Orion Group Holdings Inc (ORN) 2009 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth quarter 2009 Orion Marine Group Inc. earnings conference call. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of today's conference.

(Operator Instructions). As a reminder, this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's call, Mr. Chris DeAlmeida, Director of Investor Relations. Please proceed.

Good morning and welcome to the Orion Marine Group fourth quarter and full year 2009 earnings conference call. Joining me are Mike Pearson, Orion 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've allocated 15 minutes for prepared remarks in which Mike and Mark will highlight the results for the quarter and full year and update our outlook for 2010. We will then open up the call to questions for the remainder of the time.

During the course of the call, we will make projections and other forward-looking statements regarding among other things our end markets, our revenues, gross profit, gross margins, EBITDA, EBITDA margins, backlog, projects and negotiations of pending awards, as well as our estimates and assumptions regarding our future growth, EBITDA, EBITDA margins, gross margins, administrative expenses and capital expenditures. These statements or predictions are subject to risks and uncertainties, including those described in our most recent 10-K that was filed in 2008, and these risks may cause actual results to differ materially. Moreover, past performance is not necessarily an indicator of future results. By providing this information, we undertake no obligation to update or revise any projections or forward-looking statements whether as a result of new developments or otherwise.

Also, please note that EBITDA and EBITDA margin are GAAP financial measures under the rules of Securities and Exchange Commission, including Regulation G. Please refer to the reconciliation accompanying this earnings call available on our website at www.orionmarinegroup.com for more comments on the use of non-GAAP financial measures as well as applicable reconciliations to the most comparable GAAP measures. Also please refer to our earnings release issued this morning, March 4th, 2010, 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'll turn the call over to Mike Pearson, President and CEO.

Thank you, Chris. Good morning and thanks for joining us. This morning we reported record revenue for the full year 2009 with a solid bottom line performance and strong EBITDA margins. Revenues for the full year 2009 increased $31.7 million, or 12.1% as compared to the full year 2008. Our full year 2009 EBITDA was $50.5 million, resulting in an EBITDA margin of 17.2%. We also ended the year with a record backlog of $252.9 million.

Looking back over 2009, we were able to once again achieve solid revenue growth despite a difficult and challenging economic environment. As you will remember during the year, we saw project timing fluctuations which resulted in lumpiness to our quarterly results. As many of you know, this is inherent in our business which we try to minimize wherever possible.

As a reminder, we encourage investors to look at the long term and not focus just on quarterly results. By focusing on the long term, you can see that the overall demand in our end markets remained strong throughout 2009, giving aus good base to grow from. In fact, the strength of our end markets gave us the confidence to raise additional capital through a secondary offering so that we could continue to execute our growth plan by eliminating our debt, investing in equipment, expanding geographically, and remaining opportunistic with regard to acquisitions. And we've delivered on that strategy.

Since we completed the secondary raise in August, we've paid down $30 million in debt that we had outstanding. We've purchased and are purchasing several pieces of expansion equipment that will total about $12 million. We purchased T.W. LaQuay dredging for $60 million to expand our dredging capability and also opened up a greenfield expansion into the Pacific Northwest by acquiring certain pieces of heavy civil marine construction equipment for $7 million. In total, that adds up to a deployment of almost $110 million since August of last year, all of which we believe will strategically add to our bottom line results long term with some adding to our bottom line results this year. Despite some fluctuations in quarterly revenues last year, we're very pleased with our overall results and the accomplishments we've made over the last few months.

Now, turning to our end markets and outlook for the remainder of the year, we continue to have good diverse end markets with solid drivers for future growth. The Gulf Coast and Southeast Atlantic ports are continuing with their expansion plans despite fluctuations in global shipping traffic. We believe funding for these projects has and will remain intact for most of the planned port expansions, and expect to see shipping traffic rebound during the next couple years.

Additionally, we continue to see bridge opportunities and believe that these projects will be a priority for states with funding coming from both the annual spending of the highway transport program and through the stimulus package. As you know, we've not seen a successor build of the safety loop program which expired last year. We fully believe we'll see continuing resolutions for the remainder of 2010 with a new build in 2011.

With regard to other end markets, we believe we'll continue to see good opportunities from the US Army Corps of Engineers, as the Corps is well-positioned with funding levels as a result of their normal civil work budget and additional funding from the stimulus package. Finally, we expect to continue to see opportunities from the cruise industry, as several large ships will come on-line over the next couple years and the current marine facilities that will dock some of these ships are inadequate and require substantial upgrades.

Given our backlog, the activity in our end markets and the recent additions we've made to the Company, we're excited and optimistic about the year ahead. 2010 is shaping up to be another record year for Orion Marine Group with a high level of backlog and good end market drivers for continued growth. With that, I will turn the call over to Mark Stauffer to discuss our financial results in more detail. Mark?

