Orion Group Holdings Inc (ORN) 2011 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the quarter-three 2011 Orion Marine Group earnings conference call. My name is Laura, and I will be your operator for today. At this time, participants are in a listen-only mode. We will conduct a question-and-answer session toward the end of the conference. (Operator Instructions). As a reminder, this call is being recorded for replay purposes.

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

Good morning. Welcome to the Orion Marine Group third-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've allocated about 15 minutes for prepared remarks, in which Mike and Mark will highlight our results for the quarter, and update our outlook for the remainder of the year and future. We will then open up the call for sales-side analyst questions for the remainder of the time. We ask that you please limit your questions to one question and one follow-up before getting back into the queue.

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

These statements are predictions that are subject to risks and uncertainties, including those described in our 10-K for 2010 that may cause actual results to differ materially from those statements. 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 Security and Exchange Commission, including Regulation G. Please refer to the reconciliation accompanying this earnings call available on our website at www.orionmarinegroup.com for comments on the use of non-GAAP financial measures, as well as applicable reconciliations to the most comparable GAAP measure.

Also, please refer to our earnings release issued this morning August 4, 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. Mike?

Thank you, Chris. As we said last quarter, 2011 has been a tough and challenging year -- well beyond our initial expectations. The delays in federal lettings this year has created gaps in our projects, resulting in significant levels of underutilized equipment across our market. Additionally, pricing pressure on projects involving construction service has continued.

As a result, we've had to make some tough decisions to rightsize the business in order to weather this storm. Additionally, we've had to lower our pricing to be successful in winning work in this market. Now there is no doubt this has been a tough and eye-opening year for us. We came into the year with a decent backlog, 1,400 employees, and a large amount of bidding opportunities. However, we did not anticipate the lack of lettings from the Army Corps of Engineers as a result of our government's inaction to properly fund the Corps programs.

But we've not sat idle. As a result of these developments throughout the year, we've taken actions to reduce our workforce to just over 1,000 employees, strategically lowered our margins to rebuild our backlog, and we're implementing several cost-containment initiatives that will help control non-direct job costs, both now and in the future. There is no doubt we're frustrated with this year and our inability to more accurately predict such events. But we're making strides to control costs, bid effectively, and be able to move more quickly to react to changes in our markets.

As I said last quarter, the quickest way to return to the high profit margins that we enjoyed just a couple of years ago, is first, for action to occur in Washington that puts dollars back into the Corps' available account, co that they can begin a healthy flow of bid lettings. And, secondly, for resolution on a new long-term highway bill, which we anticipate will help ease pricing pressures.

Now, during the quarter, we saw some bid lettings from the Corps, but it was at much lower levels than prior years. Still, we were able to secure some work, which will put some of our equipment back to work during the fourth quarter. However, as you are probably well aware, Congress has not passed the budget for the federal government's 2012 fiscal year. Therefore, we again have uncertainty with regard to the spending level and timing of federal lettings for next year. We'll have to see after the Joint Select Committee on Deficit Reduction is finished later this month, if there will be a 2012 budget passed, which will allow the Corps to execute jobs at a steady pace.

Also, we did not expect to see a new highway bill in the short-term. Therefore, as we begin to look at 2012, we're cautious as to the level of federal funding and the pace of lettings. Additionally, we expect to see pricing pressure to continue. At the same time, demand for our services has not and will not go away. In fact, we believe there is building pent-up demand for projects involving dredging services and an ongoing demand for marine construction projects.

As an example, waterways are continuing to silt in as a result of inadequate funding, delays in Corps lettings, and the flooding of the Mississippi River earlier this year. Of course, federal funding would need to be provided so that these needs could be addressed. Additionally, according to the most recent data from the U.S. Census Bureau, United States continues to export and import at high levels. Now the first half of 2011 saw exports of $735 billion, which compares to $621 billion during the first half of 2010. Additionally, the first half of 2011 saw imports of $1.1 trillion, which compares to $939 billion during the first half of 2010.

So, since almost all of these exports and imports are transported by ship, more vessels are utilizing our nation's aging deepwater ports. This, coupled with the expansion of the Panama Canal, should provide continued demand for our marine construction services. Now, we also expect to see continued improved demand from the industrial private side, such as chemical companies, refineries, and other such private terminals.

Over the past couple of years, these customers have delayed their infrastructure and CapEx investment, but we're starting to see them now begin to make investments in maintenance, in dock refurbishments, and also replacements. And I think that's going to bode well for us over the next 12 to 24 months.

