Orion Group Holdings Inc (ORN) 2009 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter Orion Marine Group Inc earnings conference call. My name is Jennifer and I will be your operator for today.

At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today -- Chris DeAlmeida, Director of Investor Relations. Please proceed, sir.

Good morning and welcome to the Orion Marine Group third quarter 2009 earnings conference call. Joining me today are Mike Pearson, Orion Marine Group's President and Chief Executive Officer; and Mark Stauffer, our Executive Vice President and Chief Financial Officer.

Regarding the format of the call we have allocated about 15 minutes for prepared remarks in which Mike and Mark will highlight our results for the quarter, outlook for the remainder of 2009 and our initial outlook for 2010. We will then open up the call to questions.

During the course of the conference call we make make projections and other forward-looking statements regarding, among other things, our end markets, revenues, gross profit, gross margin, EBITDA, EBITDA margin, backlog, project and negotiation, and pending award as well as our estimates and assumptions regarding our future growth, EBITDA, EBITDA margins, gross margins, administrative expenses and capital expenditures.

These statements are predictions that are subject to risks and uncertainties, including those described on 10K for 2008, that may cause actual results to differ materially. More over, past performance is not necessarily an indicator of future results.

By performing this information, we undertake no obligation to update or revise any projections or forward-looking statements whether a result of new developments or otherwise.

Also please note that EBITDA and EBITDA margin are non-GAAP financial measures under the rules of the Securities and Exchange Commission including Regulation G. Please refer to the reconciliation accompanying its earnings call available on our Website at www.OrionMarineGroup.com for comments on the use of non-GAAP financial measures as well as applicable reconciliation to the most current comparable GAAP measures.

Also please refer to our earnings release issued this morning, November 5, 2009, and our quarterly and annual filings with the SEC which are available on our Website for additional discussions of risk factors that could cause actual results to differ materially from our current expectations.

With that I will turn the call over to Mike Pearson, President and CEO. Mike?

Thank you, Chris. Good morning and thanks for joining us. As you can see this morning we reported better than expected revenue results with a solid bottom-line performance for the third quarter of 2009. And also during the quarter, we announced a record $122 million in project awards.

Revenues for the third quarter 2009 increased to $18.6 million or 29.5% as compared to the third quarter of 2008. Revenue growth for the quarter exceeded our revenue growth goal of 16% to 21% as a result of favorable conditions, including the acceleration of project schedules.

Our third quarter EBITDA was $13.2 million, resulting in an EBITDA margin of 16.2% which was within our third quarter goal range of 15 to 17%.

Now let's briefly look at how our end markets performed during the quarter. We continue to see good opportunities related to port expansion, a continued focus on US infrastructure improvements. including bridgework overwater, coastal, wetland restoration projects and expansion in the cruise industry as evidenced by a record large project and announcements in the quarter.

As you know during the quarter we also successfully executed a secondary offering of our stock to the public. This produced net proceeds of approximately $91 million. These proceeds will be used to continue to execute our growth strategy by reinvesting in assets, expanding geographically and remaining opportunistic with regard to potential acquisitions.

In fact, we have already begun deploying this capital. During the quarter we paid off approximately $30 million of debt related to the acquisition that we made in 2008 and took the Company to a debt-free position. Additionally, we secured three heavy lift cranes of 350 to 400 ton capacity range and one ABS class barge to provide additional lift capability.

We are currently working on securing an additional ABS class barge, a larger tugboat for ocean tows, and a larger dry-dock for our East Coast operations. And we estimate all of this equipment will in total use up about $10 million to $12 million of the proceeds from our secondary offering while providing expanded lift capability and increasing our maintenance capabilities on the East Coast.

In the future, we will look for ways to continue to [pool] our capital to help improve the business and execute our growth strategy, while providing a long-term return for our investors.

Now turning back to discuss our end markets and outlook for the remainder of the year. As we have said before, we continue to have good diverse end markets with solid drivers for future growth. Just to highlight some of the major growth drivers, we believe Gulf Coast and South East Atlantic ports will continue with expansion plans despite fluctuations in global shipping traffic. We also believe funding for these projects has and will remain intact for most of the planned port expansions, aided in part by additional funds from the stimulus package.

Additionally, we continue to see bridge construction opportunities and I believe these projects will be a priority for states, with funding coming from both the annual spending of the Highway Transportation Program and also through the stimulus package. For example, during the quarter, we announced a $27 million project with the waterways portion only of the new Caminada Bay Bridge that is going to be built near Grand Isle in Louisiana.

