713) 852‑6500 Registrant’s telephone number (including area code) |
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||
Common stock, | ORN | The New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: ☐ Yes ☑ No
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act: ☐ Yes ☑ No
Indicate by check mark whether the registrantRegistrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrantRegistrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.days: þ☑Yes ¨☐ No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes ¨☑No ☐
Indicate by check mark whether the registrantRegistrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitionsdefinition of “large accelerated filer,” “accelerated filer,” “smaller reportingfiler”, "accelerated filer", "small reporting" company” and “emerging growth company”"emerging growth" company in Rule 12b-212b‑2 of the Exchange Act.
Large Accelerated Filer ☐ | ||||
Accelerated | ||||
Non-accelerated filer | Smaller reporting company | |||
Emerging growth company | ||||
If an emerging growth company, initiate by check mark if the registrant has elected not to use the extended transition period for complying with any, new or revised financial accounting standards provided pursuant to Section 13 (a) of August the Exchange Act.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b‑2 2019, 29,550,353of the Act) ☐ Yes ☑ No
There were 29,774,169 shares of the registrant’s common stock $0.01 par value, were outstanding.
ORION GROUP HOLDINGS, INC.
Page | |||
FINANCIAL INFORMATION | |||
FinancialStatements (Unaudited) | |||
3 | |||
4 | |||
5 | |||
6 | |||
7 | |||
8 | |||
33 | |||
42 | |||
42 | |||
OTHER INFORMATION | |||
43 | |||
43 | |||
44 | |||
44 | |||
44 | |||
44 | |||
45 | |||
46 |
2
Part I - Financial Information
PART I.FINANCIAL INFORMATION
Condensed Consolidated Balance Sheets
(In Thousands, Except Share and Per Share Information)
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
ASSETS |
|
| (Unaudited) |
|
|
|
Current assets: |
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 12,591 |
| $ | 128 |
Restricted cash |
|
| 931 |
|
| 958 |
Accounts receivable: |
|
|
|
|
|
|
Trade, net of allowance for credit losses of $3,011 and $2,600, respectively |
|
| 104,641 |
|
| 116,540 |
Retainage |
|
| 40,109 |
|
| 42,547 |
Income taxes receivable |
|
| 1,154 |
|
| 962 |
Other current |
|
| 1,930 |
|
| 2,680 |
Inventory |
|
| 1,229 |
|
| 1,114 |
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
| 31,433 |
|
| 41,389 |
Prepaid expenses and other |
|
| 4,874 |
|
| 5,647 |
Total current assets |
|
| 198,892 |
|
| 211,965 |
Property and equipment, net of depreciation |
|
| 129,115 |
|
| 132,348 |
Operating lease right-of-use assets, net of amortization |
|
| 17,715 |
|
| 17,997 |
Financing lease right-of-use assets, net of amortization |
|
| 15,608 |
|
| 7,896 |
Inventory, non-current |
|
| 7,140 |
|
| 7,037 |
Intangible assets, net of amortization |
|
| 11,631 |
|
| 12,147 |
Deferred income tax asset |
|
| 80 |
|
| 85 |
Other non-current |
|
| 4,639 |
|
| 5,369 |
Total assets |
| $ | 384,820 |
| $ | 394,844 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
Current debt, net of debt issuance costs |
| $ | 4,040 |
| $ | 3,668 |
Accounts payable: |
|
|
|
|
|
|
Trade |
|
| 47,255 |
|
| 70,421 |
Retainage |
|
| 817 |
|
| 562 |
Accrued liabilities |
|
| 17,547 |
|
| 16,966 |
Income taxes payable |
|
| 1,245 |
|
| 1,523 |
Billings in excess of costs and estimated earnings on uncompleted contracts |
|
| 53,412 |
|
| 48,781 |
Current portion of operating lease liabilities |
|
| 5,174 |
|
| 5,043 |
Current portion of financing lease liabilities |
|
| 4,567 |
|
| 2,788 |
Total current liabilities |
|
| 134,057 |
|
| 149,752 |
Long-term debt, net of debt issuance costs |
|
| 66,030 |
|
| 68,029 |
Operating lease liabilities |
|
| 13,211 |
|
| 13,596 |
Financing lease liabilities |
|
| 9,227 |
|
| 3,760 |
Other long-term liabilities |
|
| 19,831 |
|
| 20,436 |
Deferred income tax liability |
|
| 213 |
|
| 205 |
Interest rate swap liability |
|
| 2,029 |
|
| 1,045 |
Total liabilities |
|
| 244,598 |
|
| 256,823 |
Stockholders’ equity: |
|
|
|
|
|
|
Preferred stock -- $0.01 par value, 10,000,000 authorized, none issued |
|
| — |
|
| — |
Common stock -- $0.01 par value, 50,000,000 authorized, 30,485,400 and 30,303,395 issued; 29,774,169 and 29,592,164 outstanding at March 31, 2020 and December 31, 2019, respectively |
|
| 305 |
|
| 303 |
Treasury stock, 711,231 shares, at cost, as of March 31, 2020 and December 31, 2019, respectively |
|
| (6,540) |
|
| (6,540) |
Other comprehensive loss |
|
| (2,029) |
|
| (1,045) |
Additional paid-in capital |
|
| 182,983 |
|
| 182,523 |
Retained loss |
|
| (34,497) |
|
| (37,220) |
Total stockholders’ equity |
|
| 140,222 |
|
| 138,021 |
Total liabilities and stockholders’ equity |
| $ | 384,820 |
| $ | 394,844 |
June 30, 2019 | December 31, 2018 | ||||||
ASSETS | (Unaudited) | ||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 2,759 | $ | 8,684 | |||
Accounts receivable: | |||||||
Trade, net of allowance of $4,280 and $4,280, respectively | 99,292 | 77,641 | |||||
Retainage | 36,889 | 30,734 | |||||
Other current | 2,134 | 4,257 | |||||
Income taxes receivable | 865 | 467 | |||||
Inventory | 907 | 1,056 | |||||
Costs and estimated earnings in excess of billings on uncompleted contracts | 23,641 | 9,217 | |||||
Prepaid expenses and other | 4,947 | 5,000 | |||||
Total current assets | 171,434 | 137,056 | |||||
Property and equipment, net of depreciation | 135,045 | 148,003 | |||||
Operating lease right-of-use assets, net of amortization | 21,510 | — | |||||
Financing lease right-of-use assets, net of amortization | 8,238 | — | |||||
Inventory, non-current | 7,495 | 7,598 | |||||
Intangible assets, net of amortization | 13,467 | 14,787 | |||||
Other non-current | 5,600 | 5,426 | |||||
Total assets | $ | 362,789 | $ | 312,870 | |||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Current debt, net of debt issuance costs | $ | 2,939 | $ | 2,946 | |||
Accounts payable: | |||||||
Trade | 48,175 | 42,023 | |||||
Retainage | 845 | 736 | |||||
Accrued liabilities | 13,902 | 18,840 | |||||
Income taxes payable | 409 | — | |||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 51,964 | 21,761 | |||||
Current portion of operating lease liabilities | 5,677 | — | |||||
Current portion of financing lease liabilities | 2,935 | — | |||||
Total current liabilities | 126,846 | 86,306 | |||||
Long-term debt, net of debt issuance costs | 78,386 | 76,119 | |||||
Operating lease liabilities | 16,485 | — | |||||
Financing lease liabilities | 4,291 | — | |||||
Other long-term liabilities | 2,846 | 8,759 | |||||
Deferred income taxes | 92 | 49 | |||||
Interest rate swap liability | 1,094 | 52 | |||||
Total liabilities | 230,040 | 171,285 | |||||
Stockholders’ equity: | |||||||
Preferred stock -- $0.01 par value, 10,000,000 authorized, none issued | — | — | |||||
Common stock -- $0.01 par value, 50,000,000 authorized, 30,215,084 and 29,611,989 issued; 29,503,853 and 28,900,758 outstanding at June 30, 2019 and December 31, 2018, respectively | 302 | 296 | |||||
Treasury stock, 711,231 shares, at cost, as of June 30, 2019 and December 31, 2018, respectively | (6,540 | ) | (6,540 | ) | |||
Other comprehensive loss | (1,094 | ) | (52 | ) | |||
Additional paid-in capital | 181,499 | 179,742 | |||||
Retained loss | (41,418 | ) | (31,861 | ) | |||
Total stockholders’ equity | 132,749 | 141,585 | |||||
Total liabilities and stockholders’ equity | $ | 362,789 | $ | 312,870 |
The accompanying notes are an integral part of these condensed consolidated financial statements
3
Orion Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(In Thousands, Except Share and Per Share Information)
(Unaudited)
|
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|
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|
|
|
| Three months ended |
| ||||
|
| March 31, |
| ||||
|
| 2020 |
| 2019 |
| ||
Contract revenues |
| $ | 166,620 |
| $ | 143,105 |
|
Costs of contract revenues |
|
| 146,862 |
|
| 134,023 |
|
Gross profit |
|
| 19,758 |
|
| 9,082 |
|
Selling, general and administrative expenses |
|
| 15,869 |
|
| 14,975 |
|
Amortization of intangible assets |
|
| 516 |
|
| 658 |
|
Gain on sale of assets, net |
|
| (992) |
|
| (374) |
|
Operating income (loss) |
|
| 4,365 |
|
| (6,177) |
|
Other (expense) income: |
|
|
|
|
|
|
|
Other income |
|
| 97 |
|
| 23 |
|
Interest income |
|
| 40 |
|
| 148 |
|
Interest expense |
|
| (1,402) |
|
| (1,325) |
|
Other expense, net |
|
| (1,265) |
|
| (1,154) |
|
Income (loss) before income taxes |
|
| 3,100 |
|
| (7,331) |
|
Income tax expense |
|
| 377 |
|
| 593 |
|
Net income (loss) |
| $ | 2,723 |
| $ | (7,924) |
|
|
|
|
|
|
|
|
|
Basic earnings (loss) per share |
| $ | 0.09 |
| $ | (0.27) |
|
Diluted earnings (loss) per share |
| $ | 0.09 |
| $ | (0.27) |
|
Shares used to compute income (loss) per share: |
|
|
|
|
|
|
|
Basic |
|
| 29,653,409 |
|
| 28,927,406 |
|
Diluted |
|
| 29,655,557 |
|
| 28,927,406 |
|
Three months ended June 30, | Six months ended June 30, | ||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
Contract revenues | $ | 165,985 | $ | 159,767 | $ | 309,090 | $ | 296,610 | |||||
Costs of contract revenues | 151,008 | 140,305 | 285,031 | 262,452 | |||||||||
Gross profit | 14,977 | 19,462 | 24,059 | 34,158 | |||||||||
Selling, general and administrative expenses | 15,114 | 14,710 | 30,087 | 27,751 | |||||||||
Amortization of intangible assets | 658 | 847 | 1,318 | 1,694 | |||||||||
Gain on sale of assets, net | (372 | ) | (686 | ) | (746 | ) | (1,499 | ) | |||||
Other gain from continuing operations | — | — | — | (5,448 | ) | ||||||||
Operating (loss) income from operations | (423 | ) | 4,591 | (6,600 | ) | 11,660 | |||||||
Other (expense) income: | |||||||||||||
Other income (expense) | 534 | 476 | 557 | 474 | |||||||||
Interest income | 94 | 47 | 242 | 47 | |||||||||
Interest expense | (1,978 | ) | (1,205 | ) | (3,303 | ) | (2,682 | ) | |||||
Other expense, net | (1,350 | ) | (682 | ) | (2,504 | ) | (2,161 | ) | |||||
(Loss) income before income taxes | (1,773 | ) | 3,909 | (9,104 | ) | 9,499 | |||||||
Income tax (benefit) expense | (140 | ) | 1,660 | 453 | 3,149 | ||||||||
Net (loss) income | $ | (1,633 | ) | $ | 2,249 | $ | (9,557 | ) | $ | 6,350 | |||
Basic (loss) income per share | $ | (0.06 | ) | $ | 0.08 | $ | (0.33 | ) | $ | 0.22 | |||
Diluted (loss) income per share | $ | (0.06 | ) | $ | 0.08 | $ | (0.33 | ) | $ | 0.22 | |||
Shares used to compute (loss) income per share: | |||||||||||||
Basic | 29,097,094 | 28,309,004 | 29,086,811 | 28,243,400 | |||||||||
Diluted | 29,097,094 | 28,544,010 | 29,086,811 | 28,474,432 |
The accompanying notes are an integral part of these condensed consolidated financial statements
4
Orion Group Holdings, Inc. and Subsidiaries
(In Thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
| March 31, |
| ||||
|
| 2020 |
| 2019 |
| ||
Net income (loss) |
| $ | 2,723 |
| $ | (7,924) |
|
Change in fair value of cash flow hedge, net of tax benefit of $226 and $80 for the three months ended March 31, 2020, and March 31, 2019, respectively. |
|
| (758) |
|
| (284) |
|
Total comprehensive income (loss) |
| $ | 1,965 |
| $ | (8,208) |
|
Three months ended June 30, | Six months ended June 30, | ||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
Net (loss) income | $ | (1,633 | ) | $ | 2,249 | $ | (9,557 | ) | $ | 6,350 | |||
Change in fair value of cash flow hedge, net of tax benefit of $145 and $225 for the three and six months ended June 30, 2019, respectively and net of tax expense of $31 and $124 for the three and six months ended June 30, 2018, respectively | (506 | ) | 77 | (790 | ) | 346 | |||||||
Total comprehensive (loss) income | $ | (2,139 | ) | $ | 2,326 | $ | (10,347 | ) | $ | 6,696 |
The accompanying notes are an integral part of these condensed consolidated financial statements
5
Orion Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(In Thousands, Except Share and Per Share Information)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
| Common |
| Treasury |
| Other |
| Additional |
|
|
|
|
|
| ||||||||
|
| Stock |
| Stock |
| Comprehensive |
| Paid-In |
| Retained |
|
|
| |||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Loss |
| Capital |
| Earnings (Loss) |
| Total | ||||||
Balance, December 31, 2019 |
| 30,303,395 |
| $ | 303 |
| (711,231) |
| $ | (6,540) |
| $ | (1,045) |
| $ | 182,523 |
| $ | (37,220) |
| $ | 138,021 |
Stock-based compensation |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 462 |
|
| — |
|
| 462 |
Issuance of restricted stock |
| 185,356 |
|
| 2 |
| — |
|
| — |
|
| — |
|
| (2) |
|
| — |
|
| — |
Forfeiture of restricted stock |
| (3,351) |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Cash flow hedge |
| — |
|
| — |
| — |
|
| — |
|
| (984) |
|
| — |
|
| — |
|
| (984) |
Net income |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| 2,723 |
|
| 2,723 |
Balance, March 31, 2020 |
| 30,485,400 |
| $ | 305 |
| (711,231) |
| $ | (6,540) |
| $ | (2,029) |
| $ | 182,983 |
| $ | (34,497) |
| $ | 140,222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common |
| Treasury |
| Other |
| Additional |
|
|
|
|
|
| ||||||||
|
| Stock |
| Stock |
| Comprehensive |
| Paid-In |
| Retained |
|
|
| |||||||||
|
| Shares |
| Amount |
| Shares |
| Amount |
| Loss |
| Capital |
| Earnings |
| Total | ||||||
Balance, December 31, 2018 |
| 29,611,989 |
| $ | 296 |
| (711,231) |
| $ | (6,540) |
| $ | (52) |
| $ | 179,742 |
| $ | (31,861) |
| $ | 141,585 |
Stock-based compensation |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| 664 |
|
| — |
|
| 664 |
Exercise of stock options |
| 7,021 |
|
| — |
| — |
|
| — |
|
| — |
|
| 35 |
|
| — |
|
| 35 |
Issuance of restricted stock |
| 185,204 |
|
| 1 |
| — |
|
| — |
|
| — |
|
| (1) |
|
| — |
|
| — |
Forfeiture of restricted stock |
| (18,207) |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| — |
|
| — |
Cash flow hedge |
| — |
|
| — |
| — |
|
| — |
|
| (284) |
|
| — |
|
| — |
|
| (284) |
Net loss |
| — |
|
| — |
| — |
|
| — |
|
| — |
|
| — |
|
| (7,924) |
|
| (7,924) |
Balance, March 31, 2019 |
| 29,786,007 |
| $ | 297 |
| (711,231) |
| $ | (6,540) |
| $ | (336) |
| $ | 180,440 |
| $ | (39,785) |
| $ | 134,076 |
Common Stock | Treasury Stock | Other Comprehensive Loss | Additional Paid-In Capital | Retained Earnings | ||||||||||||||||||||
Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||
Balance, December 31, 2018 | 29,611,989 | $ | 296 | (711,231 | ) | $ | (6,540 | ) | $ | (52 | ) | $ | 179,742 | $ | (31,861 | ) | $ | 141,585 | ||||||
Stock-based compensation | — | — | — | — | — | 664 | — | 664 | ||||||||||||||||
Exercise of stock options | 7,021 | — | — | — | — | 35 | — | 35 | ||||||||||||||||
Issuance of restricted stock | 185,204 | 1 | — | — | — | (1 | ) | — | — | |||||||||||||||
Cash flow hedge, net of tax | — | — | — | — | (284 | ) | — | — | (284 | ) | ||||||||||||||
Forfeiture of restricted stock | (18,207 | ) | — | — | — | — | — | — | — | |||||||||||||||
Net loss | — | — | — | — | — | — | (7,924 | ) | (7,924 | ) | ||||||||||||||
Balance, March 31, 2019 | 29,786,007 | $ | 297 | (711,231 | ) | $ | (6,540 | ) | $ | (336 | ) | $ | 180,440 | $ | (39,785 | ) | $ | 134,076 | ||||||
Stock-based compensation | — | — | — | — | — | 1,064 | — | 1,064 | ||||||||||||||||
Issuance of restricted stock | 479,590 | 6 | — | — | — | (6 | ) | — | — | |||||||||||||||
Cash flow hedge, net of tax | — | — | — | — | (758 | ) | — | — | (758 | ) | ||||||||||||||
Forfeiture of restricted stock | (50,513 | ) | (1 | ) | — | — | — | 1 | — | — | ||||||||||||||
Net loss | — | — | — | — | — | — | (1,633 | ) | (1,633 | ) | ||||||||||||||
Balance, June 30, 2019 | 30,215,084 | $ | 302 | (711,231 | ) | $ | (6,540 | ) | $ | (1,094 | ) | $ | 181,499 | $ | (41,418 | ) | $ | 132,749 |
Common Stock | Treasury Stock | Other Comprehensive Loss | Additional Paid-In Capital | Retained Earnings | ||||||||||||||||||||
Shares | Amount | Shares | Amount | Total | ||||||||||||||||||||
Balance, December 31, 2017 | 28,860,961 | $ | 288 | (711,231 | ) | $ | (6,540 | ) | $ | (26 | ) | $ | 174,697 | $ | 62,847 | $ | 231,266 | |||||||
Adoption of ASC 606 (Note 2) | — | — | — | — | — | — | (286 | ) | (286 | ) | ||||||||||||||
Stock-based compensation | — | — | — | — | — | 334 | — | 334 | ||||||||||||||||
Exercise of stock options | 146,765 | 2 | — | — | — | 814 | — | 816 | ||||||||||||||||
Cash flow hedge, net of tax | — | — | — | — | 269 | — | — | 269 | ||||||||||||||||
Net loss | — | — | — | — | — | — | 4,101 | 4,101 | ||||||||||||||||
Balance, March 31, 2018 | 29,007,726 | $ | 290 | (711,231 | ) | $ | (6,540 | ) | $ | 243 | $ | 175,845 | $ | 66,662 | $ | 236,500 | ||||||||
Stock-based compensation | — | — | — | — | — | 817 | — | 817 | ||||||||||||||||
Exercise of stock options | 84,705 | — | — | — | — | 483 | — | 483 | ||||||||||||||||
Issuance of restricted stock | 331,095 | 3 | — | — | — | (3 | ) | — | — | |||||||||||||||
