Orion Group Holdings Inc (ORN) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Third Quarter 2010 Orion Marine Group, Inc., Earnings Conference Call. (OPERATOR INSTRUCTIONS) As a reminder, this conference is being recorded for replay purposes. And now, I would now like to turn the call over to your conference host for today, Mr. Chris DeAlmeida, Director of Investor Relations. Please proceed, sir.

Good morning, and welcome to the Orion Marine Group's Third Quarter 2010 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've allocated about 15 minutes for prepared remarks, in which Mike and Mark will highlight our results for the quarter, update our outlook for 2010, and speak about the road ahead. We will then open up the call for (inaudible) analysts' questions for the remainder of the time.

During the course of this conference call, we will make projections or other forward-looking statements regarding, among other things, our end markets, revenues, gross profit, gross margins, EBITDA, EBITDA margins, backlog, projects and negotiation and 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 are predictions that are subject to risks and uncertainties, including those described in our Form 10-K for 2009 that 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 a result of new developments or otherwise.

Also, please note that EBITDA and EBITDA margin are a non-GAAP financial measure under the rules of the 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 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, November 4, 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. Mike?

Thank you, Chris. Good morning, everyone, and thanks for joining us this morning. During the quarter, we continued to see solid drivers for good long-term growth, and overall our revenue and EBITDA continued to perform well, and it resulted in solid year-over-year growth.

In fact, our revenue exceeded our Q3 expectations, resulting in quarterly revenue of $100 million, which is a first for our Company. Third quarter revenues exceeded our goal range of $90 million to $95 million as a result of favorable conditions, including the acceleration of project schedules. Our third quarter EBITDA margin was within our goal range.

Now, before I discuss our end markets and outlook for the remainder of the year, I wanted to update you on the progress of our acquisitions. During the quarter, we commissioned one of the two new dredges and it's already at work. The second dredge was just commissioned and is now working on its first job as we speak.

With regard to the Pacific Northwest, we're already working on several small jobs now and are in the process of obtaining additional work for 2011.

Now, turning to our end markets and future outlook, we continue to see solid end markets, with good drivers for success. As you know, we're bidding and working on port expansion projects, rehabilitation projects -- all in our market areas -- and we expect to see these opportunities in the future as ports continue to execute their long-term growth plans. Funding for these projects seems stable and attainable by the ports.

We expect to continue to see good opportunities for coastal restoration and protection projects, and funding for these type projects has gained support and we anticipate solid funding for years to come.

Additionally, we continue to work on major bridge projects. We'll be paying attention to any resolution of the expired highway bill. Passage of a new highway bill, the safety loop, could be a catalyst for additional bridge opportunities and an easing of competitive pressure on the East Coast. However, we don't expect to see a new bill until some time in 2011.

Additionally, we continue to see bid activity and good funding from the Corps of Engineers. I had the opportunity last week to see the anticipated project list for the Galveston Corps district and also the New Orleans Corps district, and I noted that both districts' level of planned spending for next year should be similar to 2010. Further, we expect the O&M portion of the Corp's budget, which is the portion that we primarily pursue, to remain near current levels for the next few years.

To sum up our end markets, we've not seen a material change in overall bidding opportunities and we remain optimistic for the long term.

Now, turning to our outlook, we remain comfortable with our previously stated full-year 2010 revenue goal of $360 million to $370 million, and also our full-year 2010 EBITDA margin goal of 16 to 18%.

Now, with regard to 2011, we have a good backlog headed into next year; we're tracking increased bid market opportunities. And additionally, in 2011 we'll get a full-year benefit from the two new dredges that we just recently commissioned, and we expect our operations in the Pacific Northwest to begin to contribute more to our results.

So given the current market environment and these benefits, we think it's reasonable that our full-year revenue will grow around 10%, as compared to the full year 2010. However, actual results could be lower than our expectation if there's additional pricing pressure on larger jobs or smaller-than-expected international opportunities, reduced bridgework opportunities, or unforeseen delays in port development. But even if these negative factors were to occur, we still believe we could see minimal growth in the 2011 top line.

On the positive side, actual results could exceed our full-year expectation if there's an easing of pricing pressures on the East Coast, passage of a new highway funding bill, better-than-expected lettings from the Army Corps of Engineers as a result of the Harbor Maintenance Trust Fund legislation, and better-than-expected international opportunities. Or the acceleration of port expansion projects in our market areas.