While a successor to SAFETEA-LU has not been completed, Congress did pass a continuing resolution extending SAFETEA-LU through the end of this year. We fully expect to see additional continuing resolutions in the future to maintain funding levels of the current program until a successor bill has finally passed.

With regard to other end markets, we believe we will continue to see increased opportunities from the US Army Corps of Engineers. The Corps is well-positioned with significant funding levels as a result of their normal civil works budget and additional funding from the stimulus package.

In fact, the Corps has had an historic year in fiscal 2009 by executing $10.8 billion in civil works funds in fiscal 2009. And that represents a 42% increase over fiscal 2008. Of those executed funds, $2.2 billion was Recovery Act funds which represents a 48% of the Corps' total $4.6 billion in Recovery Act funds.

Now keep in mind this is a funding obligations with actual execution of the work spanning over the next couple of years. We expect this level of bid activity from the Corps to continue in 2010, as a result of another solid civil works budget for 2010 which was recently signed by the President and continued execution of Corps Recovery Act funds.

Additionally, the cruise industry is seeing bookings improve with several large ships that are expected to come online over the next couple of years. The current marine facilities that will dock some of these ships are inadequate and they require substantial upgrades.

We believe we will continue to see either mooring upgrades to existing facilities or new cruise ship pier construction opportunities as a result. For example, many of you may have seen on television a couple of nights ago the departure of the world's largest cruise ship from a European shipyard. This huge vessel will be docking before the end of the year at one of the new Caribbean cruise piers built by our Company.

And, finally, an update on the stimulus package. As you may have seen in some of the project announcement we have recently made, we've started seeing stimulus-related awards and we continue to see stimulus-related opportunities. However we expect significant revenue opportunities related to stimulus to be realized in 2010 and beyond.

Now, regardless of the stimulus dollars, we are comfortable with our end markets. And we believe we have good solid long-term growth drivers. Still, the stimulus package will have a positive effect on certain of our end markets and we look forward to the opportunities that it presents us.

With regard to 2010, we are excited, we are optimistic about the year ahead. And I believe 2010 is shaping up to be another record year for Orion Marine Group.

We are headed into 2010 with the highest level of backlog we have ever seen at this point. And we continue to see multiple end markets with good funding and drivers for continued growth.

To sum it up, I am pleased with our overall results and our future prospects. Also I want to thank our management team and our employees for the job they have done so far this year in positioning our Company to have a banner year for 2010.

With that I will turn the call over to Mark Stauffer to discuss our financial results in more detail. Mark.

Thanks, Mike, and thanks again for joining us.

Net income for the third quarter 2009 was $5.4 million or $0.22 per diluted share which compares with $3.8 million or $0.17 per diluted share in the prior year period. Third quarter 2009 contract revenues increased 29.5% year-over-year to $81.5 million, of which 49% was generated from federal, state and local government agencies and 51% from private industry, which was similar to the prior year.

Just to remind investors, there can be fluctuations in quarter to quarter results, due to the timing and mix of projects. For this reason we encourage investors to focus on the long-term and annual results, rather than quarter to quarter fluctuation.

SG&A expenses for the third quarter 2009 were $7.7 million which is a slight increase year over year.

Turning to backlog, as of September 30, 2009, we had backlog of work under contract of $224.3 million, which is a record backlog for Orion Marine Group. In addition to large project award involving dredging services we announced in October adds approximately $10 million to this backlog. Also, we have several projects that we are apparent low bidder on or that are in negotiation that are not reflected in the backlog as of the end of the quarter.

As a reminder, our backlog consists of projects under contract that have either not been started or are in progress and not yet complete. And we cannot guarantee that revenue projected in our backlog will be realized or if realized will result in earnings. In addition to our current backlog, we are tracking potential bid opportunities of $4 billion to $4.5 billion.

Looking at 2009, we remain comfortable with our previously stated full-year 2009 year-over-year revenue growth goal of 12 to 16%, and our full year 2009 EBITDA margin goal of 14 to 18%. Given the timing shifts we saw in the second quarter and lower material pricing, which could bring down overall contract values, we believe our revenue growth for the year will reasonably be at the lower end of our goal range.

However we believe the favorable EBITDA margins we saw in the first half of the year will boost our full year EBITDA margin toward the middle to upper end of our full-year goal range.