Cash flow hedge, net of tax | — | — | — | — | 77 | — | — | 77 | ||||||||||||||||
Forfeiture of restricted stock | (1,094 | ) | — | — | — | — | — | — | — | |||||||||||||||
Net loss | — | — | — | — | — | — | 2,249 | 2,249 | ||||||||||||||||
Balance, June 30, 2018 | 29,422,432 | $ | 293 | (711,231 | ) | $ | (6,540 | ) | $ | 320 | $ | 177,142 | $ | 68,911 | $ | 240,126 |
The accompanying notes are an integral part of these condensed consolidated financial statements
6
Orion Group Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
| Three months ended March 31, | ||||
|
| 2020 |
| 2019 | ||
Cash flows from operating activities: |
|
|
|
|
|
|
Net income (loss) |
| $ | 2,723 |
| $ | (7,924) |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
|
|
|
|
|
|
Operating activities: |
|
|
|
|
|
|
Depreciation and amortization |
|
| 6,192 |
|
| 6,471 |
Amortization of ROU operating leases |
|
| 1,673 |
|
| 1,435 |
Amortization of ROU finance leases |
|
| 700 |
|
| 569 |
Amortization of deferred debt issuance costs |
|
| 123 |
|
| 84 |
Deferred income taxes |
|
| 13 |
|
| 34 |
Stock-based compensation |
|
| 462 |
|
| 664 |
Gain on sale of property and equipment |
|
| (992) |
|
| (374) |
Allowance for credit losses |
|
| 411 |
|
| — |
Change in operating assets and liabilities: |
|
|
|
|
|
|
Accounts receivable |
|
| 13,511 |
|
| (9,296) |
Income tax receivable |
|
| (192) |
|
| (133) |
Inventory |
|
| (218) |
|
| 210 |
Prepaid expenses and other |
|
| 1,540 |
|
| 255 |
Costs and estimated earnings in excess of billings on uncompleted contracts |
|
| 9,956 |
|
| (5,916) |
Accounts payable |
|
| (22,911) |
|
| 474 |
Accrued liabilities |
|
| (543) |
|
| (1,683) |
Operating lease liabilities |
|
| (1,348) |
|
| (1,435) |
Income tax payable |
|
| (278) |
|
| 533 |
Billings in excess of costs and estimated earnings on uncompleted contracts |
|
| 4,631 |
|
| 14,104 |
Net cash provided by (used in) operating activities |
|
| 15,453 |
|
| (1,928) |
Cash flows from investing activities: |
|
|
|
|
|
|
Proceeds from sale of property and equipment |
|
| 1,302 |
|
| 400 |
Purchase of property and equipment |
|
| (2,753) |
|
| (3,862) |
Contributions to CSV life insurance |
|
| (38) |
|
| (301) |
Insurance claim proceeds related to property and equipment |
|
| 1,164 |
|
| — |
Net cash used in investing activities |
|
| (325) |
|
| (3,763) |
Cash flows from financing activities: |
|
|
|
|
|
|
Borrowings from Credit Facility |
|
| 5,000 |
|
| 11,000 |
Payments made on borrowings from Credit Facility |
|
| (6,750) |
|
| (10,750) |
Loan costs from Credit Facility |
|
| — |
|
| 43 |
Payments of finance lease liabilities |
|
| (942) |
|
| (696) |
Exercise of stock options |
|
| — |
|
| 35 |
Net cash used in financing activities |
|
| (2,692) |
|
| (368) |
Net change in cash, cash equivalents and restricted cash |
|
| 12,436 |
|
| (6,059) |
Cash, cash equivalents and restricted cash at beginning of period |
|
| 1,086 |
|
| 8,684 |
Cash, cash equivalents and restricted cash at end of period |
| $ | 13,522 |
| $ | 2,625 |
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 12,591 |
| $ | 2,625 |
Restricted cash |
|
| 931 |
|
| — |
Total cash, cash equivalents and restricted cash shown above |
| $ | 13,522 |
| $ | 2,625 |
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
Interest |
| $ | 942 |
| $ | 1,190 |
Taxes, net of refunds |
| $ | 648 |
| $ | 151 |
Six months ended June 30, | |||||||
2019 | 2018 | ||||||
Cash flows from operating activities: | |||||||
Net (loss) income | $ | (9,557 | ) | $ | 6,350 | ||
Adjustments to reconcile net (loss) income to net cash (used in) provided by | |||||||
Operating activities: | |||||||
Depreciation and amortization | 13,108 | 14,211 | |||||
Amortization of ROU operating leases | 2,927 | — | |||||
Amortization of ROU finance leases | 1,154 | — | |||||
Unamortized debt issuance costs upon debt modification | 399 | — | |||||
Amortization of deferred debt issuance costs | 186 | 646 | |||||
Deferred income taxes | 43 | 1,841 | |||||
Stock-based compensation | 1,728 | 1,151 | |||||
Gain on sale of property and equipment | (746 | ) | (1,499 | ) | |||
Other gain from continuing operations | — | (5,448 | ) | ||||
Change in operating assets and liabilities: | |||||||
Accounts receivable | (28,257 | ) | 8,983 | ||||
Notes receivable | 264 | — | |||||
Income tax receivable | (398 | ) | 91 | ||||
Inventory | 252 | 588 | |||||
Prepaid expenses and other | (138 | ) | 1,482 | ||||
Costs and estimated earnings in excess of billings on uncompleted contracts | (14,424 | ) | (7,282 | ) | |||
Accounts payable | 6,261 | (6,952 | ) | ||||
Accrued liabilities | (1,601 | ) | (962 | ) | |||
Operating lease liabilities | (2,896 | ) | — | ||||
Income tax payable | 409 | 449 | |||||
Billings in excess of costs and estimated earnings on uncompleted contracts | 30,204 | (8,854 | ) | ||||
Other | — | (286 | ) | ||||
Net cash (used in) provided by operating activities | (1,082 | ) | 4,509 | ||||
Cash flows from investing activities: | |||||||
Proceeds from sale of property and equipment | 847 | 1,070 | |||||
Purchase of property and equipment | (8,118 | ) | (11,911 | ) | |||
Contributions to CSV life insurance | (444 | ) | (266 | ) | |||
Proceeds from return of investment | — | 94 | |||||
Insurance claim proceeds related to property and equipment | 2,574 | 1,150 | |||||
Net cash used in investing activities | (5,141 | ) | (9,863 | ) | |||
Cash flows from financing activities: | |||||||
Borrowings from Credit Facility | 32,000 | 13,000 | |||||
Payments made on borrowings from Credit Facility | (29,500 | ) | (11,750 | ) | |||
Loan costs from Credit Facility | (825 | ) | — | ||||
Payments of finance lease liabilities | (1,412 | ) | — | ||||
Exercise of stock options | 35 | 1,299 | |||||
Net cash provided by financing activities | 298 | 2,549 | |||||
Net change in cash and cash equivalents | (5,925 | ) | (2,805 | ) | |||
Cash and cash equivalents at beginning of period | 8,684 | 9,086 | |||||
Cash and cash equivalents at end of period | $ | 2,759 | $ | 6,281 | |||
Supplemental disclosures of cash flow information: | |||||||
Cash paid during the period for: | |||||||
Interest | $ | 3,926 | $ | 2,055 | |||
Taxes, net of refunds | $ | 394 | $ | 404 |
The accompanying notes are an integral part of these condensed consolidated financial statements
7
Orion Group Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
1. Description1.Description of Business and Basis of Presentation
Description of Business
Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the "Company"), provide a broad range of specialty construction services in the infrastructure, industrial, and building sectors of the continental United States, Alaska, Canada and the Caribbean Basin. The Company’s marine segment services the infrastructure sector through marine transportation facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services. Its concrete segment services the building sector by providing turnkey concrete construction services including pour and finish, dirt work, layout, forming, rebar, and mesh across the light commercial, structural and other associated business areas. The Company is headquartered in Houston, Texas with offices throughout its operating areas.
The tools used by the chief operating decision maker ("CODM") to allocate resources and assess performance are based on two reportable and operating segments: marine, which operates under the Orion Marine Group brand and logo, and concrete, which operates under the TAS Commercial Concrete brand and logo.
Although the Company describeswe describe the business in this report in terms of the services the Company provides, its base of customers and the areas in which it operates, the Company has determined that its operations currently comprise two reportable segments pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting.
In making this determination, the Company considered the similar economic characteristics of its operations that comprise its marine segment. For the marine segment, the methods used, and the internal processes employed, to deliver marine construction services are similar throughout the segment, including standardized estimating, project controls and project management. This segment has the same customers with similar funding drivers, and it complies with regulatory environments driven through Federal agencies such as the U.S. Army Corps of Engineers, U.S. Fish and Wildlife Service, U.S. Environmental Protection Agency and U.S. Occupational Safety and Health Administration ("OSHA"), among others. Additionally, the segment is driven by macro-economic considerations including the level of import/export seaborne transportation, development of energy-related infrastructure, cruise line expansion and operations, marine bridge infrastructure development, waterway pipeline crossings and the maintenance of waterways. These considerations, and others, are key catalysts for future prospects and are similar across the segment.
For the concrete segment, the Company also considered the similar economic characteristics of these operations. The methods used, and the internal processes employed, to deliver concrete construction services are similar throughout the segment, including standardized estimating, project controls and project management. This segment complies with regulatory environments such as OSHA. Additionally, this segment is driven by macro-economic considerations, including movements in population, commercial real estate development, institutional funding and expansion, and recreational development, specifically in metropolitan areas of Texas. These considerations, and others, are key catalysts for future prospects and are similar across the segment.
8
Basis of Presentation
The accompanying condensed consolidated financial statements and financial information included herein have been prepared pursuant to the interim period reporting requirements of Form 10-Q.10‑Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("(“U.S. GAAP"GAAP”) have been condensed or omitted. Readers of this report should also read the Company'sCompany’s condensed consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K10‑K for the fiscal year ended December 31, 20182019 (“20182019 Form 10-K”10‑K”) as well as Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations also included in its 20182019 Form 10-K.10‑K.
In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal recurring nature. Interim results of operations for the sixthree months ended June 30, 2019March 31, 2020 are not necessarily indicative of the results that may be expected for the year ending December 31, 2019.
Certain amounts in the prior year financial statements have been reclassified to conform to the current year presentation in the Company'sCompany’s condensed consolidated statement of operations. As part of the Company’s Invest, Scale and Grow (“ISG”) initiative it realigned its project management personnel within the operating groups for the combined company. As a result of the realignment, beginning
2.Summary of Significant Accounting Principles
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management'sManagement’s estimates, judgments and assumptions are continually evaluated based on available information and experience; however, actual amounts could differ from those estimates. Please refer to Note 2 of the Notes to Consolidated Financial Statements included in the Company's 2018 Form 10-K for a discussion of other significant estimates and assumptions affecting its consolidated financial statements which are not discussed below.
On an ongoing basis, the Company evaluates the significant accounting policies used to prepare its condensed consolidated financial statements, including, but not limited to, those related to:
· | Revenue recognition from construction contracts; |
· | Accounts receivable and allowance for credit losses; |
· | Property, plant and equipment; |
· | Leases; |
· | Finite and infinite-lived intangible assets, testing for indicators of impairment; |
· | Stock-based compensation; |
9
· | Income taxes; and |
· | Self-insurance |
Revenue Recognition
The Company adopted ASU 2014-09,2014‑09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018, using the modified retrospective method. The Company recognized the cumulative effect of initially adopting Topic 606 guidance as an adjustment to the beginning balance of retained earnings. Contracts with customers that were not substantially complete in both the Company’s marine and concrete segments were evaluated in order to determine the impact as of the date of adoption.
The Company’s revenue is derived from contracts to provide marine construction, dredging, turnkey concrete services, and other specialty services. The Company’s projects are typically short in duration and usually span a period of less than one year. The Company determines the appropriate accounting treatment for each contract before work begins and generally records revenue on contracts over time.
Performance obligations are promises in a contract to transfer distinct goods or services to the customer and are the unit of account under Topic 606. The Company'sCompany’s contracts and related change orders typically represent a single performance obligation because the Company provides a significant integrated service and individual goods and services are not separately identifiable. Revenue is recognized over time because control is continuously transferred to the customer. For contracts with multiple performance obligations, the Company allocates the contract'scontract’s transaction price to each performance obligation using its best estimate of the stand-alone selling price of each distinct good or service. Progress is measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract. This method is used because management considers contract costs incurred to be the best available measure of progress on these contracts. Contract costs include all direct costs, such as material and labor, and those indirect costs incurred that are related to contract performance such as payroll taxes and insurance. General and administrative costs are charged to expense as incurred. Upfront costs, such as costs to mobilize personnel and equipment prior to satisfying a performance obligation are capitalized and amortized over the contract performance period.
Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and reported revenue and are recognized in the period in which the revisions are determined. The
Contract revenue is derived from the original contract price as modified by agreed-upon change orders and estimates of variable consideration related to incentive fees and change orders or claims for which price has not yet been agreed by the customer. The Company estimates variable consideration based on its assessment of the most likely amount to which it expects to be entitled. Variable consideration is included in the estimated recognition of revenue to the extent it is probable that a significant reversal of cumulative recognized revenue will not occur. As of June 30, 2019, approximately $1.1 million of claims against customers has been recognized and is reflected on the Company's Consolidated Balance Sheet under "Costs and estimated earnings in excess of billings on uncompleted contracts." Based on its reading of the contract and its performance, the Company believes collection of these claims is probable, although the full amount of the recorded claims may not be collected.
10
Contract assets and liabilities include the following:
· | Accounts Receivable: Trade, net of allowance - Represent amounts billed and currently due from customers and are stated at their estimated net realizable value. |
· | Accounts Receivable: Retainage - Represent amounts which have not been billed to or paid by customers due to retainage provisions in construction contracts, which amounts generally become payable upon contract completion and acceptance by the customer. |
· | Costs and Estimated Earnings in Excess of Billings on Uncompleted Contracts - Represent revenues recognized in excess of amounts billed, which management believes will be billed and collected within one year of the completion of the contract (i.e. Contract Assets) and are recorded as a current asset, until such amounts are either received or written off. |
· | Billings in Excess of Costs and Estimated Earnings on Uncompleted Contracts - Represent billings in excess of revenues recognized (i.e. Contract Liabilities) and are recorded as a current liability, until the underlying obligation has been performed or discharged. |
Remaining performance obligations represent the transaction price of firm orders or other written contractual commitments from customers for which work has not been performed or is partially completed and excludes unexercised contract options and potential orders.
