Orion Group Holdings Inc (ORN) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the first-quarter 2011 Orion Marine Group Inc. earnings conference call. My name is Erica and I will be your coordinator for today.

At this time all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (Operator Instructions)

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.

Thank you, Erica. Good morning and welcome to the Orion Marine Group first-quarter 2011 earnings conference call. Joining me today are Mike Pearson, Orion Marine Group's President and Chief Executive Officer, and Mark Stauffer, our Executive Vice President and Chief Financial Officer.

Regarding the format of the call, we have allocated about 15 minutes for prepared remarks in which Mike and Mark will highlight our results for the quarter and update our outlook for 2011. We will then open up the call for sell-side analysts 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, are end-markets, revenues, gross profit, gross margin, EBITDA, EBITDA margin, backlog, project and the negotiation of 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 risk and uncertainties, including those described in our 10-K from 2010, 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 or otherwise. Also, please note that EBITDA and EBITDA margin are non-GAAP financial measures under the rules of the SEC 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 measure.

Also, please refer to our earnings release issued this morning, May 5, 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 will turn the call over to Mike Pearson, President and CEO. Mike?

Thank you, Chris. Good morning and thanks for joining us. As we said in December and on our full year-end 2010 earnings conference call in March, 2011 is going to be a challenging year. However, during the quarter we continued to see long-term growth opportunities and we remain optimistic about the bid opportunities beyond this year.

As we look at the first quarter, we are pleased with our revenue results. They were in line with our goals. However, margins saw pressure during the quarter, primarily due to an increase in our estimate for self-insured claims and the strategic decision to continue on a job with increased costs associated with adverse site conditions.

During the quarter we had higher-than-expected self-insured claims as a result of two non-fatal accidents on the job. Now while this can occur from time to time as part of our normal operations, we took the opportunity to heighten our safety awareness in an effort to maintain our overall high safety rating. Now while events like this can happen, we strive to provide a safe work environment and job performance, and have a high safety record to support our operations.

With regard to the strategic decision, we chose to continue on a job where adverse site conditions have increased our costs but are not expected to be fully reimbursed by the customer. However, even with these increased costs, the job remains profitable. Also, this work is a precursor to many additional projects that should produce good future bid opportunities. Therefore, we felt it was important to continue on the project from a customer relations standpoint.

Now turning to our end markets and future outlook, during the quarter we continued to see long-term growth opportunities and we remain optimistic about the bid opportunities beyond this year. Our goal is to double our revenues again during the next 5 years while continuing to deliver solid bottom-line results. We will accomplish this through growth opportunities, strategic acquisitions, and new service lines to complement our core capabilities.

We feel there is plenty of market to support this growth and we are optimistic about the road ahead. However, as we noted in December and on our 2010 earnings release in March, there were several uncertainties in the general economic and political environment that could impact 2011 results. We expected to see potential impacts from increased pricing pressure on larger jobs, general capital infrastructure improvement delays, reduced bridgework opportunities, and delays in port development.

Now to date we have seen increased pricing pressure and significant delays in capital infrastructure improvements. Specifically, pricing pressure has moved west and it's beginning to make a greater impact than we previously expected on Gulf Coast construction bidding. We can't ignore this pricing pressure, so we are selectively lowering bid margins to secure marine construction work.

However, as we have said many times, we will maintain pricing discipline and we will not bid below our cost. We fully believe these pricing pressures are short-term in nature, but will impact full-year 2011 results.

Additionally, the Army Corps of Engineers has been much slower than we expected in letting work due to delays in Congress for passing the 2011 budget which was not passed until mid-April. Now that the budget has passed we expect to see a healthy amount of lettings from the Corps in the back half of the year. The Corps has indicated to us that they are fully intent on executing their letting schedule, which should result in a large amount of bid lettings in the back half of the year.

Still, given the lack of project lettings to date this year and depending on the timing of upcoming lettings, we may be challenged to meet our full-year goals. However, there is still a lot of year ahead of us and things can change quickly and turn positive. We will keep monitoring this situation and updating as needed.

On the positive side, we are beginning to see signs that the future should be improving. During the quarter we continued to see long-term growth opportunities and we remain optimistic about the bid opportunities beyond this year. We have continued to see bridge construction opportunities and we are pleased with the pace of bridge lettings.

Additional, private bid opportunities are picking up and we are winning port expansion projects. For example, we have received approximately $18 million for an award of a project in the port of Canaveral which could grow to $22 million with options. Additionally, there are several substantial port expansion opportunities that are coming out for bid.