Looking at 2010, we expect $1.8 billion of the $4 billion to $4.5 billion in bid opportunities we are tracking could liquidate in 2010. As a result of the current backlog and current expected bid opportunities, our initial full year 2010 revenue goal range is between $350 million and $360 million. In our initial full year 2010 EBITDA margin goal range is 14 to 18%.

Turning to the balance sheet, we believe it is important to have a strong stable balance sheet with good free cash flow generation, low leverage and a solid cash position. As of September 30, 2009, we had cash on hand and availability under our revolving line of credit of approximately $115 million. In addition we had another $15 million of liquidity available to the Company at the discretion of our lenders.

Finally, as Mike mentioned, we used a portion of our proceeds from the secondary offering to pay off the debt we had incurred as a result of the acquisition we made last year and currently have no debt. However, this is not to say that we will remain debt free in the future. As we have said before, while we want to keep our leverage low, we are comfortable with an appropriate amount of debt.

In closing, we once again delivered good results while maintaining our solid financial position during the quarter. As we look to 2010, we are excited about where we are and are optimistic about the opportunities ahead.

With that, I will turn the call back over to Chris to begin the Q&A portion of the call.

Thank you, Mark and Mike. We would now like to open the call for questions. Jennifer, would you please review the procedures for placing a question?

(Operator Instructions). Jack Kasprzak. B&B [sic - BB&T] Capital Markets.

Good morning, this is Adam Thalhimer calling in for Jack.

Mike, you had a comment in the press release which I wanted to get some clarification on. You said -- you talked about timing shifts of revenue during the second quarter. Can you just kind of refresh our memory what those were?

Yes. In the second quarter we had some delays of some other projects that we were planning on starting in the quarter. These were projects that were under award.

As an example just to remind you we had a project that we were actually low bidder on towards the end of Q1. And we actually [did] make the announcement of that until the day of the earnings call in August and it was simply as a matter -- as a result of the permitting issues related to the owner of that project. Something completely beyond our control, but not unusual.

That -- we talk about the business being lumpy? That is a great example. You contrast that with another project that we announced on the last earnings -- the day of the last earnings call, we were low bidder on that one about three weeks before and we were already -- received the award.

So during the second quarter, we had a couple of projects that we had expected to start and actual start burning revenue and they got pushed out for permitting issues and things of that nature that sort of normal course of business type stuff.

You are saying they got pushed from Q2 to Q3?

Correct.

Also on the 2010 Outlook. Wondering if materials prices stay low, as you look out to 2010 and the EBITDA guidance range -- margin guidance range you've given, if materials prices stay low do you think we could be towards the high end of that range again next year?

We will have to watch the commodities. It's possible, but I think we kind of baked that into our range that we put in. The only -- I guess movement we've seen on commodities here recently is price of oil has gone back up some around the $80 mark. And that drives diesel fuel prices which have started to tick up a bit.

But other than that, I think we have seen kind of a downward trend or at least a flattening out of most commodities that we have purchased.

My last question here this is a numbers type question. I believe SSI, the amortization related to that rolled off in Q3.

Correct.

How much of that was in Q3 and will be nonrecurring?

About $900,000 or so because we had it for two thirds of the quarter. So it actually rolled off at the end of August. So it was about $755,000, I think.

Fred Buonocore from CJS Securities.

Good morning, gentlemen. Nice quarter. Just wanted to check in on the guidance for 2010, particularly the top line. What sort of win rate does that assume, relative to the massive amount of bid opportunities that you are tracking?

It's in line with our normal historic average of about 25%.

Got it. Very good.

Well keep in mind, Fred, that we won't bid until after everything and as we kind of talked about before, that's a dynamic list. And -- but we think that we feel pretty good based on where the backlog is for next year and the bid opportunities for next year.

Sure. And in terms of the project that you are tracking -- excuse me particularly the ones that you think you are apparent low bidder on, are we looking at any more of these very large $20 million, $30 million, $40 million size projects?

Well, it certainly may be possible. There are a number of what they call [MATOC] projects. Multiple award task order contracts that, in particular, the Corps is beginning to package.

And we've seen several of those come out now. And I think they are continuing to use that model of getting some of the stimulus work out in particular. So yes, there could be some large project opportunities for us.

Great. And in terms of just the big flow of project wins that you have had and expectations that that should just continue in the coming quarters and this being the biggest backlog you have had in history, really, you have a lot of balls in the air. More than you have ever had before.