Thanks, Mike. Thanks again for joining us. Net income for the full year 2009 was $20 million or $0.84 per diluted share, which compares with $14.5 million or $0.66 per diluted share in the prior year period. Full year 2009 contract revenues increased 12.1% year over year to $293.5 million, of which 55% was generated from federal, state, and local government agencies and 45% from private industry. This compares to a 50/50 mix in the prior year period.

Revenue growth for the full year was at the low end of our full year revenue growth goal range of 12% to 16%. As Mike mentioned earlier, our full year 2009 EBITDA was $50.5 million, representing a 17.2% EBITDA margin which compares to a full-year 2008 EBITDA of $41.3 million or a 15.8% EBITDA margin. EBITDA margin for the year was at the upper end of our full year EBITDA margin goal range of 14% to 18%.

Looking at the fourth quarter details, net income for the fourth quarter 2009 was $4 million, or $0.15 per diluted share which compares to $5.5 million or $0.25 per diluted share in the prior year period. Fourth quarter 2009 contract revenues were $71.2 million which compares to a fourth quarter 2008 revenue of $79.2 million. Revenue in the fourth quarter 2009 was down as compared to fourth quarter 2008, due to the revenue shift from the hurricanes last year boosting fourth quarter 2008 revenue, and as a result of fourth quarter 2009 project start dates related -- delays in fourth quarter 2009 project start days related to fluctuations in timeframes for permitting, contract awards, and notices to proceed from customers.

Our fourth quarter 2009 EBITDA was $10.1 million, representing a 14.2% EBITDA margin, which compares to fourth quarter 2008 EBITDA of $13.7 million or 17.2% EBITDA margin. The reduced EBITDA margin during the fourth quarter was primarily a result of a decrease in our self-performance of work during the quarter. We self performed approximately [86%] of our work as measured by costs during the fourth quarter 2009 as compared with 91% in the prior year period. Based upon the work in our backlog and future prospects, we believe this EBITDA margin will return to normal levels in the future. 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.

Now turning to backlog. As of December 31st, 2009, we had a backlog of work under contract of $252.9 million, which is a record backlog for Orion Marine Group. In addition, the recent acquisition of T.W. LaQuay dredging added approximately $25 million to backlog on January 28th, 2010. Also, we have several projects that we are apparently low bidder on or that are in negotiations 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 current backlog, we are tracking potential bid opportunities of $4.5 billion to $5 billion.

Looking at 2010, we expect $1.8 billion of the $4.5 million to $5 billion in bid opportunities we are tracking could liquidate during 2010. As a result of the current backlog, the current expected bid opportunities, and the acquisitions we made earlier this year, our updated full year 2010 revenue goal range has been increased to between $390 million and $410 million, and our updated full year 2010 EBITDA margin goal range is between 16% and 18%. For the first quarter 2010, we expect revenue will be in the $72 million to $77 million range, with EBITDA margin in the 16% to 18% range. The first quarter will be impacted by costs associated with the acquisitions of between $1.5 million and $2 million.

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 December 31st, 2009, we had cash on hand and availability under our revolving line of credit of approximately $112 million. In addition, we had another $15 million of liquidity available to the Company at the discretion of our lenders.

Finally, as Mike mentioned, subsequent to the end of the year, we used approximately $60 million of our cash to purchase T.W. LaQuay dredging, and an additional $7 million to purchase certain marine construction assets from a private company exiting the marine construction business in order to establish a greenfield expansion site in the Pacific Northwest. We 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 are pleased with our results for the full year 2009, having achieved good revenue growth and solid EBITDA margins. As we look to the remainder of 2010, we are excited about where we are and our 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, Mike and Mark. We would now like to open up the call for questions. Amica, will you please review the procedures for placing a question?

(Operator Instructions). Your first question comes from the line of Trey Grooms of Stephens, Inc. Please proceed.

Good morning, guys.

Good morning.

Okay, so first question is on the first quarter revenue guidance in -- if you look at the full year 2010 guidance, this first quarter, basically implies that you are going to have to see a pretty dramatic ramp at some point. First off, what is driving the expected ramp? Is it the timing of jobs already in backlog, or is something else going on there? Then also, should we expect that to start ramping in the second quarter, second half? Can you just -- the 2010 guidance is very strong relative to the first quarter, is what I'm getting at.

Right. Yes, I think you actually nailed it. We do expect to ramp up -- and it goes back to the timing and mix of projects as we talked about. But, yes, we do expect to ramp up beginning in Q2. We're comfortable with our full year revenue range that we gave, and just remind you that as part of the acquisition with T.W. LaQuay, we do have two additional dredges that will be coming on line during the year.

Do you guys have any sense of timing on the rollout of those two other dredges at this point?

It will be in the second half of the year. We expect commission around July of this year.

Okay. And then on the Pacific Northwest market, can you guys give us some color into your decision to greenfield, semi-greenfield into that market? Also, on the assets that you guys are purchasing there, could you give us an idea of current utilization, and what you're expecting as far as impact and timing from those assets?

