Orion Group Holdings Inc (ORN) 2010 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the fourth-quarter 2010 Orion Marine Group, Incorporated earnings conference call. My name is Stacy, and I will be your conference moderator for today. At this time, all participants are in a listen-only mode. We will conduct a question and answer session towards the end of the conference. (Operator Instructions) As a reminder, this conference call is being recorded for replay purposes.

I would now like to turn the call over to Chris DeAlmeida, Director of Investor Relations. Please proceed.

Good morning. Welcome to the Orion Marine Group fourth-quarter and full-year 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 year, and update our outlook for 2011, and speak about the road ahead. We will then open up the call for [certified] analyst questions for the remainder of the time.

During the course of this conference call, we may make projections and other forward-looking statements regarding, among other things, our end markets, revenues, gross profit, gross margin, EBITDA, EBITDA margin, backlog, projects and negotiations and pending awards, as well as our estimates and assumptions regarding our future growth, EBITDA, EBITDA margin, gross margin, administrative expenses and capital expenditures. These statements are predictions that are subject to the risks and uncertainties including those described in our 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 as a result of new developments our 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 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 reconciliation to the most comparable GAAP measures. Also, please refer to our earnings release issued this morning, March 3, 2011, 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. During 2010, we saw many challenges, and we also saw many accomplishments. Although less than we initially expected, we did continue to grow the business, which resulted in record full-year revenue with solid bottom line performance and strong EBITDA margins. We ended 2010 with more than double the amount of revenue we had in 2005, while maintaining industry-leading EBITDA margins.

I want to start off by providing some highlights of 2010. Early in the year, we successfully completed the acquisition of T.W. LaQuay Dredging, which expanded our Gulf coast dredging fleet, and gave us the additional equipment needed for pursuing deep channel dredging. Additionally in 2010, we acquired several pieces of marine equipment in the Pacific Northwest, and successfully opened a new greenfield division in Tacoma, Washington, to serve the heavy civil marine construction markets from Oregon to Alaska including western Canada.

Still, there's no doubt 2010 saw many challenges. During the year, we saw continued increased competition on construction projects in the Atlantic region, coupled with irrational pricing on larger projects. Both of these factors put pressure on our margins and success rates in that region. Additionally, we saw the timing of projects change from our initial expectation, which made an impact on our full-year results. While we can't alter the existence of these challenges, we're working hard to meet them head-on and deliver long-term value to our shareholders.

Now turning to our end markets and future outlook, we continue to see solid end markets with good drivers for success. Despite the uncertain economic and political environments, work is still coming out for bid, and our end markets continue to support growth. However, we'll continue to maintain our pricing discipline by bidding profitably. During 2010, many of the ports in our geographic markets have released plans for expansion over the next 10 years, and that's a result of recent cargo volume increases and expected volume increases as larger ships begin to transit the Panama Canal in the future. Once the Panama Canal expansion is complete, shipping companies from Asia will be able to access an all-water route to the east coast of the United States with larger vessels, saving them approximately 6% to 16% in transportation costs, while also reducing the time it takes to get goods to market.

20 ports in our market area have announced specific projects that will total approximately $4.7 billion in expansion-related work. As a result, we expect to see port expansion opportunities continue in the future, as ports execute their long-term growth plans. Increases in water-borne commerce continue to shine a spotlight on the need to rehabilitate our nation's water infrastructure. Water-borne commerce has increased 70% since 1969, with nearly 66% of all water-borne commerce occurring in the 14 states that we operate in. As a result, we expect to continue to see bid activity and the need for solid funding for the corps of engineers. The recent proposed budget from the President holds the operating and maintenance portion of the quarter's budget nearly flat in 2012.

Looking at other end markets, we expect to continue to see good opportunities for coastal restoration and protection projects. As you may well know, Louisiana alone has been losing 40 square miles of land annually over the last several decades. There has been and continues to be a focus on coastal restoration and protection projects in Louisiana, and now starting in Texas. Funding for these type projects has gained support, and we anticipate solid funding for years to come. In fact, the Coastal Wetlands Planning, Protection and Restoration Act is funded through 2019, and currently has $608 million in restoration projects under construction in Louisiana. Five additional projects have recently been approved, adding another $117 million to the Louisiana area.

Additionally, the Louisiana Coastal Protection and Restoration Authority has billions in planned projects, while the Gulf of Mexico Energy Security Act will provide an estimated $400 million to $500 million for Gulf states beginning in 2017. So as you can see, there's a big emphasis on coastal restoration. And we expect to see continued growth in this segment for years to come. To sum up our end markets, we've not seen a material change in overall bidding opportunities, and remain optimistic for the long term.