We believe that 10% top line growth in 2011 is very reasonable. Still, we'll be watching several factors over the next few months and we'll update you as our year progresses.

Now, on the margin side, we expect full-year 2011 EBITDA margins to be in the 16 to 18% range.

So in closing, I know there's been a lot of anxiety and fear over the future funding levels and bid activity for next year. And while we can't predict the political and economic future any better than you can, we do know there's a dire need to rehabilitate and improve our country's waterways infrastructure.

Additionally, our backlog and bid market opportunities indicate that 2011 should be another growth year for our Company.

With that, I'll 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 of 2010 was $7.1 million, or $0.26 per diluted share, which compares with $5.4 million, or $0.22 per diluted share, in the prior-year period.

Third quarter contract revenues increased 22.8% year over year to $100 million, of which 60% was generated from federal, state, and local government agencies and 40% from private industry, which compares to 49% from federal, state, and local government agencies and 51% from private industry in the prior-year period.

Our third quarter 2010 EBITDA was $16.4 million, representing a 16.4% EBITDA margin, which compares to third quarter 2009 EBITDA of $13.2 million, or a 16.2% EBITDA margin.

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 fluctuations.

Turning to backlog, as of September 30, 2010, we had backlog of work under contract of $217.3 million. As a reminder, our backlog consists of projects under contract that have either not been started or are in progress and not yet completed. 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 approximately $5 billion. As we look at the remainder of the year, we remain comfortable with our previously stated revenue goal of $360 million to $370 million and our EBITDA margin range of between 16% and 18%.

Turing to the balance sheet, we believe it is important to have a strong, stable balance sheet, low leverage, and a solid cash position. As of September 30, 2010, we had cash on hand and availability under our revolving line of credit of approximately $130 million. As a reminder, we currently have an unused debt facility which provides us with a $75 million revolver and a $25 million accordion that is available at the discretion of our lenders.

Although we currently have no debt, this is not to say 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, I want to remind everyone that we are in the construction business. Things can and do move around from a timing perspective for reasons outside of our control. For example, we saw Q2 revenues of slightly less than we expected, while Q3 revenues were more than we expected. This type of shift is natural and not alarming to us. Our objective is to provide you goals and estimates that are realistic and reflect our expected liquidation of revenues. However, there can be factors outside of our control that move things around on a quarterly basis, which is why we urge you to focus on the long-term and annual results rather than quarter-to-quarter fluctuations.

As Mike mentioned earlier, when we look at it long term, we remain excited. Much of the water infrastructure in the US needs repair, improvement, or replacement, and we believe this work will get accomplished over time. We have good visibility in the short term and have solid long-term end market drivers. These two factors are what gives us confidence in the future.

As we close out 2010, we will again see record full-year revenue and will have more than doubled our full-year revenue from what it was five years go.

As we look at the next five years, we plan to double our revenue again through organic growth, greenfield expansion, and strategic acquisition. And we believe there is a market to support this growth.

As Mike said earlier, we expect 2011 to be another growth year, and it is not unreasonable to see double-digit growth again. However, we will have to pay attention to several factors and will update you as the year progresses.

Still, we are optimistic about the road ahead and excited about our future. From where we sit today, we believe we will close out 2010 with good results and have solid opportunities to see continued growth in 2011.

With that, I'll 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. Angela, will you please review the procedures for placing a question?

Thank you, sir. (OPERATOR INSTRUCTIONS) Fred Buonocore, CJS Securities.

Yes, good morning.

Morning, Fred.

Just wanted to touch quickly on the margin. The gross margin was down a bit, at least from our expectations. And it sounds like that was impacted by lower self-performance. We've made a lot of investments in things like heavy lift capacity and such over the last several quarters. Thought that was maybe going to give you the capacity to self-perform more. So just trying to understand -- is this lower level of self-performance kind of going to be a perpetual state going forward, or was it just something with the projects that you were working on? How should we think about that going forward, as you looking into your current backlog and the mix of projects?

Fred, I think it was kind of an anomaly for the quarter. One of the big projects we had ongoing this summer was a major trunk line, pipeline, that was laid across Galveston Bay. And that project incorporated a substantial subcontract element in it that is larger than we normally see on traditional port work. So I think that will burn itself off as we complete that job.

Okay, so that kind of 20%, or low 20, gross margin potential isn't out the window, so to speak?