We also received indications from the Corps that funding for deepening projects at major high-traffic areas will be in place and those projects should be forthcoming. Also, there is coastal restoration and protection projects that got a boost last month from a $1 billion infusion from British Petroleum for Louisiana, Mississippi, and Alabama.

Finally, as a part of our strategic 5-year plan we are looking to extend our revenue stream into potential complementary service lines that are driven by the same factors as our current business that will help reduce fluctuations in backlog, revenue, and cost.

So to sum up our end-markets we continue to see strong overall demand for our services and we remain optimistic in the long term. We remain an industry leader and, as we have said before, 2011 has and will be a challenging year, but we are ready to weather this storm and we are optimistic about the improving signs that we are seeing now.

We are getting clarity on some of the uncertainties we mentioned in December with some anticipated positive effects and some continued pressure. While we cannot alter the existence of these pressures, we are working hard to meet them head on, control costs, extend our revenue stream, and deliver long-term value to our shareholders. As I said, our plan is to once again double our revenues over the next 5-year period and we feel there is a market to support this growth through geographic expansion, strategic acquisitions, and new service lines to complement our core capability.

Our tracking database has continued to grow and we are currently tracking bid opportunities well in excess of $5 billion over the next few years. Still we remain cautious about 2011 given the uncertainties we currently see in the economic and political landscape. However, we are well-positioned to meet these uncertainties head on and prepare for growth in the future.

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

Thanks, Mike, and thanks again for joining us. Net income for the first quarter of 2011 was $1.5 million, or $0.06 per diluted share, which compares with $4.8 million, or $0.18 per diluted share, in the prior-year period. First-quarter contract revenues increased 4.6% year-over-year to $79.1 million, of which 74% was generated from federal, state, and local government agencies and 26% from private industry, which compares to 64% from federal, state, and local government agencies and 36% from the private sector in the prior-year period.

Our first-quarter 2011 EBITDA was $8.1 million, representing a 10.2% EBITDA margin, which compares to first-quarter 2010 EBITDA of $12.2 million or a 16.2% EBITDA margin. As Mike mentioned, our first-quarter gross profit and EBITDA were impacted by an increase in our estimate for self-insured claims and the strategic decision to continue on a job with adverse site conditions which are not expected to be reimbursed by the customer.

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.

SG&A expenses for the first quarter 2011 were $7.9 million as compared to $10.1 million in the prior-year period. The prior-year period included $1.7 million related to the acquisition of businesses. As we pointed out in December, we anticipated a continued pressure in 2011; therefore, we took steps to reduce SG&A expenses.

After removing the $1.7 million related to the acquisition of businesses in the prior-year period, SG&A expenses for the first quarter of 2011 were reduced 6% year-over-year as a result of our cost-saving initiatives. We are continuing to explore additional cost reduction initiatives that should provide greater savings in future periods.

Now turning to backlog. As of March 31, 2011, we had a backlog of work under contract of $140.5 million. Subsequent to the end of the quarter we have been successful in continuing to obtain additional awards for new work, including the $18 million announcement we made this morning.

As a reminder, our backlog consists of projects under contract that have either not 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.

As we look at the remainder of the year, the Army Corps of Engineers has been slower than we expected in letting work due to Congress's delay in passing a 2011 budget until mid-April. Now that the budget has passed we expect to see a healthy amount of lettings from the Corps.

However, we do not have clarity from the Corps regarding the timing of these lettings. Depending on the timing of these lettings and other opportunities, we may be challenged to meet our full-year goals. However, we will continue to monitor and update this situation as it progresses.

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 March 31, 2011, 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 as 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, it's 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.

Additionally, we continue to explore acquisition opportunities to further grow the business and increase shareholder value. However, we also realize that at times the best investment to make could be in ourselves. Therefore, our Board of Directors has approved a share repurchase program to purchase up to $40 million of our common stock from time to time in the open market over the next 12-month period so we can opportunistically return value to shareholders.

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 we have said before, 2011 has challenges. However, as we look beyond 2011 we remain excited about the 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 waterways infrastructure in the US needs repair, improvement, or replacement and we believe this work will get accomplished over time. We have solid long-term and market drivers and this is what gives us confidence in the future.

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

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

(Operator Instructions) Alex Rygiel, FBR Capital Markets.