Okay. As we've always said, we like to be opportunistic, and I think this was a great opportunity that we were able to go in and acquire equipment at very attractive prices. Unfortunately, the timing of the acquisition, this is when the [fish winds] occurs up there from March 1st to middle of June.

What we are initially doing is chartering equipment to finish a US naval contract project that's up there for another contractor. All our -- the majority of our equipment personnel are working on a dayrate basis to support that completion. But we'll be working on pursuing bid opportunities in the second half of the year and primarily setting this operation up for 2010.

2011.

2011, I'm sorry, that's when we expect it to have a real impact on our bottom line, but we're very excited about the opportunity to expand in that region.

Is that a market that we can expect you guys to continue to focus on with greenfields or possibly M&A?

As we always say, we look for opportunities in areas we work, and if we see some additional opportunities, we'll certainly move on them. But it will be the beginning of building up a base of operations there. We've got a staff of personnel already hired. Our market database, the $1.8 billion that Mark mentioned in his comments, does not include the Pacific Northwest. We will be researching that market and adding that to our database as time goes on.

Okay. Thanks a lot, guys. I will jump back in queue.

Your next question comes from the line of Rich Wesolowski with Sidoti & Company. Please proceed.

Thanks. Good morning. Your stock seems to suggest that people are worried about your bidding momentum past 2010 when the stimulus will likely fade. Can you give us an overview of the end markets or the funding sources that you expect will provide more of an opportunity for Orion after 2010 than what you're currently seeing?

s we mentioned, we see around $4.5 billion to $5 billion of total market we've identified to date. That $1.8 billion is expected to be liquidated this year so the balance is 2011 and beyond. Our impression is that 2011 will be another solid year like this year.

Just to add to that, Rich, we've said all along that stimulus is certainly a positive impact that we expect to see, but our business and our business model is not dependent upon stimulus. We think that there's a lot of things going on in all of our end markets that are not dependent upon stimulus. We've got the Panama Canal expansion going on and the impact that that will have on the Gulf Coast an Southeast Atlantic ports.

We've got -- we think that the Corps has -- going to maintain solid funding beyond stimulus. The cruise terminals and the cruise ships coming on line certainly doesn't have anything to do with stimulus, and they've got ships coming and saw something the other day about their bookings are upticking. They're starting to see a rebound in 2010, so that bodes well for the infrastructure needs there. And in general, we just -- we feel strongly that the marine infrastructure, the bridges need to be addressed.

The ports are going to need to be addressed. All of these things, when we look out longer term, are -- stimulus is a temporary thing. And, yes, it's had had some good impacts, but we don't think our business is dependent upon it. That's one of the things we like about having the multiple legs to our stool, if you will, that we've got a lot of different areas and different end markets we can pull from.

Okay. Thanks for that. How much of the equipment that you purchased during the last six months, or maybe even longer, with the proceeds from the secondary, now with LaQuay and the Pacific Northwest is directed to replace rented equipment, replace subcontractors, raise the margin on the status quo stream of work versus how much is aimed at expanding -- how much you could process?

Okay. We haven't had that much rented equipment in our fleet. It's been a limited amount of barges and cranes. And part of the -- I think the $12 million in particular was to address equipment needs that we did not have that our competition had; heavier lift crane, bigger barges, and so forth. But the subcontracting element can fluctuate.

We saw some bigger [mattock] projects which required teaming up, incorporating some subcontract elements that might have been a little bit larger than we've seen in the past. You'll go through some sequences in quarters where will you have that fluctuation, but our philosophy hadn't changed. We still intend to maintain at least about 85% is an average of self performance of our work.

Yes, the other thing that I would add to that would be that if you look at what we had had provided as a revenue goal range, pre the LaQuay acquisition, it was up pretty significantly for the year and was -- the equipment adds that we had in there, over the last six months, we're supporting that expected uptick. We had a pretty significant, we think, expectation for 2010 in terms of revenue growth, even before the LaQuay acquisition.

Right. Thank you.

You bet.

Your next question comes from the line of Steve Dyer of Craig-Hallum. Please proceed.

Thank you. Good morning, guys. One of your competitors, Great Lakes Dredging, recently said on their call that in their mind, the vast majority of the stimulus projects have already been awarded. Not necessarily completed, but awarded. Would you share that assessment?

From what we've seen of the Corps spending in particular, I think about 48% of the stimulus program has been obligated. We've said all along that we saw this as not a 2009 event, but a 2010-2011 event. We're currently carrying out contracts that include some element of stimulus money in it. We're currently bidding work that has stimulus funds associated with it. We're certainly participating in it with the sector that we cover. I think you've got a little bit different business lines or markets that we serve between us and Great Lakes. We're more shallow water type work as opposed to offshore.

Yes, and the other thing, Steve, I would say there, as we've said all along, we thought as we moved through 2009 that as we moved through, and as the stimulus started working its way through the Corps projects, it would become a lot more convoluted in terms of identifying specific things. And one of the things we've seen certainly on the projects that we've been bidding on and some that we have in our backlog, is that it's not a 100% stimulus project. In other words, just part of the funding is coming from stimulus.