How do you ensure that the execution now is solid as it has been in the past when maybe your backlog was half the size?

Well, I think we've demonstrated we have been able to successfully perform and we are taking on projects that match our core skills. We are not doing anything out of the ordinary. Like we are not going out and taking on a commercial building, for example.

We are sticking with what we do best and our fleet never has been fully utilized. And a lot of this will just end up taking the same cruise that we have employed now and expanding their work hours and increasing our utilization. So I think we will be able to respond to the $350 million, $360 million goal and succeed in delivering our EBITDA.

And also, Fred, I'd just remind you too is that we talked a lot in the past about our project control systems and department and our quality control. And essentially the reason why we've developed that process over the last several years was exactly for the reason of your question. And that is to leverage that system and be able to grow the business and keep the eye on the ball.

So we believe we have the systems in place both on the estimating side to do the QC process up front, and then also on the project review side where we are literally going through these projects on a month by month basis and, again, making sure that we are keeping our arms around everything even as we are getting these larger projects.

That sounds great. And just finally as it relates to Q3 and Q4 revenues. Could you just talk a little bit more, give us a little more color behind Q3, the acceleration of project schedules? Why that, how that happened or what the dynamic was there? And then as it relates to Q4 revenue expectation where we are talking about revenue for the full year reaching the lower end of your goal range, implying a flattish year-over-year revenue for Q4.

So is that kind of saying you know it's a pull forward of projects then into Q3?

It's a little bit of both. It's really -- it is kind of the opposite of what occurred in Q2. In Q2, as we talked about it with Adam a minute ago, we had some projects sort of shift out into -- start based into the future. In Q3 we actually had the opposite of that. We had some projects get kicked off that we expected would get kicked off a little bit later. So we actually did have some pull forward there.

The other thing is, too, is that this is really sort of historically kind of in line where with what the slight seasonality that we do have in Q3. We had a lot of good production. We did have some accelerated schedules on some of the projects. And it's not -- last year with all of the hurricane activity we had in Q3 of '08, it's sort of -- we didn't see the historical trend there where last year we saw sort of Q4 -- a little bit more revenue in Q4 than we did Q3 -- that was actually not the norm.

And that was as a result of all of the hurricane activity when we had every job site in Q3 '08 shut down at least once because of storm activity. So I think this year it is more of a more normal Q4 slight pullback from Q3. And that's sort of the historical norm.

Okay, great. Thanks very much.

Steve Dyer from Craig-Hallum.

Good morning. Very nice quarter. Wondering if you could give a little commentary on the competitiveness and the small projects? You've talked about that being a little bit higher than normal before. What is sort of the latest there?

I think we have continued to see pressure on some of the smaller contracts. $3 million or less. That's still ongoing and I think we will continue to see that into, probably, the first part of next year. Everyone is trying to project when the recession is going to turn back up and improve.

But on the bigger projects I don't think that pressure has been as great. You see a lot more reasonable pricing as you get higher in value. But I think we are comfortable where we are at. We see so many opportunities to bid on that we are just going to have to live with the small wind pressure until the economy picks up.

Okay. And then if memory serves, it looks like you performed about 83% of your work self-performed this quarter. If I recall that's maybe a little bit lower than normal. Is that by design? Are you subbing out more work?

It's really the nature of the project that we are working on and some of them right now there's some noncritical path type things that are driving that there's a little bit higher sub contracting component. So we still expect to be in the historical norm, but we do have projects ongoing right now that are driving that.

Okay, Mark. On the -- back to that depreciation falloff question. Have you guys added staff or any other additional costs that would keep that from being necessarily a straight drop off if you understand what I'm saying in depreciation and, therefore, SG&A in Q4?

We have had some. So it won't completely drop off, but there will be a partial offset their if we can just get through normal growth, but there will be a drop off.

Okay and then last question, you guys you mentioned that you are apparent low bidder on several projects. Are you willing to hazard a dollar figure on what is sitting out there right now?

Absolutely not.

All right. Fair enough.

Just stay tuned for future project announcements.

Fair enough. Thanks, guys.

David Yuschak from SMH Capital.

On the path of that self performance versus subcontractors, guys. As you look at each of these projects, what kind of the range that you should expect from both high and low based off of the projects that you think you're qualified for?

Historically, it has been around about 85% and I think we've gone as high as 90% and (multiple speakers).

Plus, (multiple speakers).

So that's probably the right range.