Thank you. Good morning, gentlemen. Mark, you mentioned that you could be challenged to meet your full-year goals this year. Could you remind us what those full-year goals are for both revenue in 2011 and EBITDA margins in 2011?

The full-year goals were -- on revenue side was essentially flat and on EBITDA margin was 14% to 16%.

Okay. Mike, you referenced a couple different times in the press release and on the call the potential for new service lines. Could you expand upon that a little bit?

Yes. I think we are continuing to look for opportunities that complement our core skill sets -- dredging, diving, marine construction. We utilize third-party services from time to time to assist with our projects. We are considering some of those product lines that could fit in, and trying to assess companies that have a similar philosophy that we have on approaching work in the risk matrix.

We are very careful about not buying projects. We are looking for a cut-and-paste that would be accretive and we just continue to look for these opportunities. I am encouraged that the infrastructure-related businesses do indicate that there will be substantial growth potential, and I am still very motivated about all the end-markets we see.

The demand has not gone away. There is just a lot of coastal restoration work that is building up. We are now faced with the current flooding challenges that the Corps has with the Mississippi River, that is opening up the Bonnet Carre Spillway and Morganza Spillway eventually. There is a lot of different companies that will be involved in that, so we are canvassing all types of business that are complementary to those type skill sets.

And lastly, could you quantify the self-insured claims expense in the quarter and the one-time in nature expense associated with the one job that you have continued despite the adverse site conditions? And also help us to better understand when that one project will be complete?

Yes, in total those were $2.5 million or so. On the insured -- self-insured claim that had approximately a little over $1 million of impact. The balance would be the impact of the project.

And on the project, essentially it's one of those cases where we have got a differing site condition. It's not for the federal government. It's in Louisiana, which is an area we are expanding to on the dredging side. And it's a case of -- we feel correct in that we could press a claim and we could prevail in a claim, but we don't think that would be strategically the right thing to do given our expansion of our opportunities in that market area.

Again, as Mike said in his remarks, the job is still profitable. It is expected to continue on through the second quarter. I think it wraps up right after the end of the second quarter is what our current schedule is, but we have taken the adjustment and the impact of that in Q1.

Thank you.

Fred Buonocore, CJS Securities.

Good morning. Just wanted to talk a little bit about the Army Corps.

If I recall correctly, back in 2008 we saw a similar dynamic, maybe for different reasons, but we saw kind of a pause or a cease of activity with Corps lettings. And then it seemed like what happened after that, maybe partly due to the stimulus package but some seem to be just ex stimulus package, if you will. It was almost like a spigot turned on and then you had a large flurry of activity.

When you say you are expecting activity to pick up hopefully later this year are you looking at a similar dynamic? And do you have -- have had the conversations or do you have strong reason to believe that this is going to happen or you are kind of still in a real wait-and-see mode?

Well, I think the stimulus money has long liquidated itself some time ago. That really didn't have that much impact on our revenue stream, because we tap from the operating and maintenance portion of the budget.

If you look at the Corps' budget for this year that was passed, there was a lot of consternation amongst the district commanders as to what they could spend and what they could not spend for the balance of the year. And it just kind of put bid lettings on hold for several months. That is creating some gaps in dredging companies' schedules, not just us but all the competitors out there are seeing this.

But we now have confirmation of what the approved budget is. We expect bid lettings to start coming out next month. We know there is quite a few stacked up that will be bidding on. When I look at the 2012 budget for the Corps, we actually feel like the Corps is really spared the worst cuts from the overall federal budget.

Again, we focus on just that portion that we draw from, the O&M budget. It was only decreased about 7% compared to about a 17% total decrease in funding with the Corps overall Civil Works program. So we feel like it's similar activity ahead that we enjoyed in the past year, and that is something we follow very close.

But the timing of these lettings is very important. If they continue to stall, it could affect our revenue.

Yes, that is kind of the big question, Fred, is again there is a lot of stuff that has stacked up. We do have their -- what they expect to let but the spigot has been pretty closed off the first part of the year here. So we could see exactly what you talked about where we just see a flurry of activity, but that is the big unknown right now. It could -- the timing of that could still be delayed.

On the positive side, the demand for those services is not going away. So we may see some deferrals and we may see some deferrals in letting but the demand is ultimately going to be there. So the work is ultimately going to get done, it's just a question of the timing. Right now we will have to wait and see.