Now, turning to our outlook, we remain comfortable with our previously stated full-year 2011 revenue goal of at least flat revenue year-over-year, with EBITDA margins in the 14% to 16% range. However, actual results could exceed our full-year revenue expectations if there is an easing of pricing pressures, passage of a new highway funding bill, or better than expected lettings from the army corps of engineers as a result of the harbor maintenance trust fund legislation, or better than expected international opportunities for the acceleration of port expansion projects in our market areas. There's no doubt that 2011 will have some uncertainties in this economic and political environment worldwide, but we feel we're well positioned to weather these uncertainties and be ready for future growth.

Overall, we achieved another record revenue year in 2010, with continued strong EBITDA margins, overall strong end markets, and momentum for continued future growth. We remain excited about future bid prospects and the strength of our end markets. Our goal is to, once again, double our revenues during the next five-year period, while continuing to deliver solid bottom line results. We'll accomplish this through growth opportunities, strategic acquisitions, and new service lines that complement our core capabilities. We feel there's plenty of market to support the growth, and we're optimistic about the road ahead. Still, we remain cautious about 2011, given the uncertainties we are currently seeing in the economic and political landscape. However, we're well positioned to meet these uncertainties head-on, and prepare for growth in the future.

With that, I'll turn the call over to Mark Stauffer to discuss our financial results in more detail. Mark?

Thanks, Mike. And thanks for joining us. Net income for the full-year 2010 was $21.9 million or $0.81 per diluted share, which compares with $20 million or $0.84 per diluted share in the prior year period. Full-year contract revenues increased 20.3% year-over-year to $353 million, of which 64% was generated from federal, state and local government agencies, and 36% from private industry, which compares to 55% from federal, state and local government agencies, and 45% from the private sector in the prior year period.

Our full-year 2010 EBITDA was $53.6 million, representing a 15.2% EBITDA margin, which compares to full-year 2009 EBITDA of $50.5 million or a 17.2% 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 December 31, 2010, we had a backlog of work under contract of $194.5 million. Subsequent to year end, we have been successful in continuing to obtain additional awards for new work. As a reminder, our backlog consists of projects under contract that have either, A, not been started, or B, 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 approximately $5 billion. As we look at the remainder of the year, we remain comfortable with our previously stated revenue goal of at least flat revenue year-over-year, and EBITDA margin range of between 14% and 16%.

Turning 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 December 31, 2010, we had cash on hand and availability under our revolving line of credit of approximately $123 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 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, I want to remind everyone that we are in the construction business, and things can move around from a timing perspective for a variety of reasons. As Mike said, 2010 saw many challenges and many accomplishments. And while we cannot alter the existence of these challenges, we are working hard to meet them head-on, and deliver long-term value to our shareholders. As we look ahead, we remain excited about future bid prospects and the strength of our end markets. We believe the market is there to support our growth goal, and are optimistic about the road ahead. Much of the waterway's 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.

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

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

Thank you.

(Operator Instructions)

Your first question comes from the line of Trey Grooms with Stephens Incorporated.

Good morning, guys.

Good morning, Trey.

First off, Mike, can you tell us or remind us how the port expansions, as far as the funding for those expansions? How does that typically work with the ports, the port authorities and kind of looking out? There's no doubt there's a need for the expansions. How does the funding typically work for those things?

Well, ports generate revenues from the cargo that they deploy in the ports and cargo activity has been increasing. Here in our backyard in Houston, they've had increased growth. From time to time, they'll raise bonds to supplement that revenue stream. They've also, we've seen ports that have shipping lines that come in and take out a long-term lease with the port and fund the project themselves. There's several Far East shipping lines right now contemplating expansion plans, which they will fund. And that's, of course, got to go hand-in-hand with government funding of channel maintenance, and so, it's just kind of a combination of the two. But all the drivers are, that activity is really beginning to pick up again on the shipping side, and we think that bodes well.

Okay. All right. So, it's a combination. And if you had to kind of think about a mix. How much of that is driven by-- or even you've got the private side; you've got all these other things that are going on as far as funding. But how much is it really relying on additional funding from federal or state?

It's hard to say exactly, but there is elements of state participation in some cases. I know I've seen that in the gulf coast here where there's a 75/25% sharing on some specific projects. But it depends on type work that's got to be carried out.

Okay. Could you give us an update on the three jobs that impacted the fourth quarter? Kind of what the status is on those jobs?

Yes, Trey. The jobs, two of them are complete as we anticipated. I think the final one, it's complete. But as we talked about, there is some possibility of a recovery on that job going forward. We obviously haven't baked that into -- or we haven't recorded anything with respect to that potential recovery. If we see that, we'll see that in the future. But I think the three jobs with the production issues or the couple jobs with the production issues have been complete.

Could you tell us, Mark, what the impact of those jobs were?