That's what we've certainly seen in our marketplace. As we've said all along, our view is that it's had a positive impact on the marketplace. We think that it's had had a positive impact on the Corp's overall funding. We view it as positive, and we think this year, and as Mike said, on into next year, certainly we expect the Corps funding to be just fine with respect to the type of work that we go after.

Yes, just keep in mind that we primarily draw from operating and maintenance budget of the Corp's civil works program. We don't really participate in the capital side. I think that may be one of the differences with us and Great Lakes.

Okay. And then this quarter, it looks like you self performed about 83% of the work which is low, I think, a little bit by historical standards. Any color there, or what may have led to that?

One element of it is that we had a lot of material portion of the work that took place, trying to tie down our commodities prior to year end. That was part of the mix. And some of it is just timing on the jobs.

Really, it's -- that's exactly -- that's one of the things when we talk about the business being lumpy, this is exhibit one. It's just, depending on the mix of projects and what the type of specs are on a given project, and whether or not that's something that we're going do internally or we're going to seek to partner with a subcontractor, it just depends on that particular mix of project at any one given time. As you can see, it fluctuates. The same period a year ago, we self-performed 91%. We were a little bit outside of the -- the norm is 85% to 90%, but we can certainly short-term be outside of that range, either above it or below it.

Okay. And then for the revenue ramp this year that we were talking about a little bit earlier, it sounds more like a second half ramp as opposed to a second quarter ramp, given the commissioning of the new dredges. Is that fair?

Yes, but I think we will start to see some of that in Q2.

Okay.

Keep in mind, too, you're coming out of the winter months, and the weather associated with that. Q1 is typically, the lowest quarter in terms of revenue during the year. You've got more daylight as you go into Q2, more production, fairly decent weather with respect to Q1. We expect to start seeing that in Q2.

Okay. And then just finally, back of the envelope, it would appear that cash right now is somewhere around $40 million. Is that close?

That's in the ballpark, but we'll comment further on that at the end of the quarter.

Okay. All right. Thanks.

You bet.

Your next question comes from the line of Fred Buonocore of CJS Securities.

Good morning.

Good morning, Fred.

Just wanted to revisit the LaQuay acquisition as it relates to those two dredges that are coming on line. How much more capital spending do you have to make on those two items?

Just CapEx in general, in comparison, last year, 2009, looking at about $23 million, which includes about $6 million of special one-time purchases. This year we think that's going to boost up to $30 million to $35 million, and that includes the balance of the special purchases, probably about $5 million to $7 million is associated with the acquisitions.

Fred, just to be clear, that is not just on the dredges. That will be additional equipment that -- barges and support equipment, tenders, tug type equipment that we may add. Again, that's going to depend on the timing of when that gets done. As Mike said, we expect full year 2010 to be in the range of $30 million to $35 million, inclusive of the carry-over of the special CapEx that we talked about during the secondary. And then the additional CapEx to add tools related to the acquisitions.

It's $5 million to $7 million related to the two acquisitions.

Correct.

Then the balance of the Delta over what would you call maintenance CapEx of $23 million comes from additional equipment.

The $23 million was for 2009.

Yes, Fred, if you think about it, we're talking the about -- probably about $18 million, $19 million to $23 million of base if you will, of which about half of that is maintenance CapEx. Half is normal adds that we he would do. Then on top of that, you've got about $6.5 million of carryover for things like the heavy lift and the barges and heavy lift crane and the offshore tugboat that carried over from last year. And then you've got about $5 million to $7 million associated with equipment adds that we'll do, including completing the dredges. But also adding additional support equipment around those dredges, pipeline, things of that nature, as a result of the acquisitions.

Got it. Mark, you just indicated that you could potentially see some revenue from the existing LaQuay fleets in Q2, albeit not much, so then ramping into Q3 and Q4. I assume that's working on backlog and you guys have been aggressively out there pursuing new bookings since completing the acquisition?

Yes.

Go ahead.

I was just going say, we did pick up $25 million with the acquisition in backlog.

Right.

Yes, and definitely we're out there. As we've said, we -- the Corps is well funded. There's a lot of port activity on the Gulf Coast. We are out there addressing the bid opportunities and factoring in the integration of that equipment into our operations. We're excited to have that equipment and take advantage of the bid opportunities that we see out there.

Would you say you would expect them to be the two new dredgers to be reasonably utilized by the end of Q4?

Yes, we'll be actively bidding projects. The exciting thing to us is when we go into 201 1, we will essentially be nearly doubling our major dredge fleet in the Gulf of Mexico from what it is right now.

Right.

Definitely, Fred, we didn't buy it to tie it up at the dock, so we intend to put it to work.