As Mike said, we do expect the tap to be turned on and lettings to occur, but we will have to wait and see. Then of course, as Mike just talked about too, as you know, the 2011 budget has been passed and they get to go right into wrangling about 2012. So we will have to see how 2012 shakes out as well.

Got it. And then maybe a more near-term question and I am sorry if you already addressed this earlier when I had to jump off, but can you give us a sense for how to think about Q2? Clearly, you have got cautious comments. It sounds like maybe you are going to have some underutilized dredging equipment given this pause. Is Q2 something that maybe looks kind of like Q1?

Well, I think given the delay in the Corps lettings schedule that we have seen so far this year, we expect to see some gaps in our projects during the second quarter. So there will be some pressure on our revenue and margins compared to the first quarter.

Okay. And would that be pressure on margins relative to your Q1 margins ex what I would consider one-time items with those project incidents?

Fred, no, really -- again, with some of the gaps we are seeing and the pressure that we have already seen with respect to the construction side, we could see pressure as compared to the margins that we didn't report, not ask ex items.

Okay, got it, got it. Thank you very much. I will get back in line.

Okay, you bet.

Trey Grooms, Stephens Inc.

Good morning, guys. So just following up on the last comment, so you are basically saying that on both the revenue -- you are going to see pressure on the revenue as well relative to 1Q because of these gaps?

That is correct.

That is correct.

Okay. And then looking into the third quarter, you are expecting things to get a little bit better. Is all of these --the gaps, you are expecting these gaps to kind of close and so we could expect to start seeing revenue pick up? Or will these gaps kind of create a little bit of pent-up demand that might flow through in the 3Q? How do we think about that?

It generally historically has. One wild card here is we are all waiting to see the impact of this flooding that is going on with the Mississippi River. I can't tell you what the impact is going to be but it's the highest levels that river has been since 1937.

Now that is going to create a lot of siltation coming down, downstream the river. And when they open up Bonnet Carre Spillway and Morganza Spillway that is going to be further siltation coming from the farmlands up there that is bound to be creating some problems.

If you follow the Corps funding of the Mississippi River, they had already constricted the funding significantly on that river this year prior to this flooding taking place. So there has got to be some emergency funds diverted there eventually. We just don't know the details; nobody can predict it at this point. So I think in addition to our normal lettings that is going to have some impact as well.

And the coastal restoration, we are waiting to see how that $1 billion is going to be spent. We have heard that about half of it is going to get injected very quickly. How long it will take to get that into a bid document and an award we don't know yet, just following it.

Right, Trey. So again, depending on the timing of some of these things Mike mentioned, it's reasonable to expect that we would ramp up as normal in Q3. Again the big question is the timing. Some of these -- again if the timing kind of plays out like it can, we can get to work on some projects fairly quickly and start burning some revenue.

But again, the big question is going to be what -- do we see further delays in lettings or do we see these lettings come out on track. That is just -- we are just going to have to monitor and see how that plays out.

Okay. And then on the $1 billion you were talking about, I guess, from BP there, is there any way of knowing or have you guys seen anything that would give you kind of an indication of what kind of -- how much of that work might be kind in your wheelhouse, something you guys could bid on?

Not yet. All we know is that Louisiana, Alabama, Florida, and Mississippi, and Texas are all going to be recipients. I assume it's going to be more or less equally distributed; don't know. But I think that is just very encouraging to have this on top of our normal O&M budget for dredging.

And I got to tell you, we are very busy right now bidding marine construction projects. All our divisions -- East Coast, Gulf Coast, Northwest -- everyone is very active bidding marine construction work, but it's probably going to hit the latter part of the year and impact 2012 more than anything else. But I am very encouraged with that.

And with this increase in work that you are seeing, I would assume that that would -- you would start to see some of the pricing pressures start to let off some. Is that kind of your expectation as you kind of look into this type of work kind of ramping up?

Yes, at some point we do. There is no doubt, as we have said back in December and March and again today, 2011 is a challenge. We are in a challenging pricing environment. We have been in kind of that way on the construction side and then, of course, with these gaps being created on the dredging side that really sort of exacerbates the pricing pressure that we have seen on the construction side for 2011.

So for 2011 there is no doubt we expect to see the continued pricing pressure. But to your point, we are very hopeful and encouraged that with the pickup in activity and bidding that eventually that translates into being able to press pricing upward so that is obviously the goal and what we will be working for. But, again, 2011 is no doubt going to be a challenge on the margin side.

Okay. And my last question is on the cost reduction initiatives you have talked about. What have you guys kind of identified and what kind of things are you cutting out or expecting to change going forward?