As ofClassification of Current Assets and Liabilities
The Company includes in current assets and liabilities amounts realizable and payable in the normal course of contract completion.
Cash, and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At times, cash held by financial institutions may exceed federally insured limits. The Company has not historically sustained losses on its cash balances in excess of federally insured limits. Cash equivalents at June 30, 2019March 31, 2020 and December 31, 20182019 consisted primarily of overnight bank deposits.
Restricted cash as of March 31, 2020 and December 31, 2019, consisted of $0.9 million and $1.0 million, respectively, of collateral related to a marine project and is classified in current assets.
Risk Concentrations
Financial instruments that potentially subject the Company to concentrations of credit risk principally consist of accounts receivable.
The Company depends on its ability to continue to obtain federal, state and local governmental contracts, and indirectly, on the amount of funding available to these agencies for new and current governmental projects. Therefore, a portion of the Company’s operations is dependent upon the level and timing of government funding. Statutory mechanics liens provide the Company high priority in the event of lien foreclosures following financial difficulties of private owners, thus minimizing credit risk with private customers.
11
Accounts Receivable
Accounts receivable are stated at the historical carrying value, lessnet of allowances for doubtful accounts.credit losses. The Company has significant investments in billed and unbilled receivables as of June 30, 2019March 31, 2020 and December 31, 2018.2019. Billed receivables represent amounts billed upon the completion of small contracts and progress billings on large contracts in accordance with contract terms and milestone achievements. Unbilled receivables on contracts, which are included in costs in excess of billings, arise as revenues are recognized over time. Unbilled amounts on contracts represent recoverable costs and accrued profits not yet billed. Revenue associated with these billings is recorded net of any sales tax, if applicable. Past due balances over 90 days and other higher risk amounts are reviewed individually for collectability. In establishing an allowance for doubtful accounts,credit losses, the Company evaluates its contract receivables and costs in excess of billings and thoroughly reviews historical collection experience, the financial condition of its customers, billing disputes and other factors. The Company writes off potentially uncollectible accounts receivable against the allowance for doubtful accountscredit losses if it is determined that the amounts will not be collected or if a settlement is reached for an amount that is less than the carrying value. As of June 30, 2019March 31, 2020 and December 31, 2018,2019, the Company has recorded an allowance for doubtful accountscredit losses of $4.3 million.
Balances billed to customers but not paid pursuant to retainage provisions in construction contracts generally become payable upon contract completion and acceptance by the owner. Retainage at June 30, 2019March 31, 2020 totaled $36.9$40.1 million, of which $11.0$6.0 million is expected to be collected beyond June 30, 2020.March 31, 2021. Retainage at December 31, 20182019 totaled $30.7$42.5 million.
The Company negotiates change orders and claims with its customers. Unsuccessful negotiations of claims could result in a change to contract revenue that is less than amounts previously recorded, which could result in the recording of a loss.loss in the amount of the shortfall. Successful claims negotiations could result in the recovery of previously recorded losses. Significant losses on receivables could adversely affect the Company’s financial position, results of operations and overall liquidity.
Advertising Costs
The Company primarily obtains contracts through anthe open bid process, and therefore advertising costs are not a significant component of expense. Advertising costs are expensed as incurred.
Environmental Costs
Costs related to environmental remediation are charged to expense. Other environmental costs are also charged to expense unlessexcept to the extent they increase the value of the property and/or provide future economic benefits, in which event the costs are capitalized. Environmental liabilities, if any, are recognized when the expenditure is considered probable and the amount can be reasonably estimated. The Company did not recognize any environmental liabilities as of June 30, 2019 andMarch 31, 2020 or December 31, 2018.
Fair Value Measurements
The Company evaluates and presents certain amounts included in the accompanying condensed consolidated financial statements at “fair value” in accordance with U.S. GAAP, which requires the Company to base its estimates on assumptions that market participants, in an orderly transaction, would use to price an asset or liability, and to establish a hierarchy that prioritizes the information used to determine fair value. Refer to Note 8 for more information regarding fair value determination.
12
The Company generally applies fair value valuation techniques on a non-recurring basis associated with (1) valuing assets and liabilities acquired in connection with business combinations and other transactions; (2) valuing potential impairment loss related to long-lived assets; and (3) valuing potential impairment loss related to goodwill and indefinite-lived intangible assets.
Inventory
Current inventory consists of parts and small equipment held for use in the ordinary course of business and is valued at the lower of cost (using historical average cost) or net realizable value. Where shipping and handling costs are incurred by the Company, these charges are included in inventory and charged to cost of contract revenue upon use. Non-current inventory consists of spare parts (including engines, cutters and gears) that require special order or long-lead times for manufacture or fabrication but must be kept on hand to reduce downtime. Refer to Note 7 for more information regarding inventory.
Property and Equipment
Property and equipment are recorded at cost. Ordinary maintenance and repairs that do not improve or extend the useful life of the asset are expensed as incurred. Major renewals and betterments of equipment are capitalized and depreciated generally over three to seven years until the next scheduled maintenance.
When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in results of operations for the respective period. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets for financial statement purposes, as follows:
Automobiles and trucks | 3 to 5 years | |
Buildings and improvements | 5 to 30 years | |
Construction equipment | 3 to 15 years | |
Vessels and other equipment | 1 to 15 years | |
Office equipment | 1 to 5 years |
The Company generally uses accelerated depreciation methods for tax purposes where appropriate.
Dry-docking costs are capitalized and amortized using the straight-line method over a period ranging from three to 15 years. Dry-docking costs include, but are not limited to, the inspection, refurbishment and replacement of steel, engine components, tailshafts, mooring equipment and other parts of the vessel. Amortization related to dry-docking activities is included as a component of depreciation. These costs and the related amortization periods are periodically reviewed to determine if the estimates are accurate. If warranted, a significant upgrade of equipment may result in a revision to the useful life of the asset, in which case the change is accounted for prospectively.
Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the
13
lower of the carrying amount or the fair value, less the costs to sell, and are no longer depreciated. There were no assets classified as held for sale as of June 30, 2019 andMarch 31, 2020 or December 31, 2018.
Leases
The Company adopted ASU 2016-02, Leases (Topic 842), on January 1, 2019, on a prospective basis, forgoing comparative reporting. The Company elected to utilize the transition guidance within the new standard, which allows the Company to carryforward the historical lease classification. The Company elected to not separate lease and non-lease components for all classes of underlying assets in which it is the lessee and made an accounting policy election to not account for leases with an initial term of 12 months or less on the balance sheet. Adoption of the standard resulted in the recording of additional net ROU operating lease assets of approximately $23.3 million and lease liabilities for operating leases of approximately $24.0 million on the Condensed Consolidated Balance Sheets as of January 1, 2019. The adoption of this guidance did not have an impact on net income. See Note 18 for more information regarding leases.
Intangible Assets
Intangible assets that have finite lives are amortized. In addition, the Company evaluates the remaining useful life of intangible assets in each reporting period to determine whether events and circumstances warrant a revision of the remaining period of amortization. If the estimate of an intangible asset’s remaining life is changed, the remaining carrying value of such asset is amortized prospectively over that revised remaining useful life. Intangible assets that have indefiniteinfinite lives are not amortized but are subject to impairment testing at least annually or more frequently if events or circumstances indicate that the asset may be impaired.
The Company has one indefinite-livedinfinite-lived intangible asset, a trade name, which is tested for impairment annually on October 31, or whenever events or circumstances indicate that the carrying amount of the trade name may not be recoverable. Impairment is calculated as the excess of the trade name'sname’s carrying value over its fair value. The fair value of the trade name is determined using the relief from royalty method, a variation of the income approach. This method assumes that if a company owns intellectual property, it does not have to "rent"“rent” the asset and is, therefore, "relieved"“relieved” from paying a royalty. Once a supportable royalty rate is determined, the rate is then applied to the projected revenues over the expected remaining life of the intangible assets to estimate the royalty savings. This approach is dependent on a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables.
See Note 9 for additional discussion of intangible assets and trade name impairment testing.
Stock-Based Compensation
The Company recognizes compensation expense for equity awards over the vesting period based on the fair value of these awards at the date of grant. The computed fair value of these awards is recognized as a non-cash cost over the period the employee provides services, which is typically the vesting period of the award. The fair value of options granted is estimated on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-pricing model requires the use of subjective assumptions in the computation. Changes in these assumptions can cause significant fluctuations in the fair value of the option award. The fair value
Compensation expense is recognized only for share-based payments expected to vest. The Company estimates forfeitures at the date of grant based on historical experience and future expectations and thisexpectations. This assessment is
14
updated on a periodic basis. See Note 1415 for further discussion of the Company’s stock-based compensation plan.
Income Taxes
The Company determines its consolidated income tax provision using the asset and liability method prescribed by U.S. GAAP,
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740-10740, Income Taxes which prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on its consolidated tax return. The Company evaluates and records any uncertain tax positions based on the amount that management deems is more likely than not to be sustained upon examination and ultimate settlement with the tax authorities in the tax jurisdictions in which it operates.
See Note 13 for additional discussion of income taxes.
Insurance Coverage
The Company maintains insurance coverage for its business and operations. Insurance related to property, equipment, automobile, general liability, and a portion of workers'workers’ compensation is provided through traditional policies, subject to a deductible or deductibles. A portion of the Company'sCompany’s workers’ compensation exposure is covered through a mutual association, which is subject to supplemental calls.
The marine segment maintains five levels of excess loss insurance coverage, totaling $200 million in excess of primary coverage. The marine segment'ssegment’s excess loss coverage responds to most of itsall key marine liability policies when a primary limit of $1 million has been exhausted; provided that the primary limit for Contingent Maritime Employer’s Liability is $10 million and the Watercraft Pollution Policy primary limit is $5 million. The concrete segment maintains five levels of excess loss insurance coverage, totaling $200 million in excess of primary coverage. The concrete segment'ssegment’s excess loss coverage responds to most of its policies when a primary limit of $1 million has been exhausted.
15
If a claim arises and a potential insurance recovery is probable, the impending gain is recognized separately from the related loss. The recovery will only be recognized up to the amount of the loss once the recovery of the claim is deemed probable and any excess gain will fall under contingency accounting and will only be recognized once it is realized. The Company does not net insurance recoveries against the related claim liability as the amount of the claim liability is determined without consideration of the anticipated insurance recoveries from third parties.
Separately, the Company’s marine segment employee health care is not covered by primary insurance, with claims being paid for byout of general assets of the Company and the insurance program being currently administered by a third party. The administrator has purchased appropriate stop-loss coverage. Losses on these policies up to the deductible amounts are accrued based upon knownreported claims incurred, and an estimate of claims incurred but not reported. The accruals are derived from known facts, historical trends and industry averages to determine the best estimate of the ultimate expected loss. Actual claims may vary from estimates. Any adjustments to such reserves are included in the consolidated resultsCondensed Consolidated Results of operationsOperations in the period in which they become known. The Company'sCompany’s concrete segment employee health care is provided through two policies. A fully funded policy is offered primarily to salaried employees and their dependents while a partially self-funded plan with an appropriate stop-loss is offered primarily to hourly employees and their dependents. The self-funded plan is funded to the maximum exposure and, as a result, is expected to receive a partial refund after the policy expiration.
The accrued liability for insurance includes incurred but not reported claims of $3.9$3.1 million and $5.7$3.7 million at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively.
Accounting Standards Adopted in 2019
The Financial Accounting Standards Board ("FASB"(“FASB”) issuedissues accounting standards and updates (each, an ASU 2016-02, Leases (Topic 842)"ASU") from time to time to its Accounting Standards Codification (‘ASC’), which requires all lesseesis the primary source of U.S. GAAP. The Company regularly monitors ASUs as they are issued and considers applicability to recognize right-of-use ("ROU")its business. All ASUs are adopted by their respective due dates and in the manner prescribed by the FASB.
In June 2016, the FASB issued ASU 2016-13,Measurement of Credit Losses on Financial Instruments (Topic 326), which changes the way in which entities estimate and present credit losses for most financial assets, and lease liabilities, measured at the present value of the future minimum lease payments, at the lease commencement date. Lessor accounting remains largely unchanged under the new guidance. The standard also requires more detailed disclosures to enable users of financial statements to understand the nature, amount, timing, and uncertainty of cash flows arising from leases.including accounts receivable. The Company adopted the new standard on January 1, 2019, on a prospective basis, forgoing comparative reporting. The Company elected to utilize2020. For the transition guidance within the new standard, which allowsCompany’s trade receivables, certain other receivables and certain other financial instruments, the Company is required to carryforwarduse a new forward-looking “expected” credit loss model based on historical loss rates that replaced the historical lease classification. The Company elected to not separate leases and non-lease componentsprior “incurred” credit loss model, which generally results in earlier recognition of allowances for all classes of underlying assets in which it is the lessee and made an accounting policy election to not account for leases with an initial term of 12 months or less on the balance sheet.credit losses. Adoption of the standard resulted in no adjustment for credit losses as the recordingimpact was immaterial; however, subsequently primarily as a result of the COVID-19 pandemic additional net ROU operating lease assetsbad debt expense of approximately $23.3$0.4 million and lease liabilities for operating leases of approximately $24.0 million on the Consolidated Balance Sheetswas recorded as of January 1, 2019. The adoptionMarch 31, 2020.
16
3.Revenue
Contract revenues are recognized when controlownership of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The following table represents a disaggregation of the Company’s contract revenuerevenues by service line for the marine and concrete segments:
|
|
|
|
|
|
|
|
| Three months ended March 31, | ||||
|
| 2020 |
| 2019 | ||
Marine Segment |
|
|
|
|
|
|
Construction |
| $ | 53,140 |
| $ | 33,636 |
Dredging |
|
| 30,899 |
|
| 26,167 |
Specialty Services |
|
| 1,910 |
|
| 1,684 |
Marine segment contract revenues |
| $ | 85,949 |
| $ | 61,487 |
|
|
|
|
|
|
|
Concrete Segment |
|
|
|
|
|
|
Structural |
| $ | 21,236 |
| $ | 11,491 |
Light Commercial |
|
| 59,433 |
|
| 70,096 |
Other |
|
| 2 |
|
| 31 |
Concrete segment contract revenues |
| $ | 80,671 |
| $ | 81,618 |
|
|
|
|
|
|
|
Total contract revenues |
| $ | 166,620 |
| $ | 143,105 |
Three months ended June 30, | Six months ended June 30, | ||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
Marine Segment | |||||||||||||
Construction | $ | 57,181 | $ | 52,860 | $ | 90,817 | $ | 95,235 | |||||
Dredging | 27,191 | 23,472 | 53,358 | 40,483 | |||||||||
Specialty Services | 4,651 | 4,366 | 6,335 | 7,771 | |||||||||
Marine segment contract revenues | $ | 89,023 | $ | 80,698 | $ | 150,510 | $ | 143,489 | |||||
Concrete Segment | |||||||||||||
Structural | $ | 12,665 | $ | 62,189 | $ | 24,156 | $ | 118,682 | |||||
Light Commercial | 64,275 | 16,740 | 134,371 | 34,112 | |||||||||
Other | 22 | 140 | 53 | 327 | |||||||||
Concrete segment contract revenues | $ | 76,962 | $ | 79,069 | $ | 158,580 | $ | 153,121 | |||||
Total contract revenues | $ | 165,985 | $ | 159,767 | $ | 309,090 | $ | 296,610 |
Although theThe Company has disaggregated its contract revenues here in terms of services provided,determined that it believes its operations comprisehas two reportable segments pursuant to FASB ASC Topic 280, Segment Reporting., but has disaggregated its contract revenues in the above chart in terms of services provided within such segments. In making this determination, the Company considered the similar characteristics of its operations as discussed in Note 1. Additionally, as discussed, both the marine and
Marine Segment
Construction services include construction, restoration, maintenance, dredging and repair of marine transportation facilities, marine pipelines, bridges and causeways and marine environmental structures. Dredging services generally enhance or preserve the navigability of waterways or the protection of shorelines through the removal or replenishment of soil, sand or rock. Specialty services include design, salvage, demolition, surveying, towing, diving and underwater inspection, excavation and repair.
Concrete Segment
Structural services include elevated concrete pouring for products such as columns, elevated beams and structural walls. Light commercial services include horizontally poured concrete for products such as sidewalks, ramps, tilt walls and trenches. Other services comprise labor related to concrete pouring such as rebar
17
installation and pumping services and typically support the Company'sCompany’s structural and light commercial services.
4.Concentration of Risk and Enterprise-WideEnterprise Wide Disclosures
Accounts receivable in both reportable segments include amounts billed to governmental agencies and private customers and do not bear interest. Balances billed to customers but not paid pursuant to retainage provisions generally become payable upon contract completion and acceptance by the owner.