Well we can't break it out specifically. But, I mean, I think that we would have been more in line with our goal for 2010 had we not had the impacts during the quarter. Again, just to remind you, the other side of the impacts during the quarter were the revenue shifts from the timing aspect of some jobs that -- one in particular that didn't begin in the quarter. And another that had the recognition during the quarter shifted out due to a subcontractor production issue. Not a production issue, but completion during the quarter versus being moved out in to 2011.

Were those shifted out to 1Q or are they just, kind of, occur as the year progresses here 2011?

They'll occur as the year progresses in 2011.

Okay. And then a couple of housekeeping things. The tax rate, Mark, in the quarter was a bit lower than we've seen historically?

Right.

Can you tell us what was going on there?

That's as a result of the finalization of the purchase accounting for the acquisitions and just the flow through as we kind of finalize the accounting for those. That impacted the tax rate. So, we fully expect that we'll go back to a more normalized tax rate going forward.

Okay. So 36% to 38% going forward?

Yes.

Okay. And my last question is on backlog. I mean it's down 23% or so from last year, not including the LaQuay impact. And just kind of thinking about the guidance for top line for 2011. The backlog, if you look back a year ago, the backlog coverage was much higher than where we kind of shook out for 2010. What kind of-- how do we fill that gap when we're looking at a basically flat year-over-year revenue line, but backlog being down as much as is it? Help us think about how to fill that gap looking forward into the year for revenue.

Okay. Well, as you probably realize, having tracked us for some time now, we tend to be up and down and what we call lumpy on backlog. But there are still plenty of projects out there to bid on. It's a matter of what margins will that work go for? Backlog's just one data point to look at.

I understand.

We typically turn our backlog two times a year. So, ending the year at 195 two times, that historically is within our grasp. We think the market continues to be strong. There are gaps in some states sometimes quarter-to-quarter, but overall it's strong. I think our book-to-bill at the end of the year was about 0.8 times. We've been in that position before. And we burned off some large projects that were awarded from 2009. So, we expect it to be down some. I think, to sum it up, we kind of factored all this in, in our full-year expectation.

Okay. That's helpful. I'll jump back in queue and let somebody else ask questions. Thanks.

Thanks, Trey.

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

Good morning, gentlemen.

Good morning, Matt.

Just a follow-up on the question about the three projects where you saw some issues. Mark, can you just clarify, were those finished in the fourth quarter or were they finished earlier in the first quarter? And if the first quarter, could we still see some impact on the margins?

Two of them finished in the fourth quarter. One finished in Q1, but the impacts of that were realized in Q4. So, I think from the standpoint of the impacts to 2011, I think there shouldn't be any from the standpoint of the issues that we had on the jobs.

Okay. Thanks. And then how much of the decline in margins that you saw in the fourth quarter, if any, reflects just weaker pricing on those jobs? Or was it really all these project-specific issues that you mentioned?

Well, it was a couple things and let me walk through that. Just as a reminder, on one of the projects, it was the legacy project that we took over from LaQuay. Still very profitable as we talked about before. It had margins much higher than our goal range. But it was less profitable at the end of the day than we initially anticipated, and therefore had impacts during the quarter. So, on the production side of things, two of the jobs that we had some issues on were still profitable jobs. One was above average profitability. One was in line. And then the other job that we had and where we encountered the rock-density issues and again we're hopeful for some recovery there. We're not booking that, and did not book that in Q4.

On the other side, we had some revenue impacts in terms of scheduled shifts in our schedule. And that impacted the percentage of completion on a particular job, and then another job that we thought we would start burning off in Q4, and we in fact did not. Design bill project that is cranking up in 2011 versus 2010. So I think, obviously, the combination of those things. On the revenue side, it shifted some profitable work out of the quarter, and then coupled with the production issues that we just talked about, that's what impacted our margin in Q4.

Thanks. That's very helpful. As you look at the opportunities for bidding that you guys see before you right now, what's your kind of expectation for the trajectory of backlog this year? And do you think that year-end backlog could be higher versus the fourth quarter level?

At the end of the year, we got -- we sure hope so. But it's a function of the work we go after and the work we get. There's significant projects out there. There's a lot of design build work that we're going after and some significant projects. And obviously, we've got to factor in the pricing environment that we've talked about in the last couple of calls. So, it all depends in terms of what we're successful in getting. Certainly, we have every expectation that, over time, our backlog will trend upward.

There's certainly the opportunity for some of these bigger projects to materialize in the latter part of the year. Particularly, some of the design build projects which we're pursuing. So, just stay tuned.

Thanks. Then finally, if you look at the $5 billion in opportunities that you are targeting right now, could you provide a rough breakdown of that $5 billion in terms of end marker or project type?

That's a tough one.