Well, we have been scrubbing all our SG&A costs, squeezing out savings wherever we can. We have made some personnel reductions. We are still in the process of reviewing these expenses. I think we have mentioned, what, a 6% reduction overall there, but there is a lot of small savings that will add up to larger dollar values. It's an ongoing process.

Yes, it's an ongoing core process. It's kind of hard to quantify at this time but we are still working on that. We are virtually scrubbing everything because dollars add up, and so that is going to be an ongoing effort there.

Okay. Thanks for taking my questions.

Rich Wesolowski, Sidoti.

Thanks a lot, good morning. I am wondering about the types of contractors that are now entering your markets. It's easy for me to see how general contractors that once did infrastructure work related to housing would go over to DOT work, but how can land-based road builders or other types of general contractors bid for marine construction work?

Certainly on the bridge side we have seen roadway builders encroach. That is probably the most obvious place where you guess some portion is marine work, some portion is roadway work. There has just been a big clamoring from roadway builders to secure backlog.

And I was going to say too, Rich, it's not -- particularly on the larger projects because again there is sort of two different dynamics here. But on the larger projects, as Mike talked about with the bridge work, the large bridgework and then the larger port work, we have traditionally seen land-based heavy civil guys as competitors for the larger bridgework.

And I am talking $25 million and above, and port work that is $25 million, $50 million and above. We have traditionally seen various land-based heavy civil guys so that is not anything new.

I think the new thing that we have talked about in the last couple of calls has been some of the irrational pricing that has gone on with some of these guys that we believe is being generated from what they are seeing on land. In other words, their tough environment on land is kind of translating in their bidding philosophy, if you will, on some of the marine work.

So again, it's not necessarily that we are seeing new competitors on this large work. It's just we are seeing tough pricing pressure.

Okay. In March of 2009 you had a similar sized backlog to what you reported today. You posted phenomenal awards over the balance of that year and ended 2009 with a little shy of $300 million in sales.

You said here today that the second-quarter revenue will be light enough to take margin down to where you earn very little money and that bidding is still difficult. Is it possible the Company reaches flat revenue as you have guided for 201? And if not, why not formally reduce the guidance here?

Well, there is always the potential that we could reach that flat target. It all has to do with the pace of the lettings. We have got some big revenue generators in our fleet that, if deployed quickly, can get to that target.

It's just something that at this stage we can't accurately tell. We think we will be in a little bit better position next quarter to assess that.

And also, as Mike said in his remarks too, there are select projects that we are taking a look at our pricing. As Mike also said, we are encouraged by the level of bid activity on the private side, the private sector, and some other opportunities that we have got a lot of bids upcoming. And so, depending on our success there that is going to impact backlog.

But again, we just got to go through this process in terms of the timing of some of these things and see where we get to.

Also keep in mind, Rich, that in the -- 2009 in particular, in the third quarter of 2009 a lot of the stuff that we won in that big quarter, that $120 million worth of announcements in the third quarter there, really impacted into the 2010 timeframe, some of which is still liquidating off.

Good point. And then --.

The other point that I would just make there too is that we are involved in a lot of RFP processes, which take a little -- they have a very long time for the bidding to award process. Much, much greater than the traditional bid/build projects. So we have got a number of those out of in process at this time.

That is very helpful. Lastly, if you had to pick one area of your business that you are most confident would be better in the next year than it was in the last which would it be?

I think the dredging. I think there is just a lot of pent-up demand with dredging work. As I have mentioned, all this flooding activity is certainly going to build a backlog of work in various locations.

We have not had any major hurricanes hit the Gulf Coast or the Southeast Atlantic last year. There is always the possibility that we could have an event that could generate some unexpected refurbishment or repair work. But you know, we are capable of bidding a lot bigger projects than we have in the past now and our bonding capacity is very solid.

It has opened up some more opportunities for us and I am real pleased to see that on the marine side. So I just think, for the next few months we are not going to see any big home run projects with margins on the marine construction side. It's just too much pressure there right now but, fortunately, if we are low it's low with money in the project.

We are bidding profitably and we are actually getting some good margins on some of our work. You just have to be selective on which projects that it makes sense to lower your margins, and we are doing that where we have to. But again, we are not bidding below cost.

Right. Thank you, I appreciate it.

Matt Tucker, KeyBanc Capital Markets.