Sure. This is my last question, what I've been building up to. The previous person I think asked you about an incremental revenue contribution in 2011. But in case that wasn't it or because I missed it, I'm going to try and run that by you again and say, is it fair to say maybe to the extent you're able to book those -- that equipment out, the way you expect to, that in 2011 maybe it adds an incremental $30 million, $40 million in revenue, and maybe depending upon margin, $0.10 to $0.15 in EPS?

I think you're probably a little -- if you think about what we've essentially said for 2010 is effectively we've said $40 million to $50 million for 2010. And you figure that you've only got partial use of the two dredges. We don't comment on EPS, as you know. But I would -- I think you're -- on the revenue side for 2011, you might be a little strong there. As we have those dredges full year, but certainly we would expect it to be greater than the $40 million to $50 million that we expect this year by some amount, but I think you are probably -- got a little too much in there for 2011 in your thinking.

That makes sense, given what you said. Relative to Mike's comment before that we expect, given what you're look at now, the opportunities of backlog, a solid year from an organic standpoint, a solid year like this year, so would it be fair to say similar organic growth in 2011? Do the opportunities bear that out?

I think it's premature to think about that, but certainly just from a general comment, we continue to feel good about our end markets. We think that 2011 will be good year as 2010 is.

Very good. Thank you very much.

You bet.

You have a question from the line of John Rogers of D.A. Davidson. Please proceed.

Good morning. Congratulations on the year.

Thank you

What -- Mark, the D&A for 2010, how does the amortization work this year? Is it it pretty flat? What are you looking at?

It should actually be flat to -- should be down because the amortization for the -- if we're just talking the about amortization, the amortization from the 2008 acquisition has rolled off. That will be down. There is no amortization associated with the -- either acquisition, because the T.W. LaQuay acquisition was not an asset deal. It was a purchase of the Company. And based on the -- how we'll account for that, there won't be any amortization, other than just nominal amount associated with what they already had. And then the pack Northwest greenfield expansion just -- again, that is what it is, more of a greenfield expansion and there won't be any amortization associated with that.

Does that mean D&A is roughly comparable to what we saw in '09 and '08, in the $19 million range?

Yes, I think that -- well, it should be fairly close to the same range as the result of maybe a little bit higher, a little bit higher than what we saw, but within the range.

Okay. And then secondly, as far as the $4 million to $5 million -- or $4 billion to $5 billion, excuse me, of market opportunities that you guys are looking at, or tracking, does that all work within your existing geographic area or geographic reach, and --

The answer is yes on that. Go ahead with the second part of your question.

Because you hear stories of some bigger projects outside of your region in the US, and what I'm wondering, how much of an opportunity do you need to maybe stretch a little?

Well --

Down in the Caribbean or out in the Pacific?

I think there's opportunities in all directions. We're only tracking the states that we serve, the nine states in the gulf coast, Atlantic seaboard and the Caribbean. We don't have any -- a significant information on the West Coast. We're beginning to work on that. That's something we'll be incorporating in our database going forward, and same thing with the Northeast. But we don't ignore it. We certainly are looking for opportunities that we he can go in where it makes sense, and capture business outside our traditional region, including the Midwest, upper Mississippi.

But we're just trying to take at step at a time. We are not trying to roll up our workforce to where we can't manage it, and we've had a good steady increase. We're up to about 1200 employees now with the acquisitions. We intend to spread out where the market is, and we're not covering everything right now. I think there's ample opportunity for us to expand.

Definitely, John, as Mike said, we don't want to include things in our database that are not inside the market areas that we're serving and then it's not really communicating anything. As we add, as Mike said, now that we're establishing this greenfield expansion base into the Pac Northwest, we'll start adding that into our database. But the $4.5 billion to $5 billion is in the market areas that we serve, excluding the Pac Northwest. Again, as we move forward, we will add that into the database, and areas that we could serve out of that region as well.

Lastly, in terms of new equipment or competition in the market, are you seeing anything there? I assume you can tell pretty quickly.

We've seen an increase in competition on smaller jobs. The list generally gets larger on projects that less than $3 million. This trend is continuing. The recession is not over from the construction industries point of view yet. We're hopeful we will see it abate in 2010, but it could be next year. I think that's going to continue throughout the year that we'll see a lot of smaller companies trying to get what they can.

Our approach is to maintain a discipline in our bidding philosophy, we did work to achieve profit. We're not out there just trying to get revenue with no return, or bid below our cost. It makes no sense. We're patient, and I just think it's going to continue to have pressure on the low end throughout the year.

Okay. Great. Thank you very much.

You bet.

Your next question comes from the line of Matt Tucker of Keybanc Capital Markets. Please proceed.

Good morning.

Good morning.

Our first question is on the -- how awards have been trending in the first quarter here. You mentioned you have a number where you're low bidder or in negotiations. Are you able to indicate at this point in the quarter your expectations, at least directionally, in terms of how awards and backlog are going to compare versus last quarter? Or is it going to depend on how some of those remaining bids pan out?