But there's something like as an example there may be a project that has a big [rock] component to it and that's a piece that it's more cost-effective to sub that piece out than to try to do it ourselves and re-handle it. And that is an example of sometimes it may just be and we talk about timing and mix, actually, of projects. That is what can drive that.

But as Mike said, 85 to 90% is sort of the norm. There's going to be some things like -- Q3, we were 83% self performance. If you go back to Q2 I think we were at about 93%. So we were actually a little bit outside. So occasionally we may be a little bit outside one way or the other of that range, but an 85 to 90% is sort of the norm.

As far as -- Mike, you had mentioned some several capital equipment purchases you are setting up to do as well -- have done. What you had -- I think it was -- was it $16 million you had talked about previously for 2009? Is anything changing in that for 2009 at this point in time?

We are still in that range, 16 to 18.

Now what about next year? Where do you -- have you (inaudible) thoughts about next year?

Well, we are continuing to look for opportunities for growth, greenfield expansion and acquisitions, and we are actively studying that. Don't have anything to report on this call, but I think there will be some other opportunities for us to continue to grow.

Yes, and Dave we will come out with an exact range of that on the next call. But I think for now it will probably be a fair assumption to think about 2010 in the same range as 2009, exclusive of the sort of the one-off stuff that we talked about with the equity, right? So sort of the $16 million to $18 million -- that would probably be a fair way to look at it until we update you on the next call.

Now help me on that 16 to 18 does that include the $10 million to $12 million that you talked about or does that roll into next year as well?

(multiple speakers). We are looking at that as special one offs to position ourselves. That's not normal CapEx.

So that 10 to 12 will fall in this year's numbers than?

A good portion of it will. Yes.

So this year we are basically talking about say $26 million to $28 million?

Around there. Yes. And although it could be slightly lower because actually we have been seeing some favorable pricing on some of the acquisitions of equipment. So we are very pleased about that. So it could come in slightly under that.

But that would suggest why you went for three cranes instead of potentially two I think probably, huh?

Absolutely.

Exactly. We took advantage of a low price.

Now as far as the D&A for the fourth quarter down a little bit from the third quarter and what do you think it could be for next year given this boost to cap spending?

I think it will be down off of this year, but not completely offset by the amortization rolloff.

So the D&A for all intents and purposes will be about -- whatever you did this year it could be what it is next year? In that ballpark.

In that ballpark, yes.

That's all I've got. Thanks.

Trey Grooms from Stephens.

Good morning and congratulations on a good quarter as well.

Could you guys talk about -- you touched on M&A just a little bit, can you talk about what the pipeline looks like out there right now? Are you guys seeing anything interesting? I know that you said that you're kind of doing some work there and also if you could kind of touch on also you know which you look at war on tuck-in deals or is there potential to do something sizable?

And also are you thinking about focusing more on filling in current markets? Or would you want to look more look to expand geographically?

I think the answer to that is yes. No. Seriously we are looking at multiple opportunities. And we want to continue to build on the same core skill set that we have and we are looking at both within the geographic areas that we are currently operating as well as areas where we are not currently present. And it's just a matter of time and prioritizing and getting a reasonable price, but I think there will be some opportunities for us to continue to grow.

And I think in terms of size, again it kind of runs the gamut in terms of the opportunities we are looking at. Some of them could be on the smaller end of the scale. Some of them could be a little bit bigger in line with some of the size of the things we've done in the past or larger. So it just kind of runs the gamut there.

And then on the equipment purchases that you are talking about doing, can you give us an idea of what type of opportunity this additional equipment or getting this additional capacity here and the equivalent that can lift the heavier stuff out there -- can you give us an idea of what type opportunity this would create for you?

Part of that 15% we subcontract includes some element of heavy lifting and if we have to do a lift that's greater than say 225, 250, we have to go to a third party to do it. That will eliminate us having to do that. It will also open up some salvage opportunities if there's another hurricane damage season that emerges.

And it gives us access to bid on some of the bigger [piling] projects that we currently don't have the equipment to participate on. So I think it could be a combination of all three and give us access to a bit more revenue opportunities than what we've had in the past.

Okay and then looking at the third quarter -- well, actually, the fourth quarter guidance. I mean, you guys typically build in contingencies in your contracts during the hurricane season. And since we've had a very inactive hurricane season in '09, wouldn't you guys see some benefit from this in your margins in the fourth quarter?