Morning, guys. First question on the margins. You indicated that the second-quarter margins could kind of be similar to what you saw in the first quarter. That kind of implies, let's say, roughly 700 basis points or so below your long-term kind of historical average, if I looking at the gross margin that is.

Can you give us kind of a rough sense of how much that reflects the kind of concession that you are having to make in bidding new jobs, given the environment, versus how much of that is coming from some of the gaps in utilization that you are expecting to see?

I guess just to -- the reason why we are saying that is that, as you know, we have been challenged with the pressure and the pricing on the construction side. And as you know, the dredging projects historically have a higher-than-average margin for us. So to the extent we have gaps created in our schedule on the dredging side we don't have that activity that helps in this environment offset some of the pressure we are seeing on the construction side.

So I guess what I am saying is that the reason why we are saying that revenue and margins could be under pressure for Q2 as compared to Q1 is related to sort of these gaps and this slow or no pace, if you will, of Corps lettings. And so, again, that lack of -- those gaps being created on the dredging side are going to be the big player here.

We could still have excellent margin on a project basis but have under-utilization of the asset throughout the year that negates that somewhat.

Okay, got it. So I guess you did kind of indicate that you may bid lower margins on some jobs, but it sounds like most of the margin compression is coming from utilization on the dredging side. Is that right?

Well, that coupled with the ongoing pressure on the marine construction side.

Matt, you can look at it from the standpoint of, if you are trying to get back to, hey, what does gross profit look like today, clearly we talked about the job impact that Mark mentioned in his prepared remarks and in the amounts we talked about. You can add that back in and get a little more feel.

You have got that $2.5 million [roughish] that you can add back in and get a little more feel of what the gross profit would have looked like had we not had those two impacts, both of which affected on the job level. So, therefore, that will give you a little more indication of what gross profit looked like on a normal standpoint.

That is kind of what backlog looks like at the same time at this point. And then you are layering on the pressures from the core, the gaps, as a result of the Corps lettings.

Okay, thanks. That is helpful; realize there are a lot of moving parts here. Then just on the cost savings that you are kind of targeting, could we see that start to show up as soon as the second quarter or when might that start to show up in the numbers?

That is kind of tough. Again we are looking at everything, we are scrubbing everything. We have done some things. We have reduced some headcounts. We have consolidated some offices without impacting our geographic expansion, so we have been able to reduce some overhead there. So we will go through that.

We are literally looking at all things. Again, it's kind of tough to quantify at this time but it's an ongoing process and a lot of the small stuff can add up over time.

Okay, thanks. And then on the private opportunities that you mentioned you are starting to see pick up, can you just give us a little more color in terms of what type of opportunities, what type of customers, and maybe what regions you are seeing the activity pick up?

Well, we are seeing it kind of in all the areas that we are covering right now. I can tell you that the price of oil is -- there is a lot more imported oil coming in the country. There is new loading facilities that are being put out for bid that we expect to see awards on before the year is out.

For the first time we have seen companies coming in looking at putting coal export facilities here in Houston, because they are having difficulty getting acceptance for coal exports in the Northwest. But a lot of bulk cargo and container terminal expansion projects -- each state is getting proactive now in trying to get this money freed up from the Harbor Maintenance Trust Fund.

They are only spending about half the money they collect on the ad valorem tax on cargo. We have even seen in Florida where the state legislature has proposed legislation to allow the ports to refinance and expand infrastructure projects. They are creating what is called a Florida Seaport Transportation Economic Development Council, like an infrastructure bank.

I think the government is kicking that around on a federal basis; they are saying is that what the federal government should be doing. The reason all this is taking place is the funding for port dredging work in particular is being hampered by the budgeting process and Congress deemed that to be earmarks.

So they are trying to find a solution to that. And hopefully the RAMP Act, Realize America's Maritime Potential, hopefully that will free up this balance of the Harbor Maintenance Trust Fund. It all seems to be coming together.

I am just seeing a lot of port activity. Port of Miami is going to expand there, deepen their waterways. We are bidding on work now to lower a pipeline in there so that they can deepen the Harbor. Port of Everglades is going to expand the cruise ship terminals and cargo bursts. We just won this job with two bursts over in Port Canaveral.

Tampa has got plans to provide petroleum offloading capability. Port Manatee has got a berth they are going to extend. There is about 14 different ports in Florida that have some type of activity that is either being bid or in progress that is very encouraging for us.

Now a lot of that won't impact this year, but it will get kicked off this year. Our bid level is just intense right now with marine construction projects, so I think that bodes well for down the road.