Yes, it depends. It's all about timing. One of the things -- keep in mind, we only announce projects over $10 million. As you saw from where our backlog was at the end of the fourth quarter, there was a significant add of projects under $10 million and our backlog was up both sequentially and year over year. A lot of it depends on the timing, and it's really difficult to comment on exactly where we'll be at the end of the quarter.

I will say, though, that our success rate remains in line with historical norms. Generally, we're going to get about a quarter of what we go after. Again, we feel good about where we are with backlog and the bid opportunities we have in front of us.

Great. If you look at that time bid opportunities, if you look at the $1.8 billion that you see for 2010, are you able to estimate how much of that work has funding in place versus being contingent on things like legislation getting passed or bonds getting sold or even budgets that remain in the flux, those types of things?

I think the majority of this market is funded. A lot of these projects we've gone through and picked out, pulled out of the specific budgets that were passed by Congress or already funded by the highway bill. I think it's in pretty good shape.

Okay. Then if you look at that time private side of your business, I believe you've indicated that you expect to see the share of revenues from private customers, maybe shifting closer to 40% this year versus more of maybe a 50/50 mix over the past couple years. If you look at your 2010 revenue guidance, I think that still suggests that you will see year-over-year growth in your private customers' revenues. Is that accurate? And can you talk about what demand you're seeing on the private side?

Yes. Funny enough, the private side has grown in both '08 and '09, and I think we're expecting to the be less this year. There's a lot of private companies that are holding on to their CapEx, waiting to see what legislation is going to impact them. I know the oil companies have certainly been in that mode. But we are seeing a migration towards more federal projects in our backlog that we started out with compared to private. It will probably be a shift to a little bit more federal this year.

We do still feel good about the private sector, even though, as Mike said, we do -- your comment about the level and the split is probably fairly accurate. We do expect the uptick on the government sector. But I think we still -- there's still a lot of opportunities out there on the private side. We're executing work that's in backlog on the private side. We are seeing some of the maintenance opportunities that held off in the fourth quarter on the private side are beginning to come back. There's various areas in the private sector that still have a lot of good bid opportunities and a lot of things in our tracking system in that $1.8 billion that we talked about that we think will be good opportunities for us in 2010.

Okay. Thanks. And then just last question, if you look at the job margins on the work you have in your backlog, if you're able to look on a job-by-job basis, excluding the overall utilization and things that are going to impact the overall margins, how does the pricing compare, or the margins compare on that work? Was there pricing pressure when you were bidding that work that may weigh on margins in 2010?

As Mike said, we do expect to -- and have continued to see the pressure on the smaller work. We think -- we're hopeful that abates during the year, but I think that's going to depend on the recovery. But we would just -- we're comfortable with the margin goals that we've set for both Q1 and the full year. Obviously the timing and mix of projects as we've talked about, and lumpiness of the business is still there, still with us. But we think when we take a look at all the factors, including the pressure that we're seeing on the smaller projects that we're comfortable with the goals we've set with regard to EBITDA margins for the year and the quarter.

Yes, probably the only area that we've seen some anxiety on in pricing pressure has been really the DOT sector. There's been a lot of concern about the safety, lieu of getting a final bill. They've had a series of continuing resolutions. I think they've shut down funding there for about a week and finally got the bill passed through this month. That's probably the one area I would say is soft.

Thanks, guys. Congrats on a great 2009.

Thank you.

Your next question comes from the line of John Kasprzak of BB&T Capital Markets.

Thanks. Were the delays that you've cited in the press release that impacted the fourth quarter, are they all resolved yet or are they still part of what is reflected in your Q1 revenue guidance?

They're generally resolved. I wouldn't read too much more into that, other than that's just the normal course of business. I would say that nothing that occurred was things that were necessarily out of the ordinary. It's just, when we talk about timing and mix and lumpiness, this is what we're talking about. It's not uncommon to see delays for one reason or another that are beyond our control. And yes, several of the things that -- we did see permitting issues or things of that nature going on in the fourth quarter. For those specific things, those did get resolved subsequent to the year end. But again, it's normal ebb and flow of project start dates.

Okay. Thanks. How about with regard to deep water dredging. Have you guys bid on any of those project with your new equipment?

Yes, we've been bidding on some deep channel work. One of the projects we got awarded in Galveston before the end of the year was deep channel work. We certainly intend on continuing to pursue that, and one of the dredges we'll be bringing on line will be able to go to deeper depths. We've looked at all of our fleet. We're making upgrades to get as many of our dredges as we can to go to the deepest channel depths. I think as time goes forward that's going to be important. We certainly want to be a player.

I suppose it's important because there's a need to do a lot more of that work over time. But how about the margin profile of that work? Would it necessarily be terribly different from where your margins have been historically?