Keep in mind that that's only one variable. And if you think about the mix of projects we have right now, I mean we've kind of factored all of that into our thought process and so as we are kind of kicking off some projects right now -- some of which have higher material components and again as we sort of touched on the comment about self performance versus subcontracting. So you are correct about the contingencies for hurricanes, but that is only one variable. So we factored all of that end.

Having said all of that as always we will continue to try to outperform but what we tried to do what we factored that in is take into account all of the variables.

Okay. And then of course, you guys did put up a great backlog number this quarter and but as you said it can be lumpy. Is there any large jobs that will be rolling off in the fourth quarter that we need to be aware of?

It seems like there was a couple of large ones that you announced last year. But I wasn't 100% sure on the timing of when those will be completed?

Well our cruise project in Haiti, the crews pier that I mentioned where that big world's largest cruise ship is coming. That is coming to a close. We are wrapping that up. It has to be ready to doc the vessel 1st of December and [Bel-Air Causeway] is a two-year project that we have been constructing over in Tampa. That project is also wrapping up. That's two of the biggest.

We've also -- we've got some other big ones that are coming online. Some of the recent announcements that we've made in the last couple of quarters are cranking up.

Yes, the Caminada Bay Bridge is a $54 million project. We did it in a line item joint venture with another partner and our portion is $27 million. That's a big project. That is actually bigger than the Bel-Air Causeway was. It was about $25 million, our portion.

Sure.

We will have a nice MATOC job that we will be getting kicked off. One of the biggest jobs we have ever done is a MATOC project for 2010.

You guys -- I mean you touched on this a little earlier on the equipment, but when you're looking at the size specifically -- I mean you announced recently the biggest contract that you -- that I'm aware of -- that you won. And so is that I mean is that going to take you up to a level where you can bid on $100 million kind of jobs, $75 million kind of jobs because of getting this extra equipment? Or is -- I mean can you give us a feel for the size difference?

Yes, absolutely. I think this will give us a leg up particularly in bridge work like on the East Coast. We have been renting heavy lift cranes. This will enable us to do it ourselves and put those profits in our pocket.

We've got ongoing bridgework over there, very actively right now. We are renting some cranes and that will eliminate that problem and also give us access to bid on some bigger jobs. And I think $100 million bridge jobs is certainly not out of the question. We've demonstrated our ability to perform and successfully deliver. And I think we are comfortable taking on that size.

That's all I got. Again great quarter and keep up the good work.

Will Gabrielski from Broadpoint.

Thanks. Nice quarter. Couple of questions. Did you guys put the stimulus opportunities in your bid opportunities and liquidation assumptions for 2010?

The market that Mark pointed out -- that $4 billion to $4.5 billion, it doesn't have all of the stimulus money in it. It's just the projects we have been able to identify to date.

So there could be a lot more out there. One thing that is very difficult to get from the Corps is what will the size of the MATOC packages be? And that is kind of the wildcard. So what we try to do is just to identify what we know.

When we say $4 billion to $4.5 billion, those are identifiable projects that have been advertised that they've given a range of value on that we know. There's more down the pike. And then just take a few months to ferret it out.

Yes and I think it is fair to say that included in that is stimulus dollars, but is it all inclusive? I don't think so. I think we will continue to see that as we -- and as we started talking about earlier in the year as we got into this process, it gets a little convoluted as to what's stimulus-related and what's not.

And so it becomes a little bit difficult, but I think we are confident that there is stimulus dollars included in that. But again it is not all inclusive at this point.

Yes. I know some projects are coming out that will identify three sources. Normal civil works funding, supplemental and ARA and the contract will be broken up so that they can keep up with the moneys on that basis.

The piece of [some] $10 million awards this quarter similar to Q3, Q2, any change in that activity level?

No, I think it's similar. I mean as Mike said earlier I mean, there's still sort of the pressure on these sort of sub $3 million, sub $1 million projects, but we are still winning awards in that range, but we are certainly maintaining our pricing discipline.

So it's been a little bit more of a challenge there, but I think that the pace in Q3 has been similar to what it's been the last couple of quarters. And as Mike said we are sort of hopeful that as we get into 2010 maybe some of that pressure on smaller projects will abate as overall economic conditions improve.

Can you guys provide an update on what your cash balance will look like after you take into account some of the equipment purchases?

Well as we said, we've said $10 million to $12 million would be coming off as a result of sort of these special purchases, if you will, of heavy lift equipment and things of that nature. So that's still kind of a good range to use for that.