No. Normally we expect to self-perform 85 to 90%. We think that's an expectation that we'll see going forward. As Mike said, I think this was just sort of an concentrated scheduling of that project during the quarter that bumped that up outside of the normal range.

We did a lot of directional drills on that project, which we subcontract out.

Oh, okay; that's very helpful. And then, as a follow-up -- it looks like you upped your potential bid opportunity number to $5 billion, up from the $4.5 billion to $5 billion. What changed there, or what sort of opportunities kind of went into that pipeline, or tracking system, that weren't in there before?

Well, we're getting better visibility now up in the Pacific Northwest, and that's added incrementally to it, as we hoped it would.

Okay. And what kinds of projects would those tend to be?

All types. I mean, there's port development, ferry terminals, DOT, demolition of the existing old wharfs and docks, and-- our traditional-type work.

Navy work--

And can you give us a sense, maybe, for a rough dollar range of the incremental revenue you might see from that in 2011?

Well, Fred, we're not going to break that out on a go-forward basis because we just view everything on a project basis and we don't break things out regionally. But I think we've said before that the run rate that that equipment was running at with the prior owner when they were at their peak was sort of in the $40 million to $50 million range. That's certainly our goal and expectation, to get there eventually. I don't think we'll see that next year, certainly, but we're pleased with where we are in our progress in the Pac Northwest and getting that division up and running.

As you know, that really is much more of a greenfield expansion-type effort for us versus acquisition of an ongoing business. So it's going to take us some time to get there; don't think we'll get there, certainly, next year. But we're pleased with where we are at this point.

Okay. Thanks a lot, guys.

Trey Grooms, Stephens, Inc.

Morning, guys.

Morning.

Hi, Trey.

A couple of questions. One, if you're looking at the backlog, how much are you guys expecting to liquidate in 2010?

Well, Trey, we kind of reiterated where we expected to be for the full year. So it's basically just kind of a squeeze there to get what you would expect in Q4.

Okay, that makes sense. As far as the pipeline for M&A, you guys mentioned again as part of your long-term growth kind of looking at M&A, always kind of looking. I know you've got the balance sheet to support something. Could you give us kind of an update on what's going on there?

Well, we're always opportunistic and work the acquisition avenue throughout the year. We try to maintain a position, particularly on our growth projections that aren't dependent on acquisitions. And we're continuing to execute our growth strategy. So acquisitions will certainly be an element going forward. We have nothing to announce at this quarter, but we are looking at three sources -- greenfield, organic, and M&A -- to double our revenues in the next five years, and it'll take all three.

Okay. And thinking about greenfield, what areas do you guys think you'd be focusing on if you were thinking about greenfield expansions? Can you give us an update on that?

Well, the Pacific Northwest is a greenfield expansion, the way we purchased the equipment there. And we're evaluating other areas to determine if that's a route we want to follow. There's really nothing to report at this time except to say there's still quite a few areas in the United States that we do not pursue. And we're trying to do this on a step-up basis and not get ahead of ourselves.

Yes. The other thing, Trey, just keep in mind, too, is that greenfield to us also-- we've filled out pretty good the gaps in the Southeast and the Gulf Coast, but we can expand on those areas as well. And so we think there will be a significant element of greenfield expansion in the future in our growth strategy.

Okay. And Mark, for you, I guess -- looking at the SG&A, with it down, what's a good run rate to kind of think about going forward?

Well, I think we were slightly lower than we expected for the quarter, and I think partially that's-- I think our prior-quarter run rate is probably a more realistic one. I think this quarter we were slightly lower than we were expecting. Partially that was due to adjusting our incentive compensation to put it in line with the goals that we lowered down in the mid-year.

Also, we had a favorable impact on our [greenfields] plan, and that's certainly something we wouldn't want to model in on a go-forward basis. So I think prior quarters is probably more realistic -- in that range, in that kind of 9-ish range.

Okay, that's real helpful. That's all I've got, thanks.

Thank you.

Thank you, Trey.

Steve Dyer, Craig-Hallum.

Thank you. Good morning, guys.

Morning, Steve.

Just wondering if you could give us some additional color, as you've done the last several quarters, on the competitive environment, particularly on the East Coast. Has that changed for the better or worse, or is it about the same as you've seen it?