I don't think it would be any different. There's a great deal of pent up demand, particularly on the dredging side, and now the funding has come forward to start that process of channel deepening. I think we're going to see some more port expansion work that will continue to stimulate the need for deeper dredging. You may have read recently about the Port of Everglades has come out with a $2 billion 20-year expansion, and that also includes deepening the channels. I expect between now and 2014, when the Panama Canal gets opened up for the bigger ships that we're going to see more expansion programs like that get announced.

And, John, yes, projects involving dredging services, we expect the same margins with the equipment we've added in line with the equipment we already had.

But we're taking steps to prepare for that demand. If you look historically in the gulf, we've had the equipment of about five major dredges operating. This year, we'll have somewhere around seven to eight equivalent, and 2011, nine or ten. We are certainly moving to respond to the demand that we see out there.

How about in 2009? Do you know about what percent of your revenue was derived from the Army Corps of Engineers?

We had 19% federal customers. I don't know how much of that --

That's the bulk of it. About 16% or so was the Corps. The majority of that 19% federal was the Corps of Engineers, and that was up from the previous year. That was up from '08, John.

Okay. I think you probably already answered this question, given some of your commentary, but I will ask it anyway. The big backlog increase you saw in 2009, do you know how much of that was from the -- can you tell or ballpark, how much of that was from stimulus?

It's really difficult to do. All I can tell you is stimulus was in there. We literally have some contracts that you have to identify base Corps civil works funding versus stimulus funding, and it's on a line-item basis. We really don't have that information. All I can tell you is that we are capturing some stimulus money. We're glad to see it come in. But it's hard to put --

It is, John, because it's like we said before. Throughout 2009, we always assumed, that would it get convoluted because, again, as Mike said, there might be part of a project funded by stimulus. The other part is funded by the normal O&M budget. And another part might be funded by the supplemental funding that we saw on the Gulf Coast due to the hurricanes in '08.

It gets convoluted like we thought it would. But I think the overall comment that we have is, stimulus, as far as we've seen it, has unfolded exactly like we thought it would. It's had had the impact that we thought it would. Again, our overall end markets are not dependent on stimulus. It's played out and is playing out as we expected all along.

The last question would be just a weather question. Any impact -- a lot of bad weather in Q4. Did that have an impact in Q4? Has some of the bad winter weather impacted your view of Q1 at all?

Not more than normal. Normally, you get to year end, you get into Q1, you have just not as good weather, not as much daylight as other times of the year. I would say nothing material.

Thanks a lot.

You bet.

Your next question comes from the line [Michelle] of FBR Capital Markets. Please proceed.

Good morning, gentlemen.

Good morning.

I actually still do have couple questions, after that long queue. It's minor, but it looks like you're tracking -- or the bid opportunities that you're tracking went up from about $4 billion to $4.5 billion to $4.5 billion to $5 billion. I was just wondering if that was due to increased activity that you're seeing or if that's mostly tied to the LaQuay acquisition?

It's not really LaQuay. It's just more projects have been identified. Could be some incremental impact of stimulus, it's hard to say. But the good news, it's going up every time we look at it each quarter and we're excited about that.

Excellent. In the terms of your dredges that you currently have available, are they all available, besides the two that are supposed to commission later on this year? I know you were taking some out in 2009 for some longer term maintenance.

Yes. All the dredges that we have, both King Fisher and LaQuay, are operating at this time, with the exception of our smaller dredge fleet. I'm talking about the major dredges here.

And with the exception of the two that will come on line later.

Yes. We've got about nine going right now.

Nine of the larger dredges. Okay. Final question for you, Mark, in terms of SG&A, it seemed a little light, especially for the fourth quarter. Can you give us any additional guidance, whether it's absolute dollar or percentage of revenue for 2010?

Yes. It should be just the natural growth, in terms of -- we've got the $1.5 million, $2 million that we'll have associated with acquisitions. It should be up as a result of both just natural growth and the added acquisitions, and just the support that goes along with that. It still should be in the 10%ish range.

Okay. That is it for me. Congratulations and good luck in 2010.

Thanks.

You have a question from the line of Will Gabrielski of Broadpoint.

Thank you. I'll just ask a simple question. Hope you guys can provide some insight. Do you guys have any intelligence when you look at some of your comparably sized private competitors or maybe mid-size private competitors, what their balance sheets look like right now? Are they highly leveraged? Have they taken on more debt over the past few years? Do you guys have any insight on that?

I really can't comment on that.

Fair enough. Then on the port construction cycle, I know you mentioned Port Everglades and the expansion project. If you were to think about the next two to three years, do you see an acceleration versus the past two to three years in terms of bid opportunities for you?

It's cyclical. I'll tell you the things that we watch and track that are interesting to us. First of all, we've got the Panama Canal widening. That's in play. We've got each port in the Gulf Coast and southeast Atlantic seaboard, looking at how to respond to the additional shipping traffic.