The table below presents the concentrations of current receivables (trade and retainage) at June 30, 2019March 31, 2020 and December 31, 2018,2019, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2020 |
| December 31, 2019 |
| ||||||
Federal Government |
| $ | 1,340 |
| 1 | % | $ | 4,765 |
| 3 | % |
State Governments |
|
| 3,703 |
| 2 | % |
| 5,864 |
| 4 | % |
Local Governments |
|
| 31,094 |
| 21 | % |
| 41,944 |
| 26 | % |
Private Companies |
|
| 111,624 |
| 76 | % |
| 109,114 |
| 67 | % |
Gross receivables |
|
| 147,761 |
| 100 | % |
| 161,687 |
| 100 | % |
Allowance for credit losses |
|
| (3,011) |
|
|
|
| (2,600) |
|
|
|
Net receivables |
| $ | 144,750 |
|
|
| $ | 159,087 |
|
|
|
June 30, 2019 | December 31, 2018 | ||||||||||
Federal Government | $ | 3,420 | 3 | % | $ | 2,319 | 2 | % | |||
State Governments | 3,363 | 2 | % | 916 | 1 | % | |||||
Local Governments | 50,017 | 37 | % | 30,187 | 28 | % | |||||
Private Companies | 79,381 | 58 | % | 74,953 | 69 | % | |||||
Total receivables | $ | 136,181 | 100 | % | $ | 108,375 | 100 | % |
At June 30, 2019 one customerMarch 31, 2020 two customers in the local governmentsPrivate Companies category accounted for 18%22.3% of total current receivables. At December 31, 2018,2019, no single customer accounted for more than 10%10.0% of total current receivables.
Additionally, the table below represents concentrations of contract revenue by type of customer for the three and six months ended June 30,March 31, 2020 and 2019, and 2018, respectively:
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended March 31, |
| ||||||||
|
| 2020 |
| % |
| 2019 |
| % |
| ||
Federal Government |
| $ | 5,319 |
| 3 | % | $ | 10,277 |
| 7 | % |
State Governments |
|
| 12,232 |
| 7 | % |
| 4,055 |
| 3 | % |
Local Government |
|
| 52,012 |
| 31 | % |
| 44,430 |
| 31 | % |
Private Companies |
|
| 97,057 |
| 58 | % |
| 84,343 |
| 59 | % |
Total contract revenues |
| $ | 166,620 |
| 100 | % | $ | 143,105 |
| 100 | % |
Three months ended June 30, | Six months ended June 30, | ||||||||||||||||||||||||||
2019 | % | 2018 | % | 2019 | % | 2018 | % | ||||||||||||||||||||
Federal Government | $ | 12,301 | 8 | % | $ | 16,077 | 10 | % | $ | 22,578 | 7 | % | $ | 29,100 | 10 | % | |||||||||||
State Governments | 10,286 | 6 | % | 9,898 | 6 | % | 14,341 | 5 | % | 18,274 | 6 | % | |||||||||||||||
Local Government | 51,599 | 31 | % | 20,522 | 13 | % | 96,029 | 31 | % | 43,752 | 15 | % | |||||||||||||||
Private Companies | 91,799 | 55 | % | 113,270 | 71 | % | 176,142 | 57 | % | 205,484 | 69 | % | |||||||||||||||
Total contract revenues | $ | 165,985 | 100 | % | $ | 159,767 | 100 | % | $ | 309,090 | 100 | % | $ | 296,610 | 100 | % |
In the three months ended June 30,March 31, 2020 and 2019, oneno single customer in the local governments category accounted for 14%exceeded 10.0% of total contract revenues. In the three months ended June 30, 2018, a private customer accounted for 16% of total contract revenues. In the six months ended June 30, 2019, one customer in the local governments category accounted for 11% of total contract revenues. In the six months ended June 30, 2018, a private customer accounted for 12% of total contract revenues.
The Company does not believe that the loss of any one of its customers would have a material adverse effect on the Company or its subsidiaries and affiliates since no single specific customer sustains such a large portion of receivables or contract revenue over time.
The concrete segment primarily purchases concrete from select suppliers. The loss of any one of these suppliers could adversely impact short-term operations.
18
Contract revenues generated outside the United States totaled 2.4% and 0.4% of total revenues for the three months ended March 31, 2020 and 2019, respectively, and were primarily located in the Caribbean Basin and Mexico.
5.Contracts in Progress
Contracts in progress are as follows at June 30, 2019 and DecemberMarch 31, 2018:
June 30, 2019 | December 31, 2018 | ||||||
Costs incurred on uncompleted contracts | $ | 630,685 | $ | 461,144 | |||
Estimated earnings | 112,786 | 73,170 | |||||
743,471 | 534,314 | ||||||
Less: Billings to date | (771,794 | ) | (546,858 | ) | |||
$ | (28,323 | ) | $ | (12,544 | ) | ||
Included in the accompanying Consolidated Balance Sheet under the following captions: | |||||||
Costs and estimated earnings in excess of billings on uncompleted contracts | $ | 23,641 | $ | 9,217 | |||
Billings in excess of costs and estimated earnings on uncompleted contracts | (51,964 | ) | (21,761 | ) | |||
$ | (28,323 | ) | $ | (12,544 | ) |
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Costs incurred on uncompleted contracts |
| $ | 949,578 |
| $ | 884,244 |
Estimated earnings |
|
| 162,348 |
|
| 144,160 |
|
|
| 1,111,926 |
|
| 1,028,404 |
Less: Billings to date |
|
| (1,133,905) |
|
| (1,035,796) |
|
| $ | (21,979) |
| $ | (7,392) |
Included in the accompanying Condensed Consolidated Balance Sheet under the following captions: |
|
|
|
|
|
|
Costs and estimated earnings in excess of billings on uncompleted contracts |
| $ | 31,433 |
| $ | 41,389 |
Billings in excess of costs and estimated earnings on uncompleted contracts |
|
| (53,412) |
|
| (48,781) |
|
| $ | (21,979) |
| $ | (7,392) |
Included in cost and estimated earnings in excess of billings on uncompleted projects is approximately $1.1$0.2 million and $0.1 million at March 31, 2020 and December 31, 2019, respectively, related to claims and unapproved change orders. See Note 2 - Summary of Significant Accounting Policies to the Company’s condensed consolidated financial statements for discussion of the accounting for these claims.
Contract costs include all direct costs, such as materials and labor, and those indirect costs incurred that are related to contract performance such as payroll taxes and insurance. General and administrative costs are charged to expense as incurred. Incentive fees, if available, are billed to the customer based on the terms and conditions of the contract. Pending claims are recognized as an increase in contract revenue only when the collection is deemed probable and if the amount can be reasonably estimated for purposes of calculating total profit or loss on long-term contracts. Changes in job performance and job conditions, including those arising from final contract settlements, may result in revisions to costs and revenues and are recognized in the period in which the revisions are determined. Provisions for estimated losses on contracts in progress are made in the period in which such losses are determined, without regard to the percentage of completion.
19
6.Property and Equipment
The following is a summary of property and equipment at June 30, 2019March 31, 2020 and December 31, 20182019:
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Automobiles and trucks |
| $ | 2,100 |
| $ | 2,161 |
Building and improvements |
|
| 44,337 |
|
| 44,278 |
Construction equipment |
|
| 150,544 |
|
| 153,147 |
Vessels and other equipment |
|
| 82,284 |
|
| 84,022 |
Office equipment |
|
| 8,670 |
|
| 8,652 |
|
|
| 287,935 |
|
| 292,260 |
Less: Accumulated depreciation |
|
| (196,008) |
|
| (196,973) |
Net book value of depreciable assets |
|
| 91,927 |
|
| 95,287 |
Construction in progress |
|
| 1,325 |
|
| 1,198 |
Land |
|
| 35,863 |
|
| 35,863 |
|
| $ | 129,115 |
| $ | 132,348 |
:
June 30, 2019 | December 31, 2018 | ||||||
Automobiles and trucks | $ | 1,669 | $ | 1,709 | |||
Building and improvements | 43,790 | 43,628 | |||||
Construction equipment | 158,684 | 161,113 | |||||
Vessels and other equipment | 82,875 | 90,217 | |||||
Office equipment | 8,183 | 8,061 | |||||
295,201 | 304,728 | ||||||
Less: Accumulated depreciation | (197,340 | ) | (195,373 | ) | |||
Net book value of depreciable assets | 97,861 | 109,355 | |||||
Construction in progress | 1,321 | 2,785 | |||||
Land | 35,863 | 35,863 | |||||
$ | 135,045 | $ | 148,003 |
Substantially all of the Company’s long-lived assets are located in the United States.
See Note 2 to the Company'sCompany’s condensed consolidated financial statements for further discussion of property and equipment.
7.Inventory
Current inventory at June 30, 2019both March 31, 2020 and December 31, 2018,2019 of $0.9$1.2 million and $1.1 million, respectively, consisted primarily of spare parts and small equipment held for use in the ordinary course of business.
Non-current inventory at June 30, 2019March 31, 2020 and December 31, 2018 of $7.52019 totaled $7.1 million and $7.6$7.0 million, respectively, and consisted primarily of spare engine components or items which require longer lead times for sourcing or fabrication for certain of the Company'sCompany’s assets to reduce equipment downtime.
8.Fair Value
Recurring Fair Value Measurements
The fair value of financial instruments is the amount at which the instrument could be exchanged in a current transaction between willing parties. Due to their short-term nature, the Company believes that the carrying value of its accounts receivable, other current assets, accounts payable and other current liabilities approximate their fair values.
20
The Company classifies financial assets and liabilities into the following three levels based on the inputs used to measure fair value in the order of priority indicated:
· | Level 1‑ fair values are based on observable inputs such as quoted prices in active markets for identical assets or liabilities; |
· | Level 2 - fair values are based on pricing inputs other than quoted prices in active markets for identical assets and liabilities and are either directly or indirectly observable as of the measurement date; and |
· | Level 3‑ fair values are based on unobservable inputs in which little or no market data exists. |
Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. The Company'sCompany’s assessment of the significance of a particular input to the fair value requires judgment and may affect the placement of assets and liabilities within the fair value hierarchy levels.
The following table sets forth by level within the fair value hierarchy the Company'sCompany’s recurring financial assets and liabilities that were accounted for at fair value on a recurring basis as of June 30, 2019March 31, 2020 and December 31, 2018:2019:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Fair Value Measurements | ||||
|
| Carrying Value |
| Level 1 |
| Level 2 |
| Level 3 | |
March 31, 2020 |
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
Cash surrender value of life insurance policy |
| $ | 2,339 |
| — |
| 2,339 |
| — |
Liabilities: |
|
|
|
|
|
|
|
|
|
Derivatives |
| $ | 2,029 |
| — |
| 2,029 |
| — |
December 31, 2019 |
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
|
Cash surrender value of life insurance policy |
| $ | 2,714 |
| — |
| 2,714 |
| — |
Liabilities: |
|
|
|
|
|
|
|
|
|
Derivatives |
| $ | 1,045 |
| — |
| 1,045 |
| — |
Fair Value Measurements | |||||||||
Carrying Value | Level 1 | Level 2 | Level 3 | ||||||
June 30, 2019 | |||||||||
Assets: | |||||||||
Cash surrender value of life insurance policy | $ | 2,437 | — | 2,437 | — | ||||
Liabilities: | |||||||||
Derivatives | $ | 1,094 | — | 1,094 | — | ||||
December 31, 2018 | |||||||||
Assets: | |||||||||
Cash surrender value of life insurance policy | $ | 1,993 | — | 1,993 | — | ||||
Liabilities: | |||||||||
Derivatives | $ | 79 | — | 79 | — |
The Company'sCompany’s derivatives, which are comprised of interest rate swaps, are valued using a discounted cash flow analysis that incorporates observable market parameters, such as interest rate yield curves and credit risk adjustments, that are necessary to reflect the probability of default by itus or the counterparty. These derivatives are classified as a Level 2 measurement within the fair value hierarchy. See Note 11 for additional information on the Company'sCompany’s derivative instrument.
Our concrete segment has life insurance policies covering employees with a combined face value of $11.1 million.million as of March 31, 2020. The policies are invested in mutual funds and the fair value measurement of the cash surrender balance associated with these policies is determined using Level 2 inputs within the fair value hierarchy and will vary with investment performance. These assets are included in the "Other non-current"noncurrent" asset section in the Company’s Condensed Consolidated Balance Sheets.
Non-Recurring Fair Value Measurements
The Company generally applies fair value valuation techniques on a non-recurring basis associated with (1) valuing assets and liabilities acquired in connection with business combinations and other transactions;
21
(2) valuing potential impairment loss related to long-lived assets; and (3) valuing potential impairment loss related to the indefinite-livedinfinite-lived intangible asset.
Other Fair Value Measurements
The fair value of the Company'sCompany’s debt at June 30, 2019March 31, 2020 and December 31, 20182019 approximated its carrying value of $83.0$71.5 million and $80.5$73.3 million, respectively, as interest is based on current market interest rates for debt with similar risk and maturity. If the Company'sCompany’s debt was measured at fair value, it would have been classified as a Level 2 measurement in the fair value hierarchy.
9.Goodwill and Intangible Assets
June 30, 2019 | December 31, 2018 | ||||||
Beginning balance, January 1 | $ | — | $ | 69,483 | |||
Impairments | — | (69,483 | ) | ||||
Ending balance | $ | — | $ | — |
Intangible assets
The tables below present the activity and amortizationamortizations of finite-lived intangible assets:
|
|
|
|
|
|
|
|
| March 31, |
| December 31, | ||
|
| 2020 |
| 2019 | ||
Finite-lived intangible assets, beginning of period |
| $ | 35,240 |
| $ | 35,240 |
Additions |
|
| — |
|
| — |
Total finite-lived intangible assets, end of period |
| $ | 35,240 |
| $ | 35,240 |
|
|
|
|
|
|
|
Accumulated amortization, beginning of period |
| $ | (29,985) |
| $ | (27,345) |
Current year amortization |
|
| (516) |
|
| (2,640) |
Total accumulated amortization |
|
| (30,501) |
|
| (29,985) |
|
|
|
|
|
|
|
Net finite-lived intangible assets, end of period |
| $ | 4,739 |
|
| 5,255 |
Infinite-lived intangible assets |
|
| 6,892 |
|
| 6,892 |
Total net intangible assets |
| $ | 11,631 |
| $ | 12,147 |
June 30, 2019 | December 31, 2018 | ||||||
Intangible assets, January 1 | $ | 35,240 | $ | 35,240 | |||
Additions | — | — | |||||
Total intangible assets, end of period | 35,240 | 35,240 | |||||
Accumulated amortization, January 1 | $ | (27,345 | ) | $ | (23,956 | ) | |
Current year amortization | (1,318 | ) | (3,389 | ) | |||
Total accumulated amortization | (28,663 | ) | (27,345 | ) | |||
Net intangible assets, end of period | $ | 6,577 | $ | 7,895 |
Remaining net finite-lived intangible assets were acquired as part of the purchase of TAS during 2015 and TBC whichduring 2017 and included contractual backlog and customer relationships. Contractual backlog was valued at approximately $0.1 million and was amortized over seven months in 2017. Customer relationships were valued at approximately $0.7$18.8 million and will beare being amortized over seven years. Both of these assets will be amortized eight years using an accelerated method based on the pattern in which the economic benefits of the assets are consumed. For the sixthree months ended June 30, 2019, $1.3March 31, 2020, $0.5 million of amortization expense was recognized for these assets.
Future expense remaining of approximately $6.6$4.7 million will be amortized as follows:
|
|
|
|
2020 |
|
| 1,553 |
2021 |
|
| 1,521 |
2022 |
|
| 1,239 |
2023 |
|
| 389 |
2024 |
|
| 37 |
|
| $ | 4,739 |
2019 | 1,322 | ||
2020 | 2,069 | ||
2021 | 1,521 | ||
2022 | 1,239 | ||
2023 | 389 | ||
Thereafter | 37 | ||
$ | 6,577 |
Additionally, the Company has one indefinite-lived intangible asset, a trade name, which is tested for impairment annually on October 31, or whenever events or circumstances indicate that the carrying amount of the trade name may not be recoverable. Impairment is calculated as described in
22
Note 2.Table of Contents At June 30, 2019
value over its fair value. The fair value of the trade name is determined using the relief from royalty method, a variation of the income approach. This method assumes that if a company owns intellectual property it does not have to "rent" the asset and is, therefore, "relieved" from paying a royalty. Once a supportable royalty rate is determined, the rate is then applied to the projected revenues over the expected remaining life of the intangible assets to estimate the royalty savings. This approach is dependent on a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables. The impairment test concluded that the fair value of the trade name was valued at approximately $6.9 million andin excess of the carrying value, therefore no indicators of impairment existed.was recorded.
10.Accrued Liabilities
Accrued liabilities at
|
|
|
|
|
|
|
|
| March 31, 2020 |
| December 31, 2019 | ||
Accrued salaries, wages and benefits |
| $ | 9,194 |
| $ | 7,323 |
Accrual for insurance liabilities |
|
| 3,106 |
|
| 3,714 |
Sales taxes |
|
| 2,141 |
|
| 3,021 |
Property taxes |
|
| 579 |
|
| 389 |
Sale-leaseback arrangement |
|
| 498 |
|
| 482 |
Accounting and audit fees |
|
| 307 |
|
| 267 |
Interest |
|
| 62 |
|
| 76 |
Other accrued expenses |
|
| 1,660 |
|
| 1,694 |
Total accrued liabilities |
| $ | 17,547 |
| $ | 16,966 |
June 30, 2019 | December 31, 2018 | ||||||
Accrued salaries, wages and benefits | $ | 6,365 | $ | 6,492 | |||
Accrual for insurance liabilities | 3,855 | 5,680 | |||||
Property taxes | 1,298 | 924 | |||||
Capital lease liability (1) | — | 3,045 | |||||
Sales taxes | 1,457 | 2,178 | |||||
Interest | 59 | — | |||||
Other accrued expenses | 868 | 521 | |||||
Total accrued liabilities | $ | 13,902 | $ | 18,840 |
11.Long-term Debt and prior to the adoption of ASC 842 as of January 1, 2019.