And will you guys have to make investments in that equipment and how long will that take before you can put those online and start generating revenue with those?

They will be minimal. The heavy lift crane that we bought on the East Coast is on tow right now to a shipyard in Tampa where we will just basic dry-docking just kind of a shave and a haircut. And we are going to get it in here and put it to work.

The other cranes, the other two cranes are being assembled and will be sent to job sites where we can take off rental equipment and deploy them right away.

Okay. And I'm sorry if you guys answered this already but are you paying above below or sort of in line with what replacement cost on these -- on this equipment?

Well, we're certainly not paying new build prices. I think we are paying favorable pricing and we think that's -- we actually think we will be able to get a little bit more than we initially thought back in August because of the favorable pricing.

I can tell you we are real pleased. These crane prices in particular are much lower than they were a couple of years ago. And we are getting some good deals and I'm real happy with what we've obtained so far.

Lastly and this is much more of the big picture question so feel free to answer it however you will. If you look at the bid opportunities that you are identifying today, at $1.8 billion. You know it was $1.4 billion I believe in '08 heading into '09 so you are up a pretty big chunk there and you guys are out buying equipment presumably to grow your market share within that opportunity.

So assuming all else being equal on the win rate, do you expect to see -- do you think you can outgrow that market growth rate next year? And how does that -- if you start thinking the way the market is shaping up into 2011 also, can you continue to say that revenue growth rate accelerate year-on-year?

We are certainly trying to stretch that rubber band and make that happen. One of the wild cards is even though that's up to $1.8 billion -- which is significantly higher than last year from a starting point -- the MATOC chunks in there will take us some time to evaluate. It could be that some portion of that we can't bid on.

So it's not just take our historical win rate 25% times the market equals the sale price -- equals the revenue. We will just have to manage that as closely as we can and advise you if we see any changes, but I think we are very comfortable with a range of 350 to 360 with what we see in hand right now.

And I think the other thing on that, too, is that we want to grow. We want to execute the growth strategy, but we want to make sure we are doing it profitably so we don't want to get ahead of ourselves and we want to continue to set ourselves up to continue to grow and grow profitably.

Okay. Great. Thank you very much.

Alex Rygiel with FBR Capital Markets.

Good morning. As we look into 2010, what percent of your revenue may be a result of stimulus?

Boy, that's a tough question. I mean I would just -- I would be totally hazarding a guess because it's all kind of convoluted as Mike said some of these things coming out and I know I think, for political reasons, they are sort of sprinkling it around. And so they are saying they are getting stimulus out. That's a tough question.

It really doesn't matter to us, Alex, is the answer. We are seeing some of these MATOC packets and you may see a $10 million package or a $50 million package and everything and it is made up of all three components of civil works, base budget, stimulus and supplemental.

We don't really care. That's just an administrative matter for the federal authorities to keep up with so they can keep track of how their money is being obligated. But it does really doesn't mean anything to us. It's just --.

Yes and I think our view on it is is, one, we've got good things going on in the end drivers, most of the end drivers regardless of stimulus. And stimulus is just certainly is having a positive impact whether or not the particular project that we are working on has stimulus dollars in it or not.

Okay. The approval of change orders as it relates to Bel-Air recently -- could you talk about how that will pass through your P&L in the fourth quarter and if that makes your guidance any more positive or conservative?

Yes. We normally don't speak to individual change orders. I'll just say we feel comfortable with our year-end projections that we are conveying and that's baked in there.

And as you reference cruise terminals in the Caribbean, I suspect you are suggesting one of the opportunities happens to be Cayman. Are there other opportunities in the Caribbean for you as well in the next couple of years?

Yes. We are glad to see that there is some increased activity there. And I think certainly cruise ships is one area, but also the widening of the Panama Canal is going to stimulate some forward expansion in the Caribbean as well. And we are on top of that market and we think there will be several opportunities.

And lastly given that it is November right now, looking back over the last four years it looks like historically backlog is flat to up from the third quarter to the fourth quarter. Do you expect this trend to occur again in 2009?

No. Our backlog is way up.

No. I mean sequentially from third quarter to fourth quarter? So as we look at the possibility of December '09 backlog versus September '09 backlog, would you expect that to be flat to up sequentially?

Yes probably -- I mean yes, at this point again -- some of it as you know and then some of the examples we talked about earlier since we don't include things in backlog until they are under contract, it is kind of tough to say. I think we -- yes. It's probably a reasonable assumption, but again backlog can be lumpy for that reason is that we don't oftentimes the timing of things is beyond our control.