Today, we're tracking over $6 billion worth of bid opportunities for the next few years. A breakup of that would be about 13% of federal projects, 26% are state, 27% are local, and 34% are in the private sector. Now that's the highest level of tracking database we've ever seen, which gives us optimism about the overall market demand. However, we still have to pay close attention to the pricing and funding, and see how these opportunities ultimately play out.

So to sum up our markets, we expect lettings from the Corps to remain choppy in the absence of a full-year appropriations bill. On the private side, we expect to see continued bid opportunities, and state and local bid market activities should remain at a similar pace as to the beginning of this year.

In closing, there is no doubt 2011 has been a challenging year for all of us. However, we continue to provide valuable, needed services, and we believe the need for our services will not go away. As a country, we cannot afford to continue to let our nation's infrastructure deteriorate. Ship channels and intercoastal waterways are vital to economic development and trade. In fact, over 99% of our nation's overseas trade is handled by deep draft ports.

By not maintaining this vital link in the supply chain, trade and economic recovery is severely threatened. Ships capable of carrying 10,000 TEU containers have sailed into US ports, but they're less than half full due to draft restrictions. And I'm confident we'll see a return of dredging and construction services in our nation's ports, harbors and waterways.

To us, it's not a matter of if; it's only a matter of when. And we continue to see long-term growth opportunities and we remain optimistic about our bid market. We've been successful on smaller private work, and we're seeing signs that the private sector will continue to provide good bid opportunities.

Therefore, our focus is on weathering the storm and returning to profitability. We believe the profit levels we have enjoyed just a couple of years ago will return, but we must be patient. In the meantime, we're going to focus on protecting the intrinsic value of the Company, controlling our costs, and managing through the downturn and preparing for future bid opportunities.

We believe Orion Marine group has a strong and bright future. And we're working hard to build our backlog and maintain a strong balance sheet, increase our margins, and explore complementary diversified service offerings. As many of you know, I'm very disappointed with this year. But I still firmly believe in this Company, its future, and a continuing need for the services we provide.

Third quarter has been tough, and there have been some positive things that have been going on during this tough quarter. Now during the quarter, we saw our backlog grow sequentially. We have maintained a very solid cash position, and we have continued to implementing our cost containment programs. We will return to profitability as quickly as possible, and we're working hard to increase shareholder value and build an even stronger company.

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

Thanks, Mike, and thanks again for joining us. For the third-quarter 2011, we reported a loss of $6.2 million or $0.23 loss per diluted share, which compares with a profit of $7.1 million or $0.26 per diluted share in the prior-year period. As we said in our mid-period update, underutilized equipment reached its lowest levels of the year during the third quarter in project schedules caused by delays in lettings of federal jobs during most of 2011. As Mike mentioned, the Corps led some work during the third quarter, which will help put some of our assets back to work in the short-term.

Third-quarter contract revenues decreased 45% year-over-year to $54.6 million, of which 85% was generated from federal, state and local government agencies, and 15% from private industry. This compares to 60% from federal, state and local government agencies, and 40% from private industry in the prior-year period.

During the quarter, we experienced additional delays in the ability to proceed on a federal job, causing revenue to shift right. This job, which was awarded over a year ago, has been plagued with delays from the start. Time after time, the customer has delayed our ability to go to work. At this point, we do not expect this job will start this year. However, we are working hard to get this job started as quickly as possible. Also, we continue to experience a delay on a private job as a result of permitting delays. The good news is this job is now underway and should complete during the fourth quarter.

During the quarter, our book to bill ratio, which measures the replenishment of our backlog, was 1.48 times, which is up from our second-quarter 2011 book to bill ratio of 0.71 times. In fact, this is the first time during 2011 that our book to bill ratio was above one times, as we were successful in winning a healthy amount of new jobs during the third quarter. We believe we are getting a good handle on where pricing should be in order to keep our book to bill ratio above 1 to 1.

Overall, we continue to be active on the bidding front. During the third quarter, we bid on $670 million worth of bid opportunities and were successful on $76 million. This represents an 11.3% win rate, which is significantly lower than our historical norm, but improved from the second quarter of 2011. However, we have continued to see pricing pressures in what appears to be irrational bidding.

As we look at the next 12 to 18 months, we expect to continue to see good overall lettings on marine constriction side; however, with continued pricing pressure. On projects involving dredging services, we expect to continue to see slow and potentially choppy Army Corps of Engineer bid lettings as a result of the lack of a 2012 federal budget.

As of September 30, 2011, we had a backlog of work under contract of $146.1 million, of which 52% is for federal projects, 13% is for state projects -- 13%; 17% is for local projects; and 18% is in the private sector. Please keep in mind we do a fair amount of private work that is short-term call-out work and may not be reflected in backlog.