Okay, thanks. And then just final question, on the potential additional award at the Port Canaveral can you give us a little sense of maybe what the timing on that would be and kind of the process? Is that going to be bid out again or is it more negotiated?

Matt, those are options so it has already been bid. Basically what they would do is they would just award additional options under the contract. So again, right now we have got what we announced this morning but if they award -- which this isn't unusual, this happens quite a lot.

You will bid sort of a base and a bunch of options or something. They may choose to do a certain amount upfront, but then as time goes on -- our belief is that there intention is to award all options, but we will have to see how that happens. And that would happen during the course of the project where they would decide to award additional options.

So it wouldn't be up for rebid. It has already been bid and they would just award us the additional options.

And it would likely take place during the same timeframe as the project, 18 to 24 months.

Got it. Thanks very much, guys.

Steve Dyer, Craig-Hallum.

Good morning, guys. Most of mine by now have been answered. Just a couple things, just trying to get some sense of magnitude for Q2 and playing with my model here. Is it conceivable that you guys could lose a little bit of money in the quarter?

It's tough to say. Again, it depends on how big these gaps are. It's going to be a tough quarter; there is no doubt about it. Again, with the gaps in the Corps lettings or, excuse me, the lack of the Corps lettings that create the gaps in the schedule it's going to be tough.

Okay. And sorry if I missed this, how much of your work was self-performed in the quarter?

Self-performed was about 88%, a little under 88%, so we were sort of in that traditional zone of 85% to 90%.

Okay. The pricing pressure; we keep talking about it as transient and now it's kind of moving to other areas of the country as well. Sort of what gives you the confidence, and maybe it's just a function of a lot more to bid in the future, but what gives you the confidence that that is going to go away as quickly as you hope?

Well, I am pleased with the margins that we have gotten on the awards. They are good solid margins on projects we have been awarded.

And I think, Steve, too, as we go forward -- you kind of hid it. As activity picks up, people get busy, utilization gets better -- not just for us, but across the board. That is traditionally what lifts the margins up.

Obviously, this is one of the things we have focused on when we have talked about the political and economic uncertainty. Certainly we would like to see a little bit more, as I am sure all would, a little more clarity on the economy because I think ultimately that is going to be a big driver in terms of being able to lift margins up.

But I think just generally in our sector, as we get some -- the more activity you get, the busier people get, then that traditionally is allowing you to lift margins up.

Okay. And then just last question regarding the buyback. Anything you can say about your intent to use it? You obviously don't have that much cash on hand. Would you lever up to buy stock or how do you think about that or how does the Board think about that?

We certainly intended to continue exploring our acquisition opportunities to grow the business but, as we said in our prepared statement, we realize sometimes the best investment is in ourselves. We have got this $40 million buyback program that has been approved by our Board. It's in place for a 12-month period.

As you know, we make purchases on the open market. It's something we will evaluate continuously, along with other capital deployment needs. As you know, we can't comment on the timing of the purchases but I think it certainly reflects our confidence in our fundamentals of our end-markets and our overall business plan.

Steve, if it made sense -- again we are not going to comment on the timing of purchases, but we do have, as we have said, we have got a lot of availability between cash and revolver. Again, if it made sense we would utilize all are levers if it made sense to execute under that.

Okay, thank you.

Tristan Richardson, D.A. Davidson.

Good morning, guys. Just a couple questions on behalf of John Rogers. Regarding the project you decided to continue for strategic reasons, and you mentioned future opportunities, could you comment on the types of work opportunities you are seeing from this customer and maybe some of the timing aspect of that work?

Well, it's on the western side of Louisiana and Southwest. We do a lot of marine construction work there as well as dredging work. As you know, we expanded our dredging fleet. We have gone eastward with it. We have got three dredges working in Louisiana now.

Our Gulf Coast dredging has traditionally been primarily in Texas, and we just want to ensure that we have a good track record with our customers over there. We know this is an important client that we want to continue to operate with. There will be many opportunities to secure additional work down the road and we want to keep that relationship intact.

Although we believe we have a legitimate claim for the change that we are encountering, we have to acknowledge the fact that they have got a budgeting limitation. And we just think this is the right thing to do.

Yes, and again, not just from the standpoint of this customer but other related customers in the area, and again just from a customer relations standpoint, we think this is the prudent move to make. Again, not just keeping in mind this customer but other customers in that region.