Yes, a lot of it has to do with our customers who are trying to meet their CapEx projections and if they are reining in, they slow down. If they are under it they will try to get some contracts out real quickly before the end of the year. Just general rule, you are going to get a lot of bids in before Christmas and a lot of awards after the new year.

That's great. Thank you. Nice quarter.

(Operator Instructions). John Rogers from D.A. Davidson.

Good morning. Just one accounting question. The tax rate in the quarter came down a little bit. Is that a fair run rate going forward or --?

No, it might be slightly up running forward. Closer to 37 is probably a better run rate going forward.

Okay and then in terms of your backlog at this point, can you give us a sense of how it breaks down by customer? You know and either Army Corps, federal versus state? Local versus private?

Don't have it at our fingertips, but I think we are expecting it to skew more towards the federal side going into next year.

Yes, if you think about this year, last quarter we were at about 60/40, 60 government, 40 private. For Q3 we were about 51/49. 51 private, -- so I think we are going to be in that band and it's going to kind of -- I think we are expecting that the -- certainly on the federal piece that will go up. So we probably will be, I think it's a fair assumption to think we might be closer to that 60/40, 60 government sector, 40 private sector as we go into the next couple of quarters.

So that's a fair representation to the bid opportunities, I assume, then?

Yes. It might even skew a little bit lower on the private side.

It kind of depends on -- it's not just what the bid opportunities are, but it is what we go after and what we get.

Right. Okay.

So there's a couple of different variables in there.

Okay and then just on the acquisition or potential M&A activity out there, can you just give us a sense of are there more, fewer opportunities? I mean presumably if we are moving through the bottom of an economic cycle, maybe people are less willing to sell or is it they need to sell now? Any thoughts there?

It hasn't changed that much in our primary business. I think there are a lot more companies out for sell now that are not necessarily fully into our sector, but are struggling. And we are -- we take a tack of trying to prioritize the opportunities and make sure we don't chase something that is not going to complement us. And we also study whether it is better not to go in just on a greenfield basis like we have been doing here and as opposed to an outright acquisition on a grander scale.

So we are patient. We are not trying to force anything to happen. We don't need anything to happen. You know, we said we could make 2009 without any acquisitions. I think we can make 2010 without any acquisitions, but if we get an opportunity that fits and is a good value for our investment, we will move on it.

Okay, great. Thank you. Nice quarter and nice picture in the magazine.

Fred Buonocore from CJS Securities.

Just a quick follow-up on gross margin. You were talking about this with Trey a little bit earlier, so we had the sequential drop in gross margin after the really, really strong profitability in Q2 and is that just attributable to -- well, obviously, you talked about this being your normal gross margin level, high teens, low 20s.

But would the sequential change have to do with the level of self performance or the mix of projects being maybe more construction with more materials or maybe just what is the color around that and should we continue to think about margins in that low 20s, high teens range? Thank you.

Yes. First part first or last part first. Yes we should continue to think about gross margins in sort of the high teens, low 20s. You know as we've said before and we will say again today, we are always going to try to outperform. And I think in Q2 you saw the result of outperformance.

I think it's -- actually, it is a number of different things. It's the mix of projects. It's certainly the subcontracting piece versus self performance definitely plays into the differences between margins, between quarters.

Also as we go through, as we go through a project and as we go through our project control system and go through a specific project on a month by month basis, we have a lot of contingencies in for things beyond just whether. And when we essentially when we move past a point of needing whatever that contingency is, we are constantly reevaluating and so I think that in Q2 you saw results of favorable execution on projects and we were able to outperform and we were able to adjust some other projects. I think that Q3 was just sort of back more in the normal range and again the variables of the mix of projects and the type of work that we're doing at any one point in time.

So, again, just to reiterate I think the high teens low 20s is a good way to look at it and then just with the realization that our whole approach is to try to outperform whenever we can. And I think historically, you have been able to say that when we've been able to do that.

Makes sense. Thanks.

There are no questions at this time. And I will turn the call back over to Chris DeAlmeida for closing remarks.

Thanks, Jennifer. On behalf of Orion Marine Group we would like to thank you for taking the time to talk with us this morning and we look forward to speaking with you in the future. Also if you have any follow-up questions, please feel free to give me a call. Thanks and have a great day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.