It hasn't changed. I think we're still continuing to see that pressure on the East Coast, and it's primarily remained in that area, for the most part. We continue to monitor it. Having said that, we have certainly looked at our bidding strategy in that area and have been successful in getting some projects awarded. Not anything major that we announced, but some pretty good-sized projects, below $10 million. So we're confident that we'll continue to get our share of the market there.

Okay. Okay. And then, with respect to port expansion, as you think about sort of the macro opportunity down along the Coast from the Panama Canal, is there any way of quantifying sort of how far along you think that is in terms of the port expansion? I mean, are we halfway there, we have a lot farther to go? How should we think about that as an opportunity going forward?

I see it as just really starting up. Nearly every major port has some plans for expansion and one of the big concerns now is expanding the ports for the bigger ships but not having the deep water channels and turning basins dredged to the correct depths. So I think there'll be renewed focus on that.

And we're very anxious to see what the new Congress is going to do to address this. If you remember, there was about a $500 billion transportation bill that was bantered around prior to the election and it got put on hold. That was championed by Oberstar, with the House Transportation and Infrastructure Committee chairman, and he's out of power now. The new chairman that would likely take over that is US Representative John Mica out of Florida. And he is very supportive of long-term highway and transit plans. I believe that we'll have another champion for our cause here, but we have to wait it out and see how long it's going to take Congress to get organized to go forward. But the demand is there.

Yes. Steve, as we've said before-- First off, to reiterate what Mike said, if you put it in baseball terms, we think we're in the early innings on the port expansion. And really, we think we'll see a steady diet, if you will, of opportunities over the next 10 years, if you look at the long-range plans from the various port authorities on the East Coast and the Gulf Coast. Many of their plans take them well beyond 2014, when the Panama Canal will be complete. And literally, it's out over the next decade. So we think we'll see opportunities.

There'll certainly be some projects that'll be ongoing, as there have been. There've projects completed, there's projects in progress right now. We expect there'll be some more done between now and 2014. But we don't expect it to stop there; we think we'll see it continued on. And again, if you look at their plans, they go out through the next decade.

Okay. And then, last question. I know it's hard to talk on a short-term basis, but would you expect to exit the year with a backlog higher than it is today or kind of in line? What are your thoughts there as we look over the rest of the year?

It's tough to say. As you just pointed out, we had a book-to-build ratio of about 1 in this last quarter. It's just kind of tough. It depends on what opportunities get actually let and bid during the quarter. Some of that stuff moves around, just normal course of business, and then obviously it depends on what we get. So I think we'll be-- it's just tough to say. We could be around-- we could be higher or lower.

I guess the only other point I would make is that we just remind everybody that backlog is one data point. It's an important data point, but the other data point to keep in mind is the bid opportunities that we're tracking. And as we just talked about, we've got approximately $5 billion in our system and that's continued to trend upward over the last couple of years.

All right, that's it. Thank you.

You bet.

Matt Tucker, Keybanc Capital Markets.

Good morning, guys. Thanks for taking my question.

Hey, Matt.

Morning, Matt.

First question -- are you able to kind of quantify how much-- when you talk about 10% growth next year, how much of that you'd expect to come from the addition of the new dredges, as well as the Pacific Northwest?

Well, I think certainly the dredges will be a big contributor because our fleet has essentially doubled in the western Gulf Coast. So that'll be the biggest contributor.

Yes. And, Matt, as we look at it, obviously we're going to see some contribution from there. We talked about the Pac Northwest. I mean, certainly we don't think we're going to be anywhere near what their historical run rate was. But we're building, as we go into 2011, to get some contribution out of the Pac Northwest. It's tough to quantify that at this point.

Obviously we try to outperform, but there is, as Mike said, some uncertainty with the election; we've got to see how that plays out. Do we have a successor to the safety loop bill? What happens with the harbor maintenance trust fund? And just the general economy. So again, I think it's reasonable to expect that we see growth next year. But I think we're just going to have to pay attention to a lot of factors out in the economy to see where we actually wind up.

Thanks. And then, with respect to the Pacific Northwest, I know you guys are situated in Tacoma and you're kind of targeting a pretty large swath of the Northwest. Are there any ports in particular that you might highlight in terms of where you're targeting or in terms of where you see the most opportunity?

Well, certainly the Seattle Basin, that region in there. That's what we refer to as the Pac Northwest center hub. We're looking and bidding projects all the way up to Alaska, and there's several projects developing in Canada north of Vancouver. And we'll also look at selective projects in Northern California. So that's kind of the band that we'll cover.