Yes. I think it's going to be pretty much in line with split between our various end markets. What I mean by that is between federal, state, local and private. There's just, there's a lot of core work in there, there's restoration work in there that Mike talked about in his remarks, port expansion work, which is at the local level, the state level and federal level, quite frankly, navy work, private sector terminal work. So, really I would say it's a cross section in the tracking system that's consistent with our split between the various end markets.

Thanks. Just one more follow-up to that. You mentioned some large numbers in terms of coastal restoration spending that's planned. Is that entire amount the opportunity for Orion? Or how much of that would be directly in terms of work that you guys could do?

Well, we take that market and select which projects we bid on. We don't necessarily bid on everything that's in there. But our success rate is historically been as a Company, somewhere around about 25%. It can vary from state-to-state, division-to-division. But what's important to us is that we get our goal met, our targeted growth and we get the right margin for it. The backlog that we have right now, we're very satisfied with the margins that we have going forward already. And that's probably the best I can tell you. We track individual projects. We know each division, how much federal, state, local and private work is available by each division. It's just not something we convey, but we have a huge database with information we track.

Matt, what'll occur as we move through time and the specifics of the programs that you're talking about, as Mike mentioned in his remarks. As specific projects get identified and we start going through those projects and determining what meets our criteria, then they would move into our tracking system. And become part of the what the $5 billion that we just talked about. Those are all specific things that we've identified that we're tracking. So, as those-- as more becomes known about specific projects coming out under that, that's how it will get in our tracking system.

Thanks a lot, guys.

You bet.

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

Good morning.

Good morning.

Would you please comment on the two jobs that were briefly mentioned last quarter, outside of the three that were written down? I think, specifically, they were the Galveston dredging project and the US navy project that saw the revenue slip. And your feeling about whether these have the potential for write-downs in 2011?

No, I don't think the issue is not from a write-down perspective. The issue is from a timing of recognition. The one in particular, the job in the Houston, Galveston area was merely a matter of the timing of recognition on that project. We had, as you recall, we had some issues with the subcontractor getting on the site later than anticipated. As a result of that delay, and some of the weather issues and low water issues, not being able to get their production met in the time frame of 2010.

From the overall job perspective, the job's in great shape. We're very pleased with the job. We will finish the job on time. We'll have no issues there, and it will be a profitable good job for us. Likewise on the other one, the design build, again, it's a timing issue versus any issues with the project. That is just merely one that we anticipated that we would get kicked off in burning our portion of the work in the last quarter versus 2011. And again we've been working with the designer to the engineering firm, to get that portion of it completed. So, we can get kicked off. And again, we think the work will be profitable and will not have any issues in completing the job on time.

The issue was the subcontractor started too late. He wasn't performing once he did get started. I think he reacted to our demands to increase resources and has recovered on his schedule. We think we'll be in good shape to finish that job this year.

Great. On the navy project, specifically, you have it sounds like you have enough contingency in there. Will you still make your bid margin, even though you're starting a little later than you had expected?

Again, that's another job that's in good shape. We just could not get the design approved quick enough on a design build project, and we just had a late start date from what we had forecasted and it hurt Q4. The work is kicked off now. We think that job is in good shape.

My back of the envelope calculation says about $15 million of your current backlog is scheduled to be worked off in 2012, that about accurate?

I don't think we split that out.

But there's some minor portion?

Yes. There's some that will roll into 2012.

That's right.

Lastly, now that you've been in the Pacific Northwest for a couple of quarters, I know it's still early in the game. But can you comment on the competitive climate in the region? Are the bids as aggressively priced as what you would see in the East and Gulf coast? And if that is the case, would you say it's a cyclical phenomenon like you think it is in your home market or rather is it something endemic to that market?

I'd have to say we're pleased that we're getting work at margins that meet our goals. We see a number of opportunities that have materialized in the region that we weren't aware of when we first went in there. And we've been getting our hands around the market. It's certainly grown. I think there's going be a lot of navy work opportunities, DOT opportunities coming down the road that we can participate in. I think we're off to a good start, and we're satisfied with the margins we're getting so far.

Great. Thank you.

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

Hi, good morning gentlemen.

Good morning, Fred.

I'm sorry if I missed this, but did you break out on the call, the mix of revenue in the quarter and, I guess, for the year between private sector and public sector?

For the year, it was 64% public sector and 36% private. And for the quarter, hang on just a second.

Yes. Fred for the quarter, the private piece was 26% this year.

Yes, Q4 2010 was 26%.

What are you seeing in terms of trends with the private sector? I mean, maybe specifically getting down into, say, oil and gas, customer repairs and things like that? Are you seeing any change in trends there?