Subsequent to the end of the quarter, we have continued to be successful in obtaining additional awards for new work, although at pressured margins. Additionally, we currently have over $140 million worth of bids outstanding, which includes approximately $58 million on which we are the apparent low bidder.

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 September 30, 2011, we had cash on hand of $35 million, which compares to $25 million as of the end of June 30, 2011.

So far this year, we have reduced our days sales outstanding substantially, bringing our trailing 12 months DSO down to 37 days as of September 30, 2011. We currently have no debt, which 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.

Turning to our cost-cutting initiatives, during the year, we began detailed review of our cost in an effort to rightsize the Company to the current market activity and conditions. During the third quarter, we continued to implement programs that will help reduce and contain our costs, which should begin to help us contain and control costs more during the fourth quarter and beyond. These programs focus on controlling costs associated with idle crews, non-essential repairs, and overhead costs. By doing this, we should be able to contain our non-direct job costs.

I wanted to take a moment to reemphasize how these savings impact our income statement. When crews and equipment are working, they are expensed to a job. Once they become idle, that expense is no longer absorbed by a job and causes our gross margin to decrease. Therefore, we have taken steps to mitigate these margin decreases.

The cost containment efforts we have implemented should help limit the impact of idle crews and equipment. Keep in mind, job margins have been pressured, so we would still expect to see pressure on gross margins as compared to historical norms. Our goal is to offset that pressure as much as possible through continued cost containment measures.

As we said last quarter, we also took steps to control SG&A expenses. Along with job reductions and eliminating overtime hours, we have eliminated the 2011 bonus expense, and are reviewing costs at a micro level to generate savings from such items as cell phones, computers, supplies, et cetera. In a nutshell, we are closely examining all areas of the business to make sure we keep costs in line.

Looking ahead, we are continuing our efforts to control costs and return to profitability. We will continue to make adjustments to our cost structure to better align costs with revenue and gross margins.

In closing, 2011 has been a difficult and frustrating year. We are disappointed with the results -- or with where we are in the uncertain political and economic environment. However, we will manage through this downturn by maintaining the core value of the Company while controlling costs and preparing for the future.

We cannot change what has developed this year, nor do we believe we could have foreseen this amount of pressure. As a company, we have implemented programs to help us better predict the future and more quickly respond to changes in our operating environments. Because of this, we believe we are better focused on the future results and can more quickly react to market changes.

As we look ahead, we expect the pricing pressures we have seen this year to continue for at least the next 12 to 18 months. Additionally, the lack of a federal budget for 2012 continues the uncertainty of the pace of federal lettings next year. We suggest investors pay close attention to the macro drivers affecting our end markets, as we believe this is more about timing rather than a permanent deterioration in our end markets. And, therefore, we remain excited about the long-term bid opportunities and end markets.

Our fleet support facilities and specialized workforce are hard to replicate, and we are well-positioned to take advantage of opportunities in our end markets as current market pressures abate. We believe the Company has a strong future in the heavy civil marine infrastructure market, but we have to be patient, control costs, and manage through this difficult time.

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

Thank you, Mark and Mike. Again, we please ask that you limit your questions to one question and one follow-up, so everybody has a chance to ask a question.

With that, we would open up the call for questions. Laura, would you please review the procedures for placing a question?

Thank you. Ladies and gentlemen, if you wish to ask a question, (Operator Instructions). Matt Tucker, KeyBanc Capital Markets.

You had a nice improvement in bookings in the quarter and you indicated that utilization should improve in the fourth quarter. I know you guys aren't providing quantitative guidance any more, but could you give us a little better sense of directionally how the fourth quarter is going to compare to the third quarter? And in particular, if you could comment on the trajectory of the topline? And also do you think that gross margins could be positive in the fourth quarter?

Yes, just one comment on the dredge utilization. As you know, we don't give out that information for competitive reasons, but historically, Q3 has been our best quarter each year. If you go back several years, you'll see Q3 has always been very strong. It's the time of year where you have the most daylight hours. You can work longer. And this is the first year I've seen in the last six years where we were tied up the dock with a majority of our dredging fleet. Highly unusual.

And it was substantially below our historical norms. I think the fourth quarter is going to return to somewhat a more normal utilization. We were successful on four of six bids that the Corps did let. And none of which liquidated or initiated -- started work in the third quarter. It all didn't start until the fourth quarter. So, hopefully, that will return.

And Matt, just to kind of follow-up on that. I mean, I guess I'd go back to what we said in Q2. At that time