The Company entered into an amended syndicated credit agreement (the "Credit Agreement"“Credit Agreement” also known as the “Fourth Amendment”) on July 31, 2018 with Regions Bank, as administrative agent and collateral agent, and the following co-syndication agents: Bank of America, N.A., BOKF, NA dba Bank of Texas, KeyBank National Association, NBH Bank, IBERIABANK, Trustmark National Bank, First Tennessee Bank NA, and Branch Banking and Trust Company.
The Credit Agreement, which may be amended from time to time, provides for borrowings under a revolving line of credit and a term loan (together, the “Credit Facility”). The Credit Facility is guaranteed by the subsidiaries of the Company, secured by the assets of the Company, including stock held in its subsidiaries, and may be used to finance general corporate and working capital purposes, to finance capital expenditures, to refinance existing indebtedness, to finance permitted acquisitions and associated fees, and to pay for all related expenses to the Credit Facility. Interest is due and is computed based on the designation of the loan, with the option of a Base Rate Loan (the base rate plus the Applicable Margin), or an Adjusted LIBOR Rate Loan (the adjusted LIBOR rate plus the Applicable Margin). Interest is due on the last day of each quarter end for Base Rate Loans and at the end of the LIBOR rate period for Adjusted LIBOR Rate Loans. Principal balances drawn under the Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty. Amounts repaid under the revolving line of credit may be re-borrowed. The Credit Facility matures on July 31, 2023.
Total debt issuance costs for the Fourth Amendment, which included underwriter fees, legal fees and syndication fees were approximately $0.9 million and were capitalized as non-current deferred charges and amortized using the effective interest rate method over the duration of the loan. Additionally, the Company executed the Fifth Amendment during March 2019, which was made effective as of December 31, 2018, and executed the Sixth Amendment during May 2019. The Company incurred additional debt issuance costs of
23
approximately $0.6 million and $0.9 million respectively for the Fifth and Sixth Amendments. With the execution of the aforementioned Sixth Amendment, $50.0 million of the existing revolving line of credit was modified and accounted for under guidelines of ASC 470-50,470‑50, Debt, Modifications and Extinguishments, and a pro-rated portion of unamortized debt issuance costs of approximately $0.4 million will bewas recognized as interest expense as of May 2019. The remaining debt issuance costs of approximately $0.9 million related to the Fourth, Fifth, and Sixth Amendments will be amortized over the duration of the loan.
The quarterly weighted average interest rate for the Credit Facility as of June 30, 2019March 31, 2020 was 5.79%4.44%.
The Company'sCompany’s obligations under debt arrangements consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2020 |
| December 31, 2019 | ||||||||||||||
|
|
|
| Debt Issuance |
|
|
|
|
| Debt Issuance |
|
| ||||||
|
| Principal |
| Costs(1) |
| Total |
| Principal |
| Costs(1) |
| Total | ||||||
Term loan - current |
| $ | 4,125 |
| $ | (85) |
| $ | 4,040 |
| $ | 3,750 |
| $ | (82) |
| $ | 3,668 |
Total current debt |
|
| 4,125 |
|
| (85) |
|
| 4,040 |
|
| 3,750 |
|
| (82) |
|
| 3,668 |
Revolving line of credit |
|
| 35,000 |
|
| (719) |
|
| 34,281 |
|
| 36,000 |
|
| (782) |
|
| 35,218 |
Term loan - long-term |
|
| 32,415 |
|
| (666) |
|
| 31,749 |
|
| 33,540 |
|
| (729) |
|
| 32,811 |
Total long-term debt |
|
| 67,415 |
|
| (1,385) |
|
| 66,030 |
|
| 69,540 |
|
| (1,511) |
|
| 68,029 |
Total debt |
| $ | 71,540 |
| $ | (1,470) |
| $ | 70,070 |
| $ | 73,290 |
| $ | (1,593) |
| $ | 71,697 |
June 30, 2019 | December 31, 2018 | ||||||||||||||||||
Principal | Debt Issuance Costs(1) | Total | Principal | Debt Issuance Costs(1) | Total | ||||||||||||||
Term loan - current | $ | 3,000 | $ | (61 | ) | $ | 2,939 | $ | 3,000 | $ | (54 | ) | $ | 2,946 | |||||
Total current debt | 3,000 | (61 | ) | 2,939 | 3,000 | (54 | ) | 2,946 | |||||||||||
Revolving line of credit | 26,000 | (525 | ) | 25,475 | 22,000 | (213 | ) | 21,787 | |||||||||||
Term loan - long-term | 54,000 | (1,089 | ) | 52,911 | 55,500 | (1,168 | ) | 54,332 | |||||||||||
Total long-term debt | 80,000 | (1,614 | ) | 78,386 | 77,500 | (1,381 | ) | 76,119 | |||||||||||
Total debt | $ | 83,000 | $ | (1,675 | ) | $ | 81,325 | $ | 80,500 | $ | (1,435 | ) | $ | 79,065 |
(1) | Total debt issuance costs include underwriter fees, legal fees and syndication fees and fees related to the execution of the Fourth, Fifth, and Sixth Amendments to the Credit Agreement. |
Provisions of the revolving line of credit and accordion
The Company has a maximum borrowing availability under the revolving line of credit and swingline loans (as defined in the Credit Agreement) of $50.0 million. ThisThere is a letter of credit sublimit that is equal to the lesser of $20.0 million and the aggregate unused amount of the revolving commitments then in effect. There is also a swingline sublimit equal to the lesser of $5.0 million and the aggregate unused amount of the revolving commitments then in effect.
Revolving loans may be designated as Base Rate Loan or Adjusted LIBOR Rate Loans, at the Company’s request, and must be drawn in an aggregate minimum amount of $1.0 million and integral multiples of $250,000 in excess of that amount. Swingline loans must be drawn in an aggregate minimum amount of $250,000 and integral multiples of $50,000 in excess of that amount. The Company may convert, change, or modify such designations from time to time.
The Company is subject to a commitment fee for the unused portion of the maximum borrowing availability under the revolving line of credit. The commitment fee, which is due quarterly in arrears, is equal to the Applicable Margin of the actual daily amount by which the Aggregate Revolving Commitments exceeds the Total Revolving Outstanding. The revolving line of credit termination date is the earlier of the Credit Facility termination date, July 31, 2023, or the date the outstanding balance is permanently reduced to zero, in accordance with the terms of the amended Credit Facility.
The maturity date for amounts drawn under the revolving line of credit is the earlier of the Facility termination date of July 31, 2023, or the date the outstanding balance is permanently reduced to zero. Prior to the fourth quarter of 2018, the Company classified amounts drawn as current liabilities based on an intent and ability to
24
repay the amounts using current assets within the next twelve months. During the fourth quarter of 2018, the Company determined it no longer has the intent to repay amounts drawn within the next twelve months. As of June 30, 2019,March 31, 2020, the Company determined that it still does not have the intent to repay amounts drawn within the next twelve months. Therefore, the Company has classified the entire outstanding balance of the revolving line of credit as non-current.
As of June 30, 2019,March 31, 2020, the outstanding balance for all borrowings under the revolving line of credit was $26.0$35.0 million, where $23.0 million was designated as an Adjusted LIBOR Rate Loan at a weighted average rate of 5.96% and $3.0 million was designated as a Base Rate Loan at a rate of 8.00%3.56%. There were also $3.4$2.1 million in outstanding letters of credit as of June 30, 2019,March 31, 2020, which
Provisions of the term loan
The original principal amount of $60.0 million for the term loan commitment is paid off in quarterly installment payments (as stated in the Credit Agreement). At June 30, 2019,March 31, 2020, the outstanding term loan component of the Credit Facility totaled $57.0$36.5 million and was secured by specific assets of the Company.
The table below outlines the total remaining payment amounts annually for the term loan through maturity of the Credit Facility:
|
|
|
|
2020 |
|
| 3,000 |
2021 |
|
| 4,500 |
2022 |
|
| 5,250 |
2023 |
|
| 23,790 |
|
| $ | 36,540 |
2019 | 1,500 | ||
2020 | 3,750 | ||
2021 | 4,500 | ||
2022 | 5,250 | ||
2023 | 42,000 | ||
$ | 57,000 |
During the sixthree months ended June 30, 2019,March 31, 2020 the Company made the scheduled quarterly principal paymentspayment of $1.5 million, which reduced the outstanding principal balance to $57.0 million as of June 30, 2019.$0.8 million. The current portion of debt is $3.0$4.1 million, and the non-current portion is $54.0$32.4 million. As of June 30, 2019,March 31, 2020, the term loan was designated as an Adjusted LIBOR Rate Loan with an interest rate of 5.94%3.75%.
Financial covenants
Restrictive financial covenants under the Credit Facility include:
· | A consolidated Fixed Charge Coverage Ratio to not be less than the following during each noted period: |
-Fiscal Quarter Ending December 31, 2019 and each Fiscal Quarter thereafter, to not be less than 1.25 to 1.00.
· | A consolidated Leverage Ratio to not exceed the following during each noted period: |
-Fiscal Quarter Ending March 31, 2020 and each Fiscal Quarter thereafter, to not exceed 3.00 to 1.00.
In addition, the Credit Facility contains events of default that are usual and customary for similar arrangements, including non-payment of principal, interest or fees; breaches of representations and warranties that are not timely cured; violation of covenants; bankruptcy and insolvency events; and events constituting a change of control.
25
The Company expects to meet its future internal liquidity and working capital needs and maintain or replace its equipment fleet through capital expenditure purchases and major repairs, from funds generated by its operating activities for at least the next 12
Derivative Financial Instruments
On September 16, 2015, the Company entered into a series of receive-variable, pay-fixed interest rate swaps to hedge the variability in the interest payments on 50% of the aggregate principal amount of the Regions Term Loan outstanding, beginning with a notional amount of $67.5 million. There arewas a total of five sequential interest rate swaps to achieve the hedged position and each year on August 31, with the exception of the final swap, the existing interest rate swap iswas scheduled to expire and will be immediately replaced with a new interest rate swap until the expiration of the final swap on July 31, 2023.2020. On December 6, 2018, the Company entered into a sixth receive-variable, pay-fixed interest rate swapsswap to hedge the variability of interest payments. The sixth swap will begin with a notional amount of $27.0 million on July 31, 2020 and will hedge the variability in the interest payments on 50% of the aggregate scheduled principal amount of the Regions Term Loan outstanding. The sixth swap is scheduled to expire on July 31, 2023. At inception, these interest rate swaps were designated as a cash flow hedgehedges for hedge accounting, and as such, the effective portion of unrealized changes in market value are recorded in accumulated other comprehensive income (loss) income and reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Gains and losses from hedge ineffectiveness are recognized in current earnings. The change in fair market value of the swaps for the comparative periods ended March 31, 2020 and March 31, 2019, as reflected in other comprehensive loss in the Condensed Consolidated Statements of June 30, 2019Stockholders’ Equity, is approximately $1.1$1.0 million which is reflected in the balance sheet as a liability in Other non-current liabilities on the Consolidated Balance Sheets.and $0.3 million. The fair market value of the swaps as of June 30, 2019March 31, 2020 is $(1.1) million.reflected as a liability of $2.0 million on the Condensed Consolidated Balance Sheets. See Note 8 for more information regarding the fair value of the Company'sCompany’s derivative instruments.
12.Other Long-Term Liabilities
Other long-term liabilities at March 31, 2020 and December 31, 2019 consisted of the following:
|
|
|
|
|
|
|
|
| March 31,2020 |
| December 31, 2019 | ||
Sale-leaseback arrangement |
| $ | 17,285 |
| $ | 17,447 |
Deferred compensation |
|
| 2,131 |
|
| 2,528 |
Accrual for insurance liabilities |
|
| 415 |
|
| 461 |
Total other long-term liabilities |
| $ | 19,831 |
| $ | 20,436 |
26
Sale-Leaseback Arrangement
On September 27, 2019, the Company entered into a purchase and sale agreement (the “Purchase and Sale Agreement”). Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its 17300 & 17140 Market Street location in Channelview, Texas (the “Property”) for a purchase price of $19.1 million. Concurrent with the sale of the Property, the Company entered into a fifteen-year lease agreement (the “Lease Agreement”), whereby the Company will lease back the Property at an annual rental rate of approximately $1.5 million, subject to annual rent increases of 2.0%. Under the Lease Agreement, the Company has two consecutive options to extend the term of the Lease by ten years for each such option. This transaction was recorded as a failed sale-leaseback. The Company recorded a liability for the amounts received, will continue to depreciate the non-land portion of the asset, and has imputed an interest rate so that the net carrying amount of the financial liability and remaining assets will be zero at the end of the initial lease term. Concurrently with the sale, the Company paid $18.2 million towards the Term loan portion of the Company’s Credit Facility, consistent with terms of the Sixth Amendment.
13.Income Taxes
The Company'sCompany’s effective tax rate is based on expected income, statutory rates and tax planning opportunities available to it. For interim financial reporting, the Company estimates its annual tax rate based on projected taxable income (loss) income for the full year and records a quarterly tax provision in accordance with the anticipated annual rate. Income tax expense included in the Company’s accompanying Condensed Consolidated Statements of Operations was as follows (in thousands, except percentages):
|
|
|
|
|
|
|
|
|
| Three months ended |
| ||||
|
| March 31, |
| ||||
|
|
| 2020 |
|
| 2019 |
|
Income tax expense (benefit) |
| $ | 377 |
| $ | 593 |
|
Effective tax rate |
|
| 12.2 | % |
| (8.1) | % |
Three months ended June 30, | Six months ended June 30, | ||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
Income tax (benefit) expense | $ | (140 | ) | $ | 1,660 | $ | 453 | $ | 3,149 | ||||
Effective tax rate | 7.9 | % | 42.5 | % | (5.0 | )% | 33.1 | % |
The effective rate for the three and six months ended June 30, 2019March 31, 2020 differed from the Company'sCompany’s statutory federal rate of 21% primarily due to tomovement in the recording of an additional valuation allowance to offset foreign tax credits and net operating loss carryforwards, generated during the period, foreign income taxes, state income taxes and the non-deductibility of certain permanent items.
During the year ended December 31, 20182019 the Company assessed the realizability of its deferred tax assets and determined that it was more likely than not that some portion or all the deferred tax assets would not be realized and therefore recorded a valuation allowance on the net deferred tax assets. The Company assesses the available positive and negative evidence to estimate if sufficient future taxable income will be generated to use the existing deferred tax assets. The Company considers the scheduled reversal of deferred tax liabilities, available carryback periods, and tax-planning strategies in making this assessment. For the period ended JuneSeptember 30, 2019 the Company evaluated all positive and negative evidence in determining the amount of deferred tax assets more likely than not to be realized. Based on the review of available evidence, Management believes that a valuation allowance on the net deferred tax assets at June 30, 2019March 31, 2020 remains appropriate.
The Company does not expect that unrecognized tax benefits as of June 30, 2019March 31, 2020 for certain federal income tax matters will significantly change due to any settlement and/or expiration of statutes of limitations over the next 12 months. The final outcome of these uncertain tax positions is not yet determinable. The Company'sCompany’s uncertain tax benefits, if recognized, would affect the Company'sCompany’s effective tax rate.