I think it's going to pick back up in the second half of the year. We've identified a number of pretty good sized projects that could be an opportunity for us. There was a bit of a flurry with some maintenance work in the end of the year which generally occurs each year where companies are trying to spend their CapEx so they don't lose it. But we're not specifically saying we have to have a certain percentage of public sector work or certain percentage of federal. It's all about what type of projects are out there that utilize all our services that'll give us the best margin. I'm not concerned about the public sector work as a percentage of our total revenue. I mean, we've been at 60% public before and 40% private. We're literally just going where the work is. And we expect there'll be some increased dredging opportunities because of the expansion plans. Our margins are dictated on the services we provide, not the customer.

Fred, I would just add to that. We did a lot of work in the private sector during 2010, but we expected to see an uptick in our public sector work as a result of the LaQuay acquisition. Then, coupled with that we've been picking up some navy work. We did work a lot for the navy in 2010 and will continue in 2011. Again, that's just a function of, like I said earlier, it's a function of what we go after and what we are successful in getting award on. So, not unexpected. Again, we've seen a lot of opportunities in the private sector. We did a lot of work in the private sector during 2010.

I'm just wondering if, kind of, the upside drivers to your flattish top line guidance are all really public related. And I'm just wondering if maybe there's some private sector business that you have a bit less visibility into, than you might on the public side, that could also be sources of upside in 2011.

Yes. I mean, I think that's fair to say. And again I think largely for 2011, one of the issues is just the competitive landscape that's out there. We do think as we've said before that eventually that's going to turn, but 2011's just kind of, as we talked about in the remarks, there's just a lot of, sort of, uncertainty out there. There's certainly a lot of uncertainty politically right now, and that factors into people's thinking at all levels. So again, we think we'll get through this, and certainly we feel very good about our long-term prospects for all of the things we've talked about in all sectors, public and private. So, we feel good about the long firm. 2011s just going to be-- we've just got to get through this period of uncertainty here.

With respect to the Pacific Northwest Business. Would you consider bringing dredging assets into that business? I mean would that be appropriate for what you see in the market there? And kind of as an extension of that, what are your CapEx expectations for to 2011?

We certainly could. Some of the projects we're carrying out is dredging, it's mechanical dredging. They do a lot more environmental bucket-type dredging as opposed to cutter suction or hopper dredging. We've looked at a few opportunities in that regard already, and we're going to go after whatever marine market presents itself. If that means expanding our fleet up there, we will.

Fred, for CapEx for 2011, low 20s, so call it about $22 million. And part of that's going depend on what opportunities we see. Some of it is scheduled stuff. Some of it will be done in accordance with the type of work we pick up during the year. But we're targeting around $22 million CapEx.

Thanks very much.

You bet.

Your next question comes from the line of Steve Dyer with Craig-Hallum Capital Group.

Good morning, Steve.

A lot of mine have been answered. Just a couple of them. I'm assuming your guidance for the year doesn't assume anything in the way of acquisitions?

It does not.

Then, just anecdotally, what are you seeing out there in terms of acquisitions? I know you have an eye out. Anything you can give us on that front?

Well, as we always say, we are always looking for opportunities. And we continue to seek out any way to continue our growth strategy, whether it's acquisition greenfield or organic expansion. We're in good shape with the balance sheet. We're going to remain opportunistic. We don't have anything to report today, but it's always a part of our growth assessment.

Maybe I missed this, but have you split out sort of what kind of revenue is being contributed from Pacific Northwest yet?

We have not. What we've said on that is, for 2010 we didn't expect much contribution from them. We view that as just part of our overall business in terms of how we report out. So, we don't split that out.

Back in the summer when BP was having its issues and so forth, I think there is a thought that there was going to be a lot that could come out of that positive for you. Have you seen much of that yet? Or is that the kind of thing you expect more as long-term planning that is going to take you out a few years?

I think coastal restoration's going to be stimulated by that. I know that there's some discussion about setting aside some of BP's funds for that effort. As you know, they carried out the emergency berm work with the larger dredging companies. I'm not so sure we'll see any more berms built. But restoration of the coastline is very important. Growing a major project right now in the central part of South Louisiana with the Bayou Lafourche channel restoration. Indications are that they are going to continue funding that project with additional phases. So, we'll have an opportunity to bid on that. I think that's something that's just going to be in the pipeline for years to come. It's not the type of solution you can solve in one year. It's going to take years to get that in check. The erosion is just unbelievable that has taken place. It has to be done and we're glad to see it's getting funding.

In our view, we talked a little about this last year on some of our calls. We view that not unlike hurricane activity, whereas Mike said, it takes a while to figure out long-term solutions and things like that. This to us, sort of has the same feel, that this is going to be something that we'll see carried out over the next several years, not unlike we would see with hurricane activity.

Just was wondering if I could get your take on the recent core budget proposals. Was it sort of what you thought, vis-a-vis last year? And how do you see that playing out for you guys this year?