We're very pleased at the projects we've identified to date; that's right down our radar of the type of work we're looking for. Those are maritime economies over there.

Great. So I guess even as you're just kind of still ramping up, you're already able to really cover a pretty large chunk of geography as you're bidding on work?

We are. And again, that's one of the things that attracted us to the opportunity, was to be able to get set up in that market. And again, we took a look at where these assets were working prior to us acquiring them and they were operating in that range. So it's not unexpected for us when we're ramping up there.

Thanks. And just one more question; I'll jump in the queue. You guys announced some pretty large awards in the summer, first couple months of the third quarter. Was wondering, how has the kind of pace of awards trended since we last heard some announcements from you guys? Have things slowed down, have they been fairly consistent as you're kind of a month into the fourth quarter here?

Well, we're continuing to get awards. About two-thirds of the work we get, we never announce. We are going to be bidding on some bigger projects here in the next few months. One thing we're pleased to see is there's several design build opportunities, which enables us to leverage our turnkey capability, particularly on the East Coast.

We've had five quarters of ending backlog in excess of $200 million and I think we're finding the right-sized jobs that fit our strategy. We're not changing our bidding philosophy in terms of maintaining pricing discipline and not bidding below our costs. We're just not interested in buying work. So we're trying to be patient and selective on those targets that we go for.

Appreciate the color. Thanks, guys.

Okay, Matt.

Min Cho, FBR Capital Markets.

Good morning.

Morning, Min.

Obviously, most of my questions have been answered but I did want to ask you about the LaQuay acquisition. I know that before you made the acquisition, the dredging margins were a little below kind of your historical dredging margins. And I was wondering if that was kind of on par now; if that's still a margin opportunity for you.

I'd say they're on par. That integration is going very well with-- our King Fisher Division ended up taking over that operation and integrating it into their existing operation and it's going very well. We have a good team of people managing that process. I think it's met our expectations very nicely.

Right. And then, keep in mind, Min, that we did take over a backlog of work that was bid prior to us and would have potentially been different had we bid it. We've-- large impact that we've had in 2010 from that acquisition has been from the backlog of work that we took over. But as Mike said, we're real pleased with how that's integrated in and how those operations are going.

Okay. And then, with the two new dredges that were recently commissioned, would you assume, for 2011, your dredging revenue's probably going to be closer to kind of a 30 to 35% level versus your 25%?

That's a fair way to look at it.

Okay. And then just finally, in terms of your 2011 growth guidance, does that assume any additional equipment in the Pac Northwest region? I know you'd mentioned in the past that, to really gain some scale there, you'll probably need to add more equipment in order to target some of the larger opportunities. Is that in the assumptions at all?

Well, not anything substantial. We may, depending on what awards we get, add to the fleet there. But it depends on what we get awarded. I think we've got a nice basis to start from. Our efforts in the off season, during the fish window, is going to be to refurbish some of our key pieces of equipment in dry docks and use the core base of equipment there primarily to build up. We will be looking for opportunities to get some bigger projects, which may require additional assets being added. So we've just kind of got an open door there to wait and see how successful we are.

Okay. And then Mark, if you can just provide some CapEx guidance for 2011?

Well, we're still working on that. We did not announce that today in the earnings release, but I think it's fair to say, which we've kind of hinted at before, that we probably would be back-- 2010 is sort of above normal just because of the acquisitions and the additional items we needed to incur as a result. But I think it's fair to say that we would probably be back down to the run rate where we were last year -- so sort of high teens to low 20s, somewhere in there. We'll announce that next call.

All right. Thank you, good luck.

Thank you.

(OPERATOR INSTRUCTIONS) John Rogers, D.A. Davidson.

Hi, good morning.

Morning, John.

I guess one thing I'm curious about is you look out in the market and you've talked about acquisitions as well as adding some capacity. What are you seeing from your competitors? Is there net capacity growth in this market or is it assets trading around and just being upgraded? I'm trying to get a sense of how much capacity is out there chasing this market.

I don't know that we know the answer to that. Because every time I look at these markets where we're not currently at, I find somebody new that's out there that we didn't know about.

There's a lot of mom-and-pop businesses in every state, and we don't cover the upper Mississippi Valley region, the Ohio-Kentucky-Tennessee region, or the California-- Southern California, or the Northeast. So there's a number of businesses that are out there. I do think there's an opportunity for us to be in every one of those areas, eventually. And so time will tell.