27
14.Earnings (Loss) Earnings Per Share
Basic earnings (loss) earnings per share is based on the weighted average number of common shares outstanding during each period. Diluted earnings (loss) earnings per share is based on the weighted average number of common shares outstanding as well as the effect of all dilutive common stock equivalents during each period net income is generated. For the three months ended March 31, 2020 and 2019, the Company had 1,458,225 and 1,748,489 securities, respectively, that were potentially dilutive in earnings per share calculations. Such dilution is dependent on the excess of the market price of our stock over the exercise price and other components of the treasury stock method. The exercise price for certain stock options awarded by the Company exceedsexceeded the average market price of the Company'sCompany’s common stock.stock for the three months ended March 31, 2020 and 2019. Such stock options are antidilutive and are not included in the computation of (loss) earnings per share. For the three month periods ended June 30, 2019 and June 30, 2018, the Company had 1,651,916 and 2,012,481 securities, respectively, that were potentially dilutive in future earnings(loss) per share
The following table reconciles the denominators used in the computations of both basic and diluted earnings (loss) per share:
|
|
|
|
|
|
| Three months ended March 31, | ||
|
| 2020 |
| 2019 |
Basic: |
|
|
|
|
Weighted average shares outstanding |
| 29,653,409 |
| 28,927,406 |
Diluted: |
|
|
|
|
Total basic weighted average shares outstanding |
| 29,653,409 |
| 28,927,406 |
Effect of potentially dilutive securities: |
|
|
|
|
Common stock options |
| 2,148 |
| — |
Total weighted average shares outstanding assuming dilution |
| 29,655,557 |
| 28,927,406 |
Three months ended June 30, | Six months ended June 30, | ||||||||
2019 | 2018 | 2019 | 2018 | ||||||
Basic: | |||||||||
Weighted average shares outstanding | 29,097,094 | 28,309,004 | 29,086,811 | 28,243,400 | |||||
Diluted: | |||||||||
Total basic weighted average shares outstanding | 29,097,094 | 28,309,004 | 29,086,811 | 28,243,400 | |||||
Effect of dilutive securities: | |||||||||
Common stock options | — | 235,006 | — | 231,032 | |||||
Total weighted average shares outstanding assuming dilution | 29,097,094 | 28,544,010 | 29,086,811 | 28,474,432 | |||||
Shares of common stock issued from the exercise of stock options | — | 84,705 | 7,021 | 231,470 |
15.Stock-Based Compensation
The Compensation Committee of the Company'sCompany’s Board of Directors is responsible for the administration of the Company'sCompany’s stock incentive plans, which include the balance of shares remaining under the 2011 Long Term Incentive Plan (the "2011 LTIP") and 2017 Long Term Incentive Plan or the(the "2017 LTIP"), which was approved by shareholders in May 2017 and authorized the maximum aggregate number of shares of common stock to be issued atof 2,400,000. In general, the Company'sCompany’s 2017 LTIP provides for grants of restricted stock and stock options to be issued with a per-share price equal to the fair market value of a share of common stock on the date of grant. Option terms are specified at each grant date but generally are generally 10 years from the date of issuance. Options generally vest over a three yearto five-year period.
The Company applies a 3.2% and a 5.5% forfeiture rate, which getsis compounded over the vesting terms of the individual award, to its restricted stock and option grants, respectively, based on historical analysis.
In the three months ended June 30,March 31, 2020 and 2019, and 2018, compensation expense related to stock basedstock-based awards outstanding was $1.1$0.5 million and $0.8$0.7 million, respectively.
In February 2020, the six months ended June 30, 2019 and 2018, compensation related to stock based awards outstanding was $1.7 million and $1.1 million, respectively.
28
In March 2019, the Company granted an executive of the Company 168,350 shares of restricted common stock, which vests 1/3 at March 31, June 30, and September 30, 2019, respectively. The fair value of all shares awarded on the date of the grant was $2.97 per share.
In the three months ended June 30, 2019,March 31, 2020, there were no options were exercised. In the three months ended June 30, 2018, 84,705 options were exercised, generating proceeds to the Company of $0.5 million. In the six months ended June 30,March 31, 2019, 7,021 options were
At June 30, 2019,March 31, 2020, total unrecognized compensation expense related to unvested stock and options was approximately $2.7$2.2 million, which is expected to be recognized over a period of approximately two years.
16.Commitments and Contingencies
The Company and one former and two current officers are named defendants in a class action lawsuit filed on April 11, 2019 in the United States District Court for the Southern District of Texas, Houston Division, seeking unstated compensatory damages under the federal securities laws allegedly arising from materially false and misleading statements during the period of March 13, 2018 to March 18, 2019. The complaint asserts, among other things, that the current and former officers caused the Company to overstate goodwill in certain periods; overstate accounts receivable; that the company lacked effective internal controls over financial reporting related to goodwill impairment testing and accounts receivable; and that as a result the requiredcertain adjustments to goodwill and accounts receivable materially impacted the company’s financial statements, causingwhich in turn caused the company’s stock price to be artificially inflated during the class period. The Company will respondhas responded to the complaint, considers all of these allegations without merit and willis vigorously contestcontesting the allegations.
In addition, from time to time, the Company is a party to various lawsuits, claims and other legal proceedings that arise in the ordinary course of business. These actions typically seek, among other things, compensation for alleged personal injury, breach of contract, property damage, punitive damages, civil penalties or other losses, or injunctive or declaratory relief.relief and on rare occasions punitive damages. With respect to such lawsuits, the Company accrues reserves when it is probable a liability has been incurred and the amount of loss can be reasonably estimated. The Company does not believe any of these or any other proceedings, individually or in the aggregate, would be expected to have a material adverse effect on results of operations, cash flows, or financial condition
A legal matter was settled in the Company’s favor for $5.5 million during the first quarter of 2018. Settlement amounts were recorded in Other gain from continuing operations in the Condensed Consolidated Statement of Operations, Prepaid expenses and other (current portion of the notes receivable) and Other non-current assets (non-current portion of the notes receivable) in the Condensed Consolidated Balance Sheets. As of June 30, 2019,March 31, 2020, the current portion of the notes receivable was $0.8 million and the non-current portion was $2.8$2.3 million, net of $0.4$0.3 million of unamortized discount. Legal fees related to this matter were expensed as incurred during the respective reporting period.
17.Segment Information
The Company currently operates in two reportable segments: marine and concrete. The Company'sCompany’s financial reporting systems present various data for management to run the business, including profit and loss statements
29
prepared according to the segments presented. The CompanyManagement uses operating income to evaluate performance between the two segments. Segment information for the periods presented is provided as follows:
|
|
|
|
|
|
|
|
| Three months ended | ||||
|
| March 31, | ||||
|
|
| 2020 |
|
| 2019 |
Marine |
|
|
|
|
|
|
Contract revenues |
| $ | 85,949 |
| $ | 61,487 |
Operating income (loss) |
| $ | 2,855 |
| $ | (6,456) |
Depreciation and amortization expense |
| $ | (4,776) |
| $ | (4,946) |
|
|
|
|
|
|
|
Total assets |
| $ | 255,311 |
| $ | 213,162 |
Property, plant and equipment, net |
| $ | 112,384 |
| $ | 118,596 |
|
|
|
|
|
|
|
Concrete |
|
|
|
|
|
|
Contract revenues |
| $ | 80,671 |
| $ | 81,618 |
Operating income |
| $ | 1,510 |
| $ | 279 |
Depreciation and amortization expense |
| $ | (2,116) |
| $ | (2,094) |
|
|
|
|
|
|
|
Total assets |
| $ | 129,509 |
| $ | 127,220 |
Property, plant and equipment, net |
| $ | 16,731 |
| $ | 18,245 |
Three months ended | Six months ended | ||||||||||||
June 30, 2019 | June 30, 2018 | June 30, 2019 | June 30, 2018 | ||||||||||
Marine | |||||||||||||
Contract revenues | $ | 89,023 | $ | 80,698 | $ | 150,510 | $ | 143,489 | |||||
Operating income (loss) | 9 | 3,642 | (6,447 | ) | 9,907 | ||||||||
Depreciation and amortization expense | (5,069 | ) | (5,295 | ) | (10,015 | ) | (10,026 | ) | |||||
Total assets | $ | 236,917 | $ | 268,642 | $ | 236,917 | $ | 268,642 | |||||
Property, plant and equipment, net | 117,262 | 128,047 | 117,262 | 128,047 | |||||||||
Concrete | |||||||||||||
Contract revenues | $ | 76,962 | $ | 79,069 | $ | 158,580 | $ | 153,121 | |||||
Operating (loss) income | (432 | ) | 949 | (153 | ) | 1,753 | |||||||
Depreciation and amortization expense | (2,153 | ) | (2,136 | ) | (4,247 | ) | (4,185 | ) | |||||
Total assets | $ | 125,872 | $ | 163,627 | $ | 125,872 | $ | 163,627 | |||||
Property, plant and equipment, net | 17,783 | 19,636 | 17,783 | 19,636 |
There were $2.3 million and less than $0.1 million in intersegment revenues between the Company'sCompany’s two reportable segments for the three and six months ended June 30,March 31, 2020 and 2019, were $0.2 million and $0.1 million, respectively. Intersegment revenues between the Company's two reportable segments for the three and six months ended June 30, 2018 was $2.4 million, respectively. The marine segment had foreign revenues of approximately $2.4$4.0 million and $2.4$0.5 million for the three months ended June 30,March 31, 2020 and 2019, and 2018, respectively, and $2.9 million and $8.3 million for the six months ended June 30, 2019 and 2018, respectively. These revenues are derived from projects in the Caribbean Basin and Mexico and are paid primarily in U.S. dollars. There was no foreign revenue for the concrete segment.
18.Leases
The Company has operating and finance leases for office space, equipment and vehicles.
Management determines if a contract is or contains a lease at inception of the contract or modification of the contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.
Finance and operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at a commencement date. As the implicit rate is not determinable in most of the Company'sCompany’s leases, management uses the Company'sCompany’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The expected lease term includes options to extend or terminate the lease when it is reasonably certain the Company will exercise such option. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term.
The Company'sCompany’s lease arrangements have lease and non-lease components. Leases with an expected term of 12 months or less are not accounted for on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.
30
The Company'sCompany’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.
Leases recorded on the balance sheet consists of the following:
|
|
|
|
|
|
|
| March 31, | December 31, | ||
Leases |
| 2020 | 2019 | ||
Assets |
|
|
|
|
|
Operating lease right-of-use assets, net (1) |
| $ | 17,715 | $ | 17,997 |
Financing lease right-of-use assets, net (2) |
|
| 15,608 |
| 7,896 |
Total assets |
| $ | 33,323 | $ | 25,893 |
Liabilities |
|
|
|
|
|
Current |
|
|
|
|
|
Operating |
| $ | 5,174 | $ | 5,043 |
Financing |
|
| 4,567 |
| 2,788 |
Total current |
|
| 9,741 |
| 7,831 |
Noncurrent |
|
|
|
|
|
Operating |
|
| 13,211 |
| 13,596 |
Financing |
|
| 9,227 |
| 3,760 |
Total noncurrent |
|
| 22,438 |
| 17,356 |
Total liabilities |
| $ | 32,179 | $ | 25,187 |
(1) | Operating lease right-of-use assets are recorded net of accumulated amortization of $6.4 million as of March 31, 2020. |
June 30, | ||||
Leases | 2019 | |||
Assets | ||||
Operating lease right-of-use assets, net (1) | $ | 21,510 | ||
Financing lease right-of-use assets, net (2) | 8,238 | |||
Total assets | $ | 29,748 | ||
Liabilities | ||||
Current | ||||
Operating | $ | 5,677 | ||
Financing | 2,935 | |||
Total current | 8,612 | |||
Noncurrent | ||||
Operating | 16,485 | |||
Financing | 4,291 | |||
Total noncurrent | 20,776 | |||
Total liabilities | $ | 29,388 |
(2) | Financing lease right-of-use assets are recorded net of accumulated amortization of $6.6 million as of March 31, 2020. |
Other information related to lease term and discount rate is as follows:
|
|
|
|
|
| March 31, |
| December 31, |
|
| 2020 |
| 2019 |
|
Weighted Average Remaining Lease Term (in years) |
|
|
|
|
Operating leases | 5.18 |
| 5.30 |
|
Financing leases | 4.88 |
| 1.18 |
|
Weighted Average Discount Rate |
|
|
|
|
Operating leases (1) | 4.80 | % | 4.80 | % |
Financing leases | 4.83 | % | 5.10 | % |
(1) | Upon adoption of the new lease standard, discount rates used for existing operating leases were established on January 1, 2019. |
31
The components of lease expense are as follows:
|
|
|
|
|
|
| Three Months Ended March 31, | ||||
| 2020 |
| 2019 | ||
Operating lease costs: |
|
|
|
|
|
Operating lease cost | $ | 1,614 |
| $ | 1,701 |
Short-term lease cost (1) |
| 1,161 |
|
| 68 |
Financing lease costs: |
|
|
|
|
|
Interest on lease liabilities |
| 106 |
|
| 103 |
Amortization of right-of-use assets |
| 700 |
|
| 569 |
Total lease cost | $ | 3,581 |
| $ | 2,441 |
Three Months Ended | Six Month Ended | |||||||
June 30, 2019 | June 30, 2019 | |||||||
Operating lease costs: | ||||||||
Operating lease cost | $ | 1,759 | $ | 3,460 | ||||
Short-term lease cost (1) | 87 | 155 | ||||||
Financing lease costs: | ||||||||
Interest on lease liabilities | 97 | 200 | ||||||
Amortization of right-of-use assets | 585 | 1,154 | ||||||
Total lease cost | $ | 2.528 | $ | 4.969 |
(1) | Includes expenses related to leases with a lease term of more than one month but less than one year. |
Supplemental cash flow information related to leases is as follows:
|
|
|
|
|
|
| Three Months Ended March 31, | ||||
| 2020 |
| 2019 | ||
Cash paid for amounts included in the measurement of lease liabilities: |
|
|
|
|
|
Operating cash flows for operating leases | $ | 1,585 |
| $ | 1,674 |
Operating cash flows for finance leases | $ | 106 |
| $ | 103 |
Financing cash flows for finance leases | $ | 942 |
| $ | 696 |
Non-cash activity: |
|
|
|
|
|
ROU assets obtained in exchange for new operating lease liabilities | $ | 2,076 |
| $ | 23,431 |
ROU assets obtained in exchange for new financing lease liabilities | $ | 8,412 |
| $ | — |
Six Months Ended | ||||
June 30, 2019 | ||||
Cash paid for amounts included in the measurement of lease liabilities: | ||||
Operating cash flows for operating leases | $ | 3,417 | ||
Operating cash flows for finance leases | $ | 200 | ||
Financing cash flows for finance leases | $ | 1,412 | ||
Non-cash activity: | ||||
ROU assets obtained in exchange for new operating lease liabilities | $ | 24,437 | ||
ROU assets obtained in exchange for new financing lease liabilities | $ | 205 |
Maturities of lease liabilities are summarized as follows
|
|
|
|
|
|
|
|
| Operating Leases |
| Finance Leases | ||
Year ending December 31, |
|
|
|
|
|
|
2020 (excluding the three months ended March 31, 2020) |
| $ | 4,521 |
| $ | 3,935 |
2021 |
|
| 4,723 |
|
| 4,650 |
2022 |
|
| 3,215 |
|
| 1,030 |
2023 |
|
| 2,375 |
|
| 1,500 |
2024 |
|
| 1,818 |
|
| 703 |
Thereafter |
|
| 4,161 |
|
| 3,810 |
Total future minimum lease payments |
|
| 20,813 |
|
| 15,628 |
Less - amount representing interest |
|
| 2,428 |
|
| 1,834 |
Present value of future minimum lease payments |
|
| 18,385 |
|
| 13,794 |
Less - current lease obligations |
|
| 5,174 |
|
| 4,567 |
Long-term lease obligations |
| $ | 13,211 |
| $ | 9,227 |
32
Operating Leases | Finance Leases | |||||||
Year ending December 31, | ||||||||
2019 (excluding the six months ended June 30, 2019) | $ | 3,492 | $ | 1,749 | ||||
2020 | 5,932 | 3,193 | ||||||
2021 | 4,527 | 3,136 | ||||||
2022 | 2,978 | 46 | ||||||
2023 | 2,385 | 42 | ||||||
Thereafter | 6,006 | 7 | ||||||
Total future minimum lease payments | 25,320 | 8,173 | ||||||
Less - amount representing interest | 3,158 | 947 | ||||||
Present value of future minimum lease payments | 22,162 | 7,226 | ||||||
Less - current lease obligations | 5,677 | 2,935 | ||||||
Long-term lease obligations | $ | 16,485 | $ | 4,291 |
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
Unless the context otherwise indicates, all references in this quarterly report to “Orion,” “the Company,” “we,” “our,” or “us” are to Orion Group Holdings, Inc. and its subsidiaries taken as a whole.
Certain information in this Quarterly Report on Form 10-Q,10‑Q, including but not limited to Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”), may constitute forward-looking statements as such term is defined within the meaning of the “safe harbor” provisions of Section 27A of the Securities Exchange Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended.
All statements other than statements of historical facts, including those that express a belief, expectation, or intention are forward-looking statements. The forward-looking statements may include projections and estimates concerning the timing and success of specific projects and our future production, revenues, income and capital spending. Our forward-looking statements are generally accompanied by words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes.
We have based these forward-looking statements on our current expectations and assumptions about future events. While our management considers these expectations and assumptions to be reasonable, they are inherently subject to significant business, economic, competitive, regulatory and other risks, contingencies and uncertainties, most of which are difficult to predict and many of which are beyond our control, including unforeseen productivity delays and other difficulties encountered in project execution, levels of government funding or other governmental budgetary constraints, and contract cancellation at the discretion of the customer. These and other important factors, including those described under “Risk Factors” in Item 1A of the Company’s Annual Report on Form 10-K10‑K for the year ended
MD&A provides a narrative analysis explaining the reasons for material changes in the Company’s (i) financial condition since the most recent fiscal year-end, and (ii) results of operations during the current fiscal year-to-date period and current fiscal quarter as compared to the corresponding periods of the preceding fiscal year. In order to better understand such changes, this MD&A should be read in conjunction with the Company’s fiscal
Overview
Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the "Company"“Company”), provides a broad range of specialty construction services in the infrastructure, industrial and building sectors of the continental United States, Alaska, and the Caribbean Basin. The Company’s marine segment services the infrastructure sector through marine transportation facility construction, marine pipeline construction, marine
33
environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services. Its concrete segment services the building sector by providing turnkey concrete construction services including pour and finish, dirt work, layout, forming, rebar, and mesh across the light commercial structural and other associated business areas. The Company is headquartered in Houston, Texas with offices throughout its operating areas.