It's really no surprise. We've been watching the core's operating and maintenance budget for a number of years, and it's been pretty flat. I recently attended the Southwest Core District Conference. They indicated they are going to remain at their current levels for the next few years. The O&M budget is hovering somewhere around a $2.3 billion level. We think that's a good, healthy level. If it can be supplemented down the road, with possible release of funds from the Harbor Maintenance trust fund, that could stimulate the whole industry. We're waiting to see how that legislation's going to pan out. It's just hard to say when that could get resolved. I think we're comfortable with the core budget, what we can see.

Last question, just the competitive environment specifically on the East coast. Has that changed either for the better or worse in the last quarter or so? Or has that pretty much stayed pretty tough?

I think it's still there. I think there's still a lot of nervous companies out there waiting to see what Congress is going do. There still hasn't been a resolution of the safety loop highway funding program. I think until that has gotten some clarity, we'll continue to see pricing pressure, and we've built that into our guidance this year. That's one of the reasons for saying that we'll have flat activity. We're monitoring it. There's a lot of positive talk, but there's also a lot of saver rattling over cutting the deficit. We just think it's prudent to sit back and let that sort itself out. We're kind of taking the position that it may not get sorted out this year.

But you feel like you've given as far as you're willing to give on the margin front, so to speak, for now?

I think it's something we have to monitor on a case-by-case basis by division. What we have told our people to not do is go out and buy work below our costs. I think that's a huge mistake, and we're prepared to let others take that lead and go that way. I think it's not the right thing to do, but we are adjusting margins where necessary. We stay on top of that pretty close. So, you can't be blind to what's coming on, but you can't be stupid and take a job that's going to bog you down for 18 months with losses.

Thanks, guys.

You bet.

Your next question comes from the line of Min Cho with FBR Capital Markets.

Good morning. Thanks for taking my questions.

Good morning.

First, I'm wondering if I can try and part out the bidding opportunity a little bit more here. Can you remind us, first of all, what the time range is for the $5 billion in bidding opportunities?

We're tracking 2011, 2012, 2013 and beyond. So, that total market database covers about a five-year period.

Okay. Of that, would you say about roughly half of that is for projects over $10 million? Or can you provide any breakout there in terms of size?

I really don't have that, Min. We just kind of break it down by federal, state, local. I don't have that at my disposable, but it's not out of line with what we have historically seen. If you look at our pie chart of mix of where we get our work from, every year it changes a little bit. Some years we'll have more state work if we have a lot of bridge work. If we don't, that goes down, federal may go up. Now that we have doubled our dredging fleet the federal portion of the pie is certainly going up. But you can broad brush take that piece of the pie and those percentages and apply it to this market. I think the last database I saw was about $5.7 billion that we're tracking now.

And Min, just further to that, our project size has definitely been trending larger. But roughly, still, about two-thirds of our revenue still comes from projects under $10 million. We certainty have a significant amount above $10 million. As you know, we've been looking at larger and larger projects, as we've grown over the last several years. And so, I think it's fair to say that there's a significant amount in our tracking system that are large jobs over $10 million.

Okay. I know historically you've provided this information. But can you tell us what the bidding opportunity looks like for 2011?

I don't think we want to necessarily get specific on that. But it's in line with what our goals are. It's north of $1 billion for 2011.

Okay. A couple housekeeping things. First of all, how many dredges do you have operational right now? Are you at full capacity?

All of them are operational. All of the ones we acquired and the LaQuay acquisition are operational.

Okay. Great. Also in the quarter, what is this loss on purchased equipment? Is that just a true-up for the gain in the first quarter? Or is it something else?

That's just related to the true-up.

Okay. Finally, Mark, do you have any guidance for D&A for 2011?

Yes. I think it is going to be, kind of, in the low 20s, also. It's kind of consistent with what we expect our CapEx will be this upcoming year.

Outside of any additional acquisitions or anything, would you expect that to stay for the same level for 2012? Or should that be going down?

I think it should stay about the same just because, again, we're sort of adding every year. We're doing maintenance CapEx and we're adding new, so I think it probably will stay around there. Again, assuming there's no game changer out there in terms of on the acquisition front.

Right. And I know-- I understand in terms of acquisitions you're always looking. Are you looking at anything specifically now? Or could we see something in 2011 just based on what you're looking at now?

Well, that's a difficult question to answer. As you know, at any one point in time, we're always looking at stuff. As Mike said earlier, we don't have any news to report, but we're going to be opportunistic. But I think it's fair to say, just like we've said before, just like with previous projects, we're not going to do an acquisition just to do an acquisition. It has to make sense; it has to make sense for shareholders. And so we'll continue to evaluate all of these opportunities on a case by case basis under that umbrella.