Sure, okay. And then I guess -- I am sorry if you had already said this, but in addition to the Port of Canaveral job do you have a total for awards subsequent to the end of the quarter?

We have not -- as you know, we don't announce projects under $10 million so we do not have a total to announce for that.

Got you. Okay, well, thank you guys very much.

Craig Bell, [InterCap Partners].

Good morning, guys. Just had a question on the pricing pressures that you have been seeing in all areas. Are you really still seeing it just as really competitive bidding at lower margins, or are you seeing competitors bidding what you would consider below cost?

Both.

A little bit of both. We are still seeing some irrational stuff and we are still just seeing some people being aggressive.

It depends on the services that we are being asked to provide. We haven't lowered margins in all of our service lines, but certainly DOT work right now is under pressure and that is a very competitive market. But on the other hand, we have picked up other work at very good margins.

Our biggest challenge is not so much the margin itself as having the continuity from project to project to project with our assets.

Okay, great. Thanks a lot.

Rich Wesolowski, Sidoti.

Thanks. When viewed in the context of the time it takes for government budgets to [amend], the completion of the canal really isn't that far away. Do you see the potential for the higher government funding for ports if state and federal budgets don't improve, or is there a chance that they complete the canal, larger ships come in, and they only have the few options that they already have today?

That is a -- as we have said, notwithstanding the current budget pressures, our belief has been all along that a lot of this activity is going to be taking place over the next decade. So our full -- which we actually think is a positive. In other words, this work is going to continue on.

There is some ports that won't even begin to execute on their long-term expansion plans until after the Panama Canal is complete. So that in and of itself is nothing -- this is something we have always thought about as taking place over years, over the next decade, and that some of the reports will be in a position to take advantage of the wider, deeper Panama Canal sooner than others. But it's going to drive a lot of long-term opportunities for us even beyond 2014.

Well, I can certainly add to that with what we have seen taking place with this Harbor Maintenance Trust Fund legislation. It has been introduced in both the House of Representatives and the Senate, and it has been sent to committee for markup. So there is very broad bipartisan support to find a solution to free up that money.

I think what is unknown now is how the Congress is going to handle the deficit, address is debt ceiling, and determine how to fund infrastructure projects as part of that that will get employment backup. I think there is going to be a lot of pressure on Congressmen to make that happen.

We still have not seen any significant tee up of the safety move, highway funding program. That is a 5-year program that has been delayed and delayed and delayed with continuing resolutions. All of this is going to be coming to a head this year.

I am hopeful that the people in Congress that have been educated enough now and understand the importance of the Panama Canal widening and I think that is why we are seeing a lot of these port authorities going ahead and initiating these packages because they know that we have to solve this lack of dredging funds. It makes no sense to build a dock if you can't get the ship in there.

We have already seen some ports who have expanded bringing in bigger ships but they are [lightering] the load. That means they are not bringing in a full cargo but they are starting to establish the relationships with these shipping lines with the bigger ships so that they can come in now with what we have as a depth for channels.

All this has got to be solved and I am very encouraged that there seems to be bipartisan support to come up with a solution. But you know how politics are. Hopefully this -- the death of Osama bin Laden will enable us to downsize our military operations overseas and free up some more funding, possibly free up some foreign aid, which is a hot subject this week. It's something that has got to be done by this nation and I think we are succeeding in getting that message across.

Appreciate it. Then lastly, Chris had mentioned earlier that the adjusted March quarter gross margin is a good reflection of what is in backlog, but it's only recently that you guys have emphasized competition moving west toward the Gulf Coast or to the Gulf Coast. The contract that you announced today and the others that you are bidding that are going to stretch out to 2012, are they at that adjusted midteens gross margin range or is there something closer to the GAAP gross margin of 1Q?

Well, I think it depends on the project and it -- again, we are pleased with where the margins are on the project we announced today. Again, I think the bigger driver in the short term is just the gaps being created and the utilization of the dredging assets that are going to put a lot of pressure because of some of the ongoing stuff.

Again, as we move forward with all this bid activity that we are seeing, the challenge is going to be to have everybody that has gotten good utilization, seize the fact that there is a lot of activity, and again that is when traditionally you look to start pushing margins upward.

Great, thanks again. Good luck.

We have no further questions at this time. I will now turn the call over to over to Chris DeAlmeida for any 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 great day.

Thank you for your participation in today's conference. This concludes the presentation. Everyone may now disconnect and have a great day.