Our contracts are obtained primarily through competitive bidding in response to “requests for proposals” by federal, state and local agencies and through negotiation and competitive bidding with private parties and general contractors. Our bidding activity and strategies are affected by such factors as our backlog, current utilization of equipment and other resources, job location, our ability to obtain necessary surety bonds and competitive considerations. The timing and location of awarded contracts may result in unpredictable fluctuations in the results of our operations.
Most of our revenue is derived from fixed-price contracts. We generally record revenue on construction contracts over time, measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract. There are a number of factors that can create variability in contract performance and therefore impact the results of our operations. The most significant of these include the following:
· | completeness and accuracy of the original bid; |
· | increases in commodity prices such as concrete, steel and fuel; |
· | customer delays, work stoppages, and other costs due to weather and environmental restrictions; |
· | availability and skill level of workers; and |
· | a change in availability and proximity of equipment and materials. |
All of these factors can have a negative impact on our contract performance, which can adversely affect the timing of revenue recognition and ultimate contract profitability. We plan our operations and bidding activity with these factors in mind and they generally have not had a material adverse impact on the results of our operations in the past.
First quarter 2019 recap2020 Recap and 20192020 Outlook
In the second quarter ended March 31, 2020, we recorded revenues of $166.6 million, of which $85.9 million was attributable to our marine segment and the Company grew backlogremaining $80.7 million to historical highsour concrete segment. In addition, we ended the quarter with a record win rate on bid markets opportunities. Results have improvedconsolidated backlog of $609.5 million. Our revenues in the quarter over quarter due toincreased by 16.4% as compared with the strong backlogcomparable prior year period and execution onwe recorded net income of $2.7 million, as compared with a numbernet loss of projects within$7.9 million in the quarter.
Looking toward the balance of 2020, the Company continues to focus on developing opportunities across the infrastructure, industrial, and building sectors through organic growth and greenfield expansion,expansion.
The spread of COVID-19 has impacted the global economy, leaving supply chains disrupted. As the world uses tactics like “social distancing” and strategic acquisition opportunities.“stay at home orders” to slow and stop the spread of COVID-19, demand destruction has led to increased unemployment and to the weakening of consumer confidence. Although to date the Company hasn’t experienced materially negative impacts from COVID-19, such as widespread project stoppage/cancelations or a slowdown/stoppage of accounts receivables collections, the timing of future awards could create gaps in the Company’s project delivery schedule across quarterly periods.
34
Federal and State governments have increased spending as part of efforts to mitigate the impact of COVID-19 on the economy. The amount and timing of such spending will be directly impacted by the duration of required efforts to contain COVID-19 and the severity of the negative impacts created by the virus and its effect on the economy. The Company is also making headwaywill continue to track and monitor any developments on a federal infrastructure bill which could potentially create bid opportunities for the Invest, Sale, Grow Initiative as the year progresses. Overall, the Company continues to see robust market drivers across its business and continues to expect improved results as 2019 progresses.
Marine Segment
Demand for our marine construction services remains strong.continues, given our differentiated capabilities and service offering within the space. We continue to see solid demandbid opportunities to help maintain and expand the
In the long-term, we see positive trends in demands for our services in our end markets, including:
· | Continuing need to repair and improve degrading U. S. marine infrastructure; |
· | Long-term demand from downstream energy-related companies will be driven by larger capital projects, as well as maintenance call-out work; |
· | Expected increases in cargo volume and future demands from larger ships transiting the Panama Canal will require ports along the Gulf Coast and Atlantic Seaboard to expand port infrastructure as well as perform additional dredging services; |
· | Possible work opportunities generated by the Water Resources Reform and Development Act (the “WRRDA Act”) authorizing expenditures for the conservation and development of the nation’s waterways as well as addressing funding deficiencies within the Harbor Maintenance Trust Fund; |
· | Renewed focus on coastal rehabilitation along the Gulf Coast, particularly through the use of RESTORE Act funds based on fines collected related to the 2010 Gulf of Mexico oil spill; |
· | Funding for highways and transportation under the FAST Act, which provides authority through 2020; |
· | Nearly $5 billion of federal funding provided by the USACE in connection with disaster recovery in Texas; and, |
35
· | Potential opportunities related to the impending federal infrastructure bill. |
Concrete Segment
Demand for our concrete segment’s services continues, although timing of certain new project releases could be delayed as a result of COVID-19 related macroeconomic impacts. We currently see long-term demand to repair and improve degrading U. S. marine infrastructure;
Consolidated Results of Operations
Backlog Information
Our contract backlog represents our estimate of the revenues we expect to realize under the portion of contracts remaining to be performed. Given the typical duration of our contracts, which is generally less than a year, our backlog at any point in time usually represents only a portion of the revenue that we expect to realize during a twelve monthtwelve-month period. Many projects that make up our backlog may be canceled at any time without penalty; however, we can generally recover actual committed costs and profit on work performed up to the date of cancellation. Although weWe have not been adversely affected by contract cancellations or modifications in the past, we may be in the future, especially in economically uncertain periods. Consequently, backlog is not necessarily indicative of future results. In addition to our backlog under contract, we also have a substantial number of projects in negotiation or pending award at any time.
Backlog as of the periods ended below are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| March 31, 2020 |
| December 31, 2019 |
| September 30, 2019 |
| June 30, 2019 |
| March 31, 2019 | |||||
Marine segment |
| $ | 362.2 |
| $ | 340.7 |
| $ | 404.3 |
| $ | 477.0 |
| $ | 219.4 |
Concrete segment |
|
| 247.3 |
|
| 231.6 |
|
| 226.2 |
|
| 184.0 |
|
| 192.1 |
Consolidated |
| $ | 609.5 |
| $ | 572.3 |
| $ | 630.5 |
| $ | 661.0 |
| $ | 411.5 |
36
Three months ended
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended March 31, |
| ||||||||
|
| 2020 |
| 2019 |
| ||||||
|
| Amount |
| Percent |
| Amount |
| Percent |
| ||
|
| (dollar amounts in thousands) |
| ||||||||
Contract revenues |
| $ | 166,620 |
| 100.0 | % | $ | 143,105 |
| 100.0 | % |
Cost of contract revenues |
|
| 146,862 |
| 88.1 | % |
| 134,023 |
| 93.7 | % |
Gross profit |
|
| 19,758 |
| 11.9 | % |
| 9,082 |
| 6.3 | % |
Selling, general and administrative expenses |
|
| 15,869 |
| 9.6 | % |
| 14,975 |
| 10.4 | % |
Amortization of intangible assets |
|
| 516 |
| 0.3 | % |
| 658 |
| 0.5 | % |
Gain on sale of assets, net |
|
| (992) |
| (0.6) | % |
| (374) |
| (0.3) | % |
Operating income (loss) |
|
| 4,365 |
| 2.6 | % |
| (6,177) |
| (4.3) | % |
Other (expense) income: |
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
| 97 |
| 0.1 | % |
| 23 |
| — | % |
Interest income |
|
| 40 |
| — | % |
| 148 |
| 0.1 | % |
Interest expense |
|
| (1,402) |
| (0.8) | % |
| (1,325) |
| (0.9) | % |
Other expense, net |
|
| (1,265) |
| (0.7) | % |
| (1,154) |
| (0.8) | % |
Loss before income tax expense (benefit) |
|
| 3,100 |
| 1.9 | % |
| (7,331) |
| (5.1) | % |
Income tax expense (benefit) |
|
| 377 |
| 0.3 | % |
| 593 |
| 0.4 | % |
Net (loss) income |
| $ | 2,723 |
| 1.6 | % | $ | (7,924) |
| (5.5) | % |
Three months ended June 30, | |||||||||||||
2019 | 2018 | ||||||||||||
Amount | Percent | Amount | Percent | ||||||||||
(dollar amounts in thousands) | |||||||||||||
Contract revenues | $ | 165,985 | 100.0 | % | $ | 159,767 | 100.0 | % | |||||
Cost of contract revenues | 151,008 | 91.0 | % | 140,305 | 87.8 | % | |||||||
Gross profit | 14,977 | 9.0 | % | 19,462 | 12.2 | % | |||||||
Selling, general and administrative expenses | 15,114 | 9.1 | % | 14,710 | 9.2 | % | |||||||
Amortization of intangible assets | 658 | 0.4 | % | 847 | 0.5 | % | |||||||
Gain on sale of assets, net | (372 | ) | (0.2 | )% | (686 | ) | (0.4 | )% | |||||
Operating (loss) income from operations | (423 | ) | (0.3 | )% | 4,591 | 2.9 | % | ||||||
Other (expense) income: | |||||||||||||
Other income | 534 | 0.3 | % | 476 | 0.3 | % | |||||||
Interest income | 94 | 0.1 | % | 47 | — | % | |||||||
Interest expense | (1,978 | ) | (1.2 | )% | (1,205 | ) | (0.8 | )% | |||||
Other expense, net | (1,350 | ) | (0.8 | )% | (682 | ) | (0.5 | )% | |||||
(Loss) income before income taxes | (1,773 | ) | (1.1 | )% | 3,909 | 2.4 | % | ||||||
Income tax (benefit) expense | (140 | ) | (0.1 | )% | 1,660 | 1.0 | % | ||||||
Net (loss) income | $ | (1,633 | ) | (1.0 | )% | $ | 2,249 | 1.4 | % |
Contract Revenues. Consolidated contractContract revenues for the three months ended June 30, 2019 were $166.0March 31, 2020 of $166.6 million increased approximately 16.4% as compared with $159.8to $143.1 million in the prior year period. The increase was primarily attributable to increased project execution in the marine segment, partially offset by a slight decline in revenue in the concrete segment.
Gross Profit. Gross profit was $19.8 million for the three months ended March 31, 2020, compared to $9.1 million in the prior year period, which was an increase of $6.2 million, or 3.9%. The increase was primarily attributable to execution on a number of projects in backlog$10.7 million. Gross margin in the marine segment. While overall revenues increased, we did experience a shift in the component mix of our marine segment revenue from the private sector to the public sector when comparing the 2019 period to 2018. In particular the 2019 period included a large project in our public sector that did not contribute to 2018 results. By contrast, the 2018 period included a large project in our private sector thatfirst quarter was not replicated in the 2019 period.
Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expenses inwere $15.9 million for the second quarter of 2019 were $15.1 million asthree months ended March 31, 2020 compared with $14.7to $15.0 million in the prior year period, which was an increase of $0.4$0.9 million, or 2.8%6.0%. As a percentage of total contract revenues, SG&A expenses decreased from 10.4% to 9.5%. The increase in SG&A dollars was primarily attributable to expenses related to the Invest, Scale, and Grow initiative.full ratable accrual of the incentive compensation plan.
Other income,Income, net of expense.Expense. Other expense primarily reflects interest on our borrowings. Included inborrowings, partially offset by interest expense in the second quarter of 2019 was $0.4 million of expense related to unamortized debt issuance costs as a result of the Sixth Amendment to the Credit Facility.
See Note 1211 for additional discussion of the effectiveamended syndicated credit agreement, also known as the Sixth Amendment, executed in May 2019.
Income Tax Expense (Benefit). We recorded tax rate recorded in the second quarterexpense of 2019.
Six months ended June 30, | |||||||||||||
2019 | 2018 | ||||||||||||
Amount | Percent | Amount | Percent | ||||||||||
(dollar amounts in thousands) | |||||||||||||
Contract revenues | $ | 309,090 | 100.0 | % | $ | 296,610 | 100.0 | % | |||||
Cost of contract revenues | 285,031 | 92.2 | % | 262,452 | 88.5 | % | |||||||
Gross profit | 24,059 | 7.8 | % | 34,158 | 11.5 | % | |||||||
Selling, general and administrative expenses | 30,087 | 9.7 | % | 27,751 | 9.4 | % | |||||||
Amortization of intangible assets | 1,318 | 0.4 | % | 1,694 | 0.6 | % | |||||||
Gain on sale of assets, net | (746 | ) | (0.2 | )% | (1,499 | ) | (0.5 | )% | |||||
Other gain from continuing operations | — | — | % | (5,448 | ) | (1.8 | )% | ||||||
Operating (loss) income from operations | (6,600 | ) | (2.1 | )% | 11,660 | 3.9 | % | ||||||
Other (expense) income: | |||||||||||||
Other income | 557 | 0.3 | % | 474 | 0.2 | % | |||||||
Interest income | 242 | — | % | 47 | — | % | |||||||
Interest expense | (3,303 | ) | (1.1 | )% | (2,682 | ) | (0.9 | )% | |||||
Other expense, net | (2,504 | ) | (0.8 | )% | (2,161 | ) | (0.7 | )% | |||||
(Loss) income before income taxes | (9,104 | ) | (2.9 | )% | 9,499 | 3.2 | % | ||||||
Income tax expense | 453 | 0.1 | % | 3,149 | 1.1 | % | |||||||
Net (loss) income | $ | (9,557 | ) | (3.1 | )% | $ | 6,350 | 2.1 | % |
37
to movement in the first six monthsvaluation allowance to offset foreign tax credits and net operating loss carryforwards, foreign taxes, state income taxes and the non-deductibility of 2019.
Segment Results
The following table sets forth, for the periods indicated, statements of operations data by segment, segment revenues as a percentage of consolidated revenues and segment operating (loss) income (loss) as a percentage of segment revenues:
Segment Comparison
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended March 31, |
| ||||||||
|
| 2020 |
| 2019 |
| ||||||
|
| Amount |
| Percent |
| Amount |
| Percent |
| ||
|
| (dollar amounts in thousands) |
| ||||||||
Contract revenues |
|
|
|
|
|
|
|
|
|
|
|
Marine segment |
|
|
|
|
|
|
|
|
|
|
|
Public sector |
| $ | 53,511 |
| 62.3 | % | $ | 46,009 |
| 74.8 | % |
Private sector |
|
| 32,438 |
| 37.7 | % |
| 15,478 |
| 25.2 | % |
Marine segment total |
| $ | 85,949 |
| 100.0 | % | $ | 61,487 |
| 100.0 | % |
Concrete segment |
|
|
|
|
|
|
|
|
|
|
|
Public sector |
| $ | 16,052 |
| 19.9 | % | $ | 12,753 |
| 15.6 | % |
Private sector |
|
| 64,619 |
| 80.1 | % |
| 68,865 |
| 84.4 | % |
Concrete segment total |
| $ | 80,671 |
| 100.0 | % | $ | 81,618 |
| 100.0 | % |
Total |
| $ | 166,620 |
|
|
| $ | 143,105 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
Marine segment |
| $ | 2,855 |
| 3.3 | % | $ | (6,456) |
| (10.5) | % |
Concrete segment |
|
| 1,510 |
| 1.9 | % |
| 279 |
| 0.3 | % |
Total |
| $ | 4,365 |
|
|
| $ | (6,177) |
|
|
|
Three months ended June 30, 2019March 31, 2020 compared with three months ended June 30, 2018
Three months ended June 30, | |||||||||||||
2019 | 2018 | ||||||||||||
Amount | Percent | Amount | Percent | ||||||||||
(dollar amounts in thousands) | |||||||||||||
Contract revenues | |||||||||||||
Marine Segment | $ | 89,023 | 53.6 | % | $ | 80,698 | 50.5 | % | |||||
Concrete Segment | 76,962 | 46.4 | % | 79,069 | 49.5 | % | |||||||
Total | $ | 165,985 | 100.0 | % | $ | 159,767 | 100.0 | % | |||||
Operating income (loss) | |||||||||||||
Marine Segment | $ | 9 | — | % | $ | 3,642 | 4.5 | % | |||||
Concrete Segment | (432 | ) | (0.6 | )% | 949 | 1.2 | % | ||||||
Total | $ | (423 | ) | $ | 4,591 |
Marine Segment
Revenues for theour marine segment for the three months ended June 30, 2019March 31, 2020 were $89.0$85.9 million compared to $80.7$61.5 million for the three months ended June 30, 2018,March 31, 2019, an increase of $8.3$24.4 million, or 10.3%39.8%. TheThis increase is primarily attributable to the execution on a numberthe larger volume of projectswork in backlog.
Operating income for theour marine segment for the three months ended June 30, 2019March31, 2020 was less than $0.1$2.9 million, compared to $3.6an operating loss of $6.5 million in operating income for the three months ended June 30, 2018, a decreaseMarch 31, 2019, an increase of $3.6$9.4 million. The decrease isThis increase in operating income (loss) was primarily due to a shiftexecution on the larger volume of work in timingour backlog and the mix of projects. As a percentageadditional dredging work.
38
Concrete Segment
Revenues for our concrete segment for the three months ended June 30, 2019March 31, 2020 were $77.0$80.7 million compared to $79.1$81.6 million for the three months ended June 30, 2018,March 31, 2019, a decrease of $2.1$0.9 million, or 2.7%1.2%. This decrease in revenue was primarily due to timing and mix ofan overall decrease in cubic yard production on our projects.