One thing I've learned is that you can't predict the timing on any acquisition. It takes time to get to one to fruition that we're always looking to figure out how the infrastructure is going to be constructed. And where do we need to be? And which companies had good growth potential that are similar to us in terms of philosophy and margins that could complement our business and help drive our end-market growth. But I don't -- I would never say to pick a quarter in a given year and say we're going to do an acquisition. That's impossible to predict. But it's part of our growth strategy, and when we got something to report, we will report.

Okay. Finally. When will you file your 10-K?

Looking at Monday for that.

Great. Thank you, and good luck guys.

Thank you.

Your next question comes from the line of John Rogers with D.A. Davidson. Please proceed.

Hi. Good morning, gentlemen.

Hi, John.

A couple of things. First of all, I guess for Mark, the SG&A levels came down on an absolute basis in the quarter. Can you hold back at least on a relative basis into 2011, especially with flat revenue?

It might be a little bit above that, but I think in that sort of 7.5-ish range to 8 range is sort of where we think it'll be in 2011, per quarter.

Right, right. That would be great if it were for the year.

Right.

Secondly, in terms of organic growth for 2010 or for the quarter, I don't know whether you can share that, but give us a sense of what that is? Because with LaQuay, I know it was there for most of the year and then the Northwest expansion. You're implying with flat revenue a decline in your core business, and I want to understand that a little bit.

Sure. There's obviously no doubt that we'll have the full impact of the LaQuay acquisition in 2011. And we'll have more of a contribution out of the PAC Northwest in 2011. But yes, we haven't broke out; we did have organic growth last year. There's no doubt that a significant piece of the growth in 2010 was as a result of the acquisitions. As we look in 2011, we will have those favorable impacts from the acquisitions that I just discussed. But we've got some challenges out there on the competitive landscape.

It really depends on the service line, where and what we're going see. So again, we don't break things down between service lines or anything like that. But I think it's fair to say that there's some areas where there's less of a competitive pressure issue going on and others where there's more of a competitive issue going on. Again, as Mike said there's been some irrational behavior that we've seen in the marketplace in 2010. We've kind of baked that in, in terms of that pressure for 2011. And again, we're not going, certainly, to take work at below our costs. So, we have to be realistic in terms of going after the bid opportunities that we see out there. And again, I think we've baked that into our thought process for staying at least flat for 2011.

What are your guys' thoughts or sense of capacity that came into the market? And I'm thinking equipment that might have been ordered a couple of years ago or 18 months ago when the market was better. Has significantly more capacity come into the market? And is there any more coming in, in 2011, that you are aware, of that's of significant size?

I don't think it's so much additional equipment coming in. It's just companies out there that are looking for any work they can find, is what we're seeing. We still anticipate that there's going be growth returning to our projections in 2012. We're just seeing enough announcements out there of activity being planned to stimulate port expansion in particular that we just think bodes very well. I think if the unemployment -- if Congress doesn't act to improve the unemployment picture there's going to be hell to pay, politically, next year. I do believe there's going to be a lot of pressure to get some programs out there that will get hiring going again, particularly in the infrastructure sector. That could relieve some of the pricing pressure we've been seeing with these companies migrating into our sector.

Yes and John, just as a reminder, the competitive pressure's sort of twofold. One, as Mike kind of just mentioned, that's really on the smaller projects, and it's really not necessarily increased capacity. It's just a bunch of guys that were probably doing side development work on land a few years ago. And they don't have any work to do and they're getting desperate, so they sort of look at anything, probably stuff they have no business doing. And it puts pressure on the traditional players there, particularly the regional people that we traditionally compete against. And so, it just puts that downward pressure there.

But secondarily, on the larger projects it's not really a matter of more capacity, so much as it's been the irrational behavior. And maybe from a capacity angle, only from the standpoint of on certain projects we've had some competitors where they've had projects winding up, and therefore they've had that capacity that's been occupied coming up. But it's not, quote-unquote, new capacity coming into the market. That's where we've seen not an increased number of bidders, just we've seen irrational behavior. That's put some pressure. We saw some guys leave a heck of a lot of money on the table basically buying work, and probably in about a year from now are going to be hating life because they took work so cheap.

And just lastly, Mike, I think earlier you talked about the change in mix and customer base that you see annually. As we hopefully start to see an upturn in the business I guess out in 2012 or bidding activity maybe later this year, what's your sense? Do you think it's going come from the states, feds, the private sector?

It's hard to predict. We don't really care, John. The snapshot of the percentage of share by sector is just a matter of information every quarter. We're not saying we've got to have x percent of federal work and x percent of private work to meet our goals. We're strictly looking at projects. There's no other way to convey it except that we want the project that would utilize the majority of our resources, particularly at the turnkey job or design build job where it uses everything that we have in our arsenal. That's the job that have been the foundation for this Company to build on.