But I don't really know how to answer your question.

Yes, John, kind of like we've talked about -- generally in every area, there's a few locals, there's players that are the normal, what we would consider marine contractors. Occasionally, like we've seen in the past-- in these economic conditions the last couple of years, like on the East Coast, there'll be some land-based guys that'll try to get out and go after any work. So it's possible that we see some competition in that area from time to time, like the conditions we've been in now.

But generally speaking, we think that there is kind of that handful of competitors in each region. And I think with respect to the capacity, it sort of depends on the asset that you're talking about. I mean, certainly the quantity of dredges -- large, cutter suction dredges -- is fairly easy to get your arms around. But when you look at things like heavy-lift cranes and stuff like that, you essentially have the capacity that's out there on land that can easily be transferred over to the barge.

To answer your question, we think there's ample opportunity to continue growing the Company. I mean, I remember our very first road show, when we told people we were going grow the Company to the size that we were talking about, and we had 690 employees. And here we are today with 1400 employees and we've doubled our revenue. We found ways and markets to add on, and I just feel very good that there's going to continue to be opportunities for us to continue our growth. There's other business lines, too, that we'll consider along the way that we don't currently have.

Okay. But maybe just follow up for a second. It is your sense that it's still cheaper to buy equipment or to build it?

It depends. I think in many cases, it's cheaper to buy, particularly with-- Crane is an example. Because obviously, we wouldn't build a brand new crane -- we'd get that from a third party vendor. It's definitely easier to buy that than to build it.

I think with respect to barges, sometimes it depends. And that can change quarter to quarter because it depends on how busy the shipyards are, and scheduling and things like that. And we do both. I mean, when we've acquired pieces of equipment through our CapEx program, or sort of our normal CapEx program-- we've done both. And I think it's just something we look at.

I think as a general statement, though, I would say that it's probably -- and this is a broad-brush statement because not all assets are equal; and some, it certainly makes more sense to build than to buy, and sometimes they're not available to buy. But as a general statement, I'd say across the board-- it's probably still in the mode of cheaper to acquire than to build.

But we're doing both. This year we're building additional ABS and non-ABS barges, tugs, adding cranes to our fleet, and so forth. We have to continue to replenish and upgrade our fleet as it gets bigger. And even doing that, we're still having to go out and rent assets to supplement the demand that we've had. We don't want to get caught short of equipment and not be able to bid something.

Well, thanks. I appreciate the color.

Okay, John.

Craig Bell, EnerCap Partners.

Good morning, guys.

Hi, Craig.

Just kind of a couple of follow-ups for you. On the project you were talking about down at Galveston, where you had a lot of sub work out there -- is that supposed to wrap up in the fourth quarter? (Inaudible)

Yes, for the most part that job will be wrapping up. There may be some Q1 follow-up as we're closing out the project, but the majority of the work in the field will be done in Q4.

Okay. And then, just back to the Pacific Northwest again. As you talked about earlier on the outlook there, and you were talking about the different types of jobs and the larger jobs that you might pursue down the road -- do you think that there's a number of those that are looking to be awarded next year that you might be bidding on? Or is that even further down the road?

No, there'll be some awarded next year.

Okay. Are the larger ones sort of all over in terms of the types they are, or is it one specific-- I mean, is it just port work or do you see other ones out there -- other types?

Well, some of the bigger projects are the Navy developments. The DOT has ferry terminals and navigational refurbishment projects. There's port expansion projects ongoing. And they're taking place in several states -- Alaska, Washington, and Oregon and California -- and we have our pulse on those and are selecting which ones we want to pursue.

We'll build that operation up steady as she goes. We're not just going to jump in there and get a $100 million job from the get-go. We're just taking smaller projects and building our backlog up, getting our people assigned to projects and all the equipment working; that's where we want to head. We don't have any restrictions on the size of projects, it's just we want to not go at a pace that gets out of control there.

Okay, great. Thanks for taking my questions.

You bet, Craig.

Ladies and gentlemen, this concludes the allotted time for the question-and-answer session today. I would now like to turn the call back over to Chris DeAlmeida for any closing comments.

On behalf of Orion Marine Group, we'd 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 good day.

Ladies and gentlemen, we thank you for your participation in today's conference. This does conclude the presentation and you may now disconnect. Have a wonderful day.