Operating lossincome for our concrete segment for the three months ended June 30, 2019March 31, 2020 was $0.4 million, compared to $0.9 million of operating income for the three months ended June 30, 2018, a decrease of $1.3 million. The shift from profitability to a reported loss was primarily driven by timing and mix of projects. As a percentage of revenues, operating loss for our concrete segment was 0.6% for the three months ended June 30, 2019 compared to operating income of 1.2% for the three months ended June 30, 2018.
Six months ended June 30, | |||||||||||||
2019 | 2018 | ||||||||||||
Amount | Percent | Amount | Percent | ||||||||||
(dollar amounts in thousands) | |||||||||||||
Contract revenues | |||||||||||||
Marine Segment | $ | 150,510 | 48.7 | % | $ | 143,489 | 48.4 | % | |||||
Concrete Segment | 158,580 | 51.3 | % | 153,121 | 51.6 | % | |||||||
Total | $ | 309,090 | 100.0 | % | $ | 296,610 | 100.0 | % | |||||
Operating income (loss) | |||||||||||||
Marine Segment | $ | (6,447 | ) | (4.3 | )% | $ | 9,907 | 6.9 | % | ||||
Concrete Segment | (153 | ) | (0.1 | )% | 1,753 | 1.1 | % | ||||||
Total | $ | (6,600 | ) | $ | 11,660 |
Liquidity and Capital Resources
Our primary liquidity needs are to finance our working capital, fund capital expenditures, and pursue strategic acquisitions. Historically, our source of liquidity has been cash provided by our operating activities and borrowings under our Credit Facility (as defined below).
Changes in working capital position fluctuates from period to period due toare normal increaseswithin our business given the varying mix in size, scope and decreases in operational activity.timing of delivery of our projects. At
We expect to meet our future internal liquidity and working capital needs and maintain or replace our equipment fleet through capital expenditure purchases and major repairs, from funds generated by our operating activities for at least the next 12 months. We believe our cash position is adequate for our general business requirements discussed above and to service our debt.
The following table provides information regarding our cash flows and our capital expenditures for the three and six months ended June 30, 2019ending March 31, 2020 and 2018:
|
|
|
|
|
|
|
|
| Three months ended | ||||
|
| March 31, | ||||
|
| 2020 |
| 2019 | ||
Net income (loss) |
| $ | 2,723 |
| $ | (7,924) |
Adjustments to remove non-cash and non-operating items |
|
| 8,582 |
|
| 8,883 |
Cash flow from net income after adjusting for non-cash and non-operating items |
|
| 11,305 |
|
| 959 |
Change in operating assets and liabilities (working capital) |
|
| 4,148 |
|
| (2,887) |
Cash flows provided by (used in) operating activities |
| $ | 15,453 |
| $ | (1,928) |
Cash flows used in investing activities |
| $ | (325) |
| $ | (3,763) |
Cash flows used in financing activities |
| $ | (2,692) |
| $ | (368) |
|
|
|
|
|
|
|
Capital expenditures (included in investing activities above) |
| $ | (2,753) |
| $ | (3,862) |
Three months ended June 30, | Six months ended June 30, | ||||||||||||
2019 | 2018 | 2019 | 2018 | ||||||||||
Cash flows provided by (used in) operating activities | $ | 846 | $ | (6,108 | ) | $ | (1,082 | ) | $ | 4,509 | |||
Cash flows used in investing activities | $ | (1,378 | ) | $ | (6,920 | ) | $ | (5,141 | ) | $ | (9,863 | ) | |
Cash flows provided by financing activities | $ | 666 | $ | 10,108 | $ | 298 | $ | 2,549 | |||||
Capital expenditures (included in investing activities above) | $ | (4,256 | ) | $ | (7,565 | ) | $ | (8,118 | ) | $ | (11,911 | ) |
Operating Activities. InDuring the three months ended June 30, 2019, the Company's operations providedMarch 31, 2020, we generated approximately $0.8$15.5 million in cash from our operating activities. The net cash inflow is comprised of $11.3 million of cash inflows from net cash, as compared with cash used in operations in the prior year period of approximately $6.1 million. The increase in cash between periods of $7.0 million was primarily attributable to a $2.8 million increase inincome, after adjusting for non-cash items in the current year period as compared to the prior year period and an increase of $8.1$4.2 million of cash inflows related to changes in net working capital. The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Condensed Consolidated Statements of Cash Flows, were primarily driven by a net increase ininflow of $14.6 million pursuant to the relative timing and significance of project progression and billings in excessduring the
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period and estimated earnings, partially offset bya $9.4 million outflow related to an increase in our net position of accounts receivable and the $3.9 million decrease in net income in the current year period as compared to the prior year period.
Investing Activities. Capital asset additions and betterments to our fleet were $4.3$2.8 million in the three months ended June 30, 2019,March 31, 2020, as compared with $7.6$3.9 million in the comparable prior year period.
Financing Activities. InDuring the three months ended June 30, 2019, there were $21.0March 31, 2020, we drew down $5.0 million in drawsfrom our revolving line of credit. Additionally, we repaid $6.0 million on our revolving line of credit. We repaid $18.0 million on the revolver,credit, as well as made ourthe regularly scheduled debt payment on the term loan of $0.8 million for a total of $18.8 million in debt payments. In the comparable prior year period, there were $13.0 million in draws on our revolving line of credit. Additionally, we made our regularly scheduled debt payment on the term loan of $3.4 million.
Sources of Capital
The Company entered into an amended syndicated credit agreement (the "Credit Agreement"“Credit Agreement” also known as the "Fourth Amendment"“Fourth Amendment”) on July 31, 2018, with Regions Bank, as administrative agent and collateral agent, and the following co-syndication agents: Bank of America, N.A., BOKF, NA dba Bank of Texas, KeyBank National Association, NBH Bank, IBERIABANK, Trustmark National Bank, First Tennessee Bank NA, and Branch Baking and Trust Company. The primary purpose of the Credit Agreement was to provide the Company with greater flexibility as it provides for the calculation of Adjusted EBITDA that adds
The Credit Agreement, which may be amended from time to time, provides for borrowings under a revolving line of credit and a term loan (together, the “Credit Facility”). The Credit Facility is guaranteed by the subsidiaries of the Company, secured by the assets of the Company, including stock held in its subsidiaries, and may be used to finance general corporate and working capital purposes, to finance capital expenditures, to refinance existing indebtedness, to finance permitted acquisitions and associated fees, and to pay for all related expenses to the Credit Facility. Interest is computed based on the designation of the loan, with the option of a Base Rate Loan (the base rate plus the Applicable Margin), or an Adjusted LIBOR Rate Loan (the adjusted LIBOR rate plus the Applicable Margin). Interest is due on the last day of each quarter end for Base Rate Loans and at the end of the LIBOR rate period for Adjusted LIBOR Rate Loans. Principal balances drawn under the Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty. Amounts repaid under the revolving line of credit may be re-borrowed. The Credit Facility matures on July 31, 2023.
See Note 11 in the Notes to the Financial Statements (of this Form 10-Q) for further discussion on the Company'sCompany’s Debt.
Financial covenants
Restrictive financial covenants under the Credit Facility include:
· | A consolidated Fixed Charge Coverage Ratio to not be less than the following during each noted period: |
-Fiscal Quarter Ending December 31, 2019 and each Fiscal Quarter thereafter, to not be less than 1.25 to 1.00.
· | A consolidated Leverage Ratio to not exceed the following during each noted period: |
-Fiscal Quarter Ending March 31, 2020 and each Fiscal Quarter thereafter, to not exceed 3.00 to 1.00.
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In addition, the Credit Facility contains events of default that are usual and customary for similar arrangements, including non-payment of principal, interest or fees; breaches of representations and warranties that are not timely cured; violation of covenants; bankruptcy and insolvency events; and events constituting a change of control.
The Company expects to meet its future internal liquidity and working capital needs and maintain or replace its equipment fleet through capital expenditure purchases and major repairs, from funds generated by ourits operating activities for at least the next 12 months. The Company believes that ourits cash position and available borrowings together with cash flow from ourits operations is adequate for general business requirements and to service its debt.
Derivative Financial Instruments
On September 16, 2015, the Company entered into a series of receive-variable, pay-fixed interest rate swaps to hedge the variability in the interest payments on 50% of the aggregate principal amount of the Regions Term Loan outstanding, beginning with a notional amount of $67.5 million. There arewas a total of five sequential interest rate swaps to achieve the hedged position and each year on August 31, with the exception of the final swap, the existing interest rate swap iswas scheduled to expire and will be immediately replaced with a new interest rate swap until the expiration of the final swap on July 31, 2020. On December 6, 2018, the Company entered into a sixth receive-variable, pay-fixed interest rate swapsswap to hedge the variability of interest payments. The sixth swap will begin with a notional amount of $27.0 million on July 31, 2020 and will hedge the variability in the interest payments on 50% of the aggregate scheduled principal amount of the Regions Term Loan outstanding. The sixth swap is scheduled to expire on June 30,July 31, 2023. At inception, these interest rate swaps were designated as a cash flow hedgehedges for hedge accounting, and as such, the effective portion of unrealized changes in market value are recorded in accumulated other comprehensive income (loss) and reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Gains and losses from hedge ineffectiveness are recognized in current earnings. The change in fair market value of the swaps for the comparative periods ended March 31, 2020 and March 31, 2019, as reflected in other comprehensive loss in the Condensed Consolidated Statements of June 30, 2019Stockholders’ Equity, is approximately $1.1$1.0 million which is reflected in the balance sheet as a liability in Other non-current liabilities on the Consolidated Balance Sheets.and $0.3 million. The fair market value of the swaps as of June 30, 2019March 31, 2020 is $(1.1) million.reflected as a liability of $2.0 million on the Condensed Consolidated Balance Sheets. See Note 8 for more information regarding the fair value of the Company'sCompany’s derivative instruments.
Sale-Leaseback Arrangement
On September 27, 2019, the Company entered into a purchase and sale agreement (the “Purchase and Sale Agreement”). Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its 17300 & 17140 Market Street location in Channelview, Texas (the “Property”) for a purchase price of $19.1 million. Concurrent with the sale of the Property, the Company entered into a fifteen-year lease agreement (the “Lease Agreement”), whereby the Company will lease back the Property at an annual rental rate of approximately $1.5 million, subject to annual rent increases of 2.0%. Under the Lease Agreement, the Company has two consecutive options to extend the term of the Lease by ten years for each such option. This transaction was recorded as a failed sale-leaseback. The Company recorded a liability for the amounts received, will continue to depreciate the non-land portion of the asset, and has imputed an interest rate so that the net carrying amount of the financial liability and remaining assets will be zero at the end of the initial lease term. Concurrently with the sale, the Company paid $18.2 million as an additional principal payment towards the Term loan portion of the Company’s Credit Facility, consistent with terms of the Sixth Amendment.
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Bonding Capacity
We are generallyoften required to provide various types of surety bonds that provide additional security to our customers for our
Effect of Inflation
We are subject to the effects of inflation through increases in the cost of raw materials, and other items such as fuel, concrete and steel. Due to the relative short-term duration of our projects, we are generally able to include anticipated price increases in the cost of our bids.
In the normal course of business, our results of operations are subject to risks related to fluctuationfluctuations in commodity prices and fluctuations in interest rates. Historically, our exposure to foreign currency fluctuations has not been material and has been limited to temporary field accounts located in foreign countries where we perform work. Foreign currency fluctuations were immaterial in this reporting period.
Commodity price risk
We are subject to fluctuations in commodity prices for such items as concrete, steel products and fuel. Although we routinely attempt to secure firm quotes from our suppliers, we generally do not hedge against increases in prices for commodity products. Commodity price risks may have an impact on our results of operations due to the fixed-price nature of many of our contracts, although the short-term duration of our projects may allow us to include price increases in the costs of our bids.
Interest rate risk
At June 30, 2019,March 31, 2020, we had $83.0$71.5 million in outstanding borrowings under our credit facility, with a weighted average ending interest rate over the three month period of 5.79%3.66%. Also, we have entered into a series of receive-variable, pay-fixed interest rate swaps to hedge the variability in the interest payments on 50% of the aggregate principal amount of the term loan component of the credit facility outstanding, beginning with a notional amount of $67.5 million.outstanding. At inception, these interest rate swaps were designated as a cash flow hedgehedges for hedge accounting. Our objectives in managing interest rate risk are to lower our overall borrowing costs and limit interest rate changes on our earnings and cash flows. To achieve this, we closely monitor changes in interest rates, and we utilize cash from operations to reduce our debt position, if warranted.
Evaluation of Disclosure Controls and Procedures. Procedures
As required, the Company’s management, with the participation of its Chief Executive Officer and Chief Financial Officer, have conducted an evaluation of the effectiveness of the Company'sCompany’s disclosure controls and procedures (as such term is defined in Rules 13a-15(e)13a‑15(e) and 15d-15(e)15d‑15(e) under the Securities Exchange
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Changes in Internal Controls. As of January 1, 2019 , we implemented new controls related to the adoption of Accounting Standards Codification Topic 842, Leases, and the related Accounting Standards Updates (“Topic 842”). Control over Financial Reporting
There were no other changes to our internal control over financial reporting (as defined in Rules 13a‑15(f) and 15d‑15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 1. Legal Proceedings
For information about litigation involving us, see Note 1516 to the condensed consolidated financial statements in Part I of this report, which we incorporate by reference into this Item 1 of Part II.
Except as noted below, there have been no material changes to the Company’s risk factors previouslyfrom those disclosed in Part I, Item 1A, "Risk Factors"the Company’s 2019 Annual Report on Form 10-K.
Coronavirus Disease 2019 (COVID-19) - The COVID-19 pandemic may adversely affect our business and results of operations, and could have a material and adverse effect on our business, results of operations and financial condition in the future.
In March of 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the President of the United States declared the outbreak a national emergency. In response to the COVID-19 pandemic, federal, provincial, state, county and local governments and public health organizations and authorities around the world have implemented a variety of measures intended to control the spread of the virus, including quarantines, “shelter-in-place,” “stay-at-home” and similar orders, travel restrictions, school closures, business curtailments and closures, social distancing and hygiene requirements, and other measures.
We provide a broad range of specialty construction services in the infrastructure, industrial and building sectors of the continental United States, Alaska, Canada and the Caribbean Basin, and we intend to continue providing these essential services to these customers, but with an added focused attention on the safety and health of our 2018employees. However, the COVID-19 pandemic and related governmental and business responses may have an adverse effect on our operations. For example, as a result of the pandemic and various governmental orders, a significant number of our corporate employees are currently working from home, and we have altered our operations to allow for appropriate social distancing and hygiene, which could lead to decreased efficiency and productivity in our workforce and our operations. In addition, management is focused on mitigating the effects of the COVID-19 pandemic, which has required and will continue to require a large investment of time, energy, resources and focus.
The extent to which the COVID-19 pandemic impacts us will depend on numerous evolving factors and future developments that are uncertain and that we are not able to predict, including: the severity of the virus; the duration and scope of the pandemic; governmental, business, individual and other actions taken in response to the pandemic; the effect on our suppliers and disruptions to the global supply chain; the impact on economic activity; the extent and duration of the impact on consumer and business confidence and spending; the effect on our end-user customers; the effect of any closures or other changes in operations of our and our suppliers’, distributors’ and end-user customers’ facilities; the health of and the effect on our employees and our ability to meet staffing needs in our construction and other critical functions, particularly if employees become ill, are
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quarantined as a result of exposure, or are reluctant to show up for work; our ability to provide services, including as a result of travel restrictions, work from home requirements and arrangements, and other restrictions or changes in behavior or preferences for interactions; the effect on employee healthcare costs; restrictions or disruptions to transportation, including reduced availability of ground, sea or air transport; the ability of our end-user customers to pay for our services; the potential effects on our internal controls, including those over financial reporting, as a result of changes in working arrangements that are applicable to our employees and business partners; and the effect on our ability to access capital on favorable terms and continue to meet our liquidity needs, all of which are highly uncertain and cannot be predicted. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts to our business as a result of any economic recession that has occurred or may occur in the future. The COVID-19 pandemic could also exacerbate or trigger other risks discussed in our 2019 Annual Report on Form 10-K.
ITEM 2.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
There were no sales of equity securities in the period ended June 30, 2019.
None.
ITEM 4. Mine Safety Disclosures
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ITEM 6. Exhibits
Exhibit | Description | |
Amended and Restated Certificate of Incorporation of Orion Group Holdings, Inc. (incorporated herein by reference to Exhibit 3.1 to the | ||
Amended and Restated Bylaws of Orion Group Holdings, Inc. (incorporated herein by reference to Exhibit 3.2 to the | ||
Certification of the Chief Executive Officer Pursuant to Rules | ||
32 .1 | ||
*101.INS | ||
XBRL Instance Document. | ||
*101.SCH | XBRL Taxonomy Extension Schema Document. | |
*101.CAL | XBRL | |
*101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | |
*101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | |
*101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | |
* Filed herewith
† Furnished herewith
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SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this SIGNATURESreportReport to be signed on its behalf by the undersigned, thereunto duly authorized.
ORION GROUP HOLDINGS, INC. | ||
May 1, 2020 | ||
By: | /s/ Mark R. Stauffer | |
Mark R. Stauffer | ||
President and Chief Executive Officer | ||
May 1, 2020 | By: | /s/ Robert L. Tabb |
Robert L. Tabb | ||
Vice President and Chief Financial Officer |
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