And I think, again, our brief is that there's a cross section of opportunities throughout the different sectors of state, local, federal and private And again, if you think about our remarks, the amount of work we've been tracking has been increasing over the last 18 months. So, I think the issue is more from the competitive landscape versus the sources in the end markets and where the opportunities are coming from. The opportunities are there. I think it's a matter of the competitive landscape improving. And our thoughts on that are, with some of the larger guys filling up on cheap work, we're going to have to monitor to see if they've got enough of that, and they'll start pricing more rationally.

One of the things I think we have talked about before with the highway bill is our view on that is that's probably -- the impact to us is probably, as much psychological as it is anything else, because we've got opportunities today that we're looking at. We're working on bridge work today. We're bidding on bridge work today. I think the impact of the competitive landscape is where we'd see the positive impact of a new highway bill. Of course, that's probably some time off before we'll see that. I think again, just the overall economy-- I think again, from a standpoint of just seeing activity in the general economic environment that'll sort of relieve some of this pressure as we move forward-- will improve our pricing outlook and that'll improve our growth prospects. But I think from the bid opportunities, we see those today.

And I think one thing we can count on that is happening in this marketplace is, with the drilling moratorium, and there's still a moratorium going on. That is going to exacerbate the amount of foreign oil imported into this country. That means more shipping traffic, that means some in the private sector, oil companies and independents that handle oil and process oil in refineries and all, are going to be looking how to react to that and how to handle it. I think it's growing to stimulate expansion opportunities in that side of the business that we really hadn't expected to happen. We're starting to see signs of planning to handle that additional imports now.

Okay. Thanks, guys. I appreciate your thoughts.

Thanks, John.

Your next question comes from the line of Jack Kasprzak with BB&T.

Thanks. Good morning, everyone. I wanted to ask about the Harbor Maintenance trust fund. Are you guys involved in that lobbying effort? And how do you see that trending in terms of any resolution possible this year? Do you see anything breaking positively for the industry?

We're a member of the Dredging Contractors of America, and that association is part of the RAMP program, the Realize America's Marine Potential and RAMP has actually been an acronym that's been incorporated into the bill. People are talking about it as if it's a RAMP bill. I think it's just a lot of support on legislation that's been introduced. Both the House of Representatives and the Senate have been sent to committee now for markup. If that legislation can get passed, that is a huge amount of money, some $700 million to $800 million annually, that's being collected that's not being deployed for dredging. It's just hard to say when that's going to get resolved.

With the fighting that's going on over the budget right now, any time there's any surplus money found in Congress, there's a fight over where it's going to be deployed. Even though that Harbor Maintenance trust fund says it specifically should be used for dredging. There are those out there who would like to divert it elsewhere. So, we've just got to sit back and wait and see is that going to be a 2010 event or not? And it's certainly a solution to some of the deficiencies in the government being able to fund getting deeper channels.

You've probably seen a number of port authorities that are crying out for additional funds from that. A good example, the Houston ship channel. Only 20% of the Houston ship channel is maintained every year, that's 80% that's not. That means you've got ships literally grounding out each week as traffic progresses. I could say the same thing for other ports on the East coast that are just demanding the government address this. So, it's a real issue. It's gotten a lot of attention; it's just gotten a back burner approach last year with the fight over Obama care and I think it may be-- I'm not real sure it'll get passed this year. At least it's teed up and both sides are supportive of it. We'll have to wait and see.

Certainly more conversation than there's been in a while, I guess.

That's for sure.

You guys have commented already on highway bill and the continuing resolutions and some of the issues there. I was going to ask specifically though, in your states where you operate, have you seen state DOTs? Do you sense they have pulled back or are holding back waiting to see what happens with the highway bill?

There hasn't been a lot of DOT work that we've seen that affects us particularly in the Texas market for sometime, over the last couple of years. I think most of our DOT bridge work has taken place in the East coast states and in Louisiana. We have a big bridge job there in Louisiana. Texas has been quiet for us. It's been very small projects that we've bid on.

Jack, I think this goes back to the previous comments. With respect to that we continue to see some nice bridge projects. We haven't necessarily seen the pullback in the type of work we can go after. Even up in the PAC Northwest, we're seeing nice opportunities up there with relations to DOT work. I think the issue for us, more to the competitive side, is what's going on, on land. And how some of the competitors react to that type of work that we wouldn't be going after anyway. So again, from the marine portion of the type of work that we're interested in, we still see a lot of it out there again. I think it's just a matter of the competitive nature.

Okay. Got it. Thanks very much. Appreciate it.

And at this time, I would like to turn the call back over to Mr. DeAlmeida for closing remarks.

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 good day.

We thank you for your participation in today's conference. You may now disconnect and have a great day.