If you track the Baltic Dry Index, fright index, it's been tracking parallel with the S&P 500 Index, and it's dropped significantly. People have been trying to understand what's causing that. And one aspect of it is the amount of vessels being built now has just increased tremendously. The number of ships, [cape size] in particular, that have been built in the last two decades has kept pace -- I think deliveries about one new cape size every two or three weeks. In 2009, they delivered about 112 vessels. That's one every three days. This year, the number of new cape size vessels, deliveries is going to triple to 335. That's almost one vessel every day.

What we are seeing is that that is putting some pressure on the freight rate index and is dropping due to the fleet -- just a lot of tonnage coming on line. Now, from a contractor's perspective, more vessels should be a good driver for us, because there's going to have to be port facilities to handle these bigger ships. It means more maintenance that will be required. This is on just a worldwide look at it, but I think those are good driver. Cape size is such bigger than the [panamax] size, which is normally trading right now. It's going to be interesting to watch this preparation for the Panama Canal. I think all those are good long term drivers.

We stick by what we've said in the past is that we think there will be a continuing, steady stream of bid opportunities related to the port expansion. In other words, we don't think there's going to be one big spike all of a sudden at some point. But what we do think is, is that these ports are going to continue to execute their longer term growth strategies, and that we're going see a steady diet of opportunities out over the next several years, as we have seen over the last few years as well.

And the other thing, too, that is very surprising, is the cruise industry, passenger growth has continued, even through this recession. You would expect that that would be a place people would cut back. But they're seeing tremendous increases in passenger miles. A decade ago, it was about 7 million passengers. I think this year they're estimating about 18.4 million, generating over $26 billion of revenue. The fear that that industry would overbuild has really turned out to be unfounded. They're finding the passengers. They're getting the cost per passenger to go down by optimizing the efficiency of these bigger vessels. You can buy a ticket for a one week cruise now for about what it cost 15 years ago. That's good for us in the Caribbean, I think.

One follow up, and I appreciate all the color on that. If you were to characterize the behavior of some of the ports right now on the commercial side, are the port of Galveston and the port of Houston aware, just hypothetically, that they need to compete with each other for capacity? Is that accelerating what would normally play out over a longer period of time? Or is that not happening yet?

I think both ports are looking at what they need to do to expand. Each one of them has their programs that they're trying to develop further expansion. They have the acreage to do it. I can't comment about the rivalry between the two, but we're seeing both port of Houston and Galveston being active in planning out their work. We think they have a great potential to increase trade in this region here than most ports.

Yes, further to that, they are -- the ports, again as we've said in the past, the benefit to us is that they are competitors of each other. They know they're competitors of each other. And they are executing their long range development plans as a result. Because as we go up and down the coast, the Gulf Coast, southeast Atlantic coast, you can just see that in their long-term plans as to why they've got the plans they have, and it's in order to attract the business to their port versus one of their competitor ports. They are aware of that. I think their plans reflect that. Again, we expect to see a steady stream of opportunities as a result of them executing their long-range plans.

Great. Thank you.

You bet.

You have a question from the line of David Yuschak of Madison Williams & Company. Please proceed.

Good morning, guys. As far as your guidance in the first quarter, how much of that would be -- would you consider LaQuay adding to the revenue? How do you see that $25 million backlog that you picked up from them playing out over the course of the year?

Not very much in Q1. We made the acquisition at the end of January so we'll get a little bit in the quarter. But we expect, as we said earlier, not just with that acquisition, but with the other backlog that we have, that we'll see an uptick beginning -- in terms of executing work and what not as we get into Q2.

Again, their profile -- the profile that we picked up when we picked up LaQuay of projects is similar to what we -- it's in a market we understand very well. If you think about it, typical project length is three to nine months. Their profile similar to ours. We would expect that a good portion of the backlog that we acquired would burn off in that timeframe, and then we'd be adding additional amount on top of that to meet the full-year revenue goal that he we've set for ourselves.

And then as far as the new dredges coming on in the second half, do you anticipate maybe front running on some bids to make sure when they come aboard that those can be as productive as possible, as soon as possible?

Well, yes. We're evaluating the equipment. We're trying to standardize our monitoring equipment and electronics that we've put on each one of the dredges so that we'll have similar productivity monitoring tools that we have in the King Fisher fleet. That's something that's underway right now.

It's just like anything else, Dave. As we -- that's what we do every day, is we look at our matrix of where our equipment is, when it's available, matching it up with bid opportunities. It's not anything different than what we would do for a project that's ongoing now that we expect to complete in such and such a date, we're going to have a certain amount of equipment available. It's just business as usual in terms of allocating resources and matching them up with bid opportunities.

Okay. Good. One last one. When you mentioned 10% SG&A market, that doesn't include the $1.5 to $2 million from the first quarter? Charge for acquisition?

We'll be in that range, yes. And of course, the added $1.5 million to $2 million.

That's all I got. Thanks a lot.

You bet.

This concludes the Q&A portion of today's call. I would like to turn the call back over to Mr. Chris. DeAlmeida. Please proceed.

Thank you. On behalf of Orion Marine Group, we'd like to thank you for taking the time to talk with us today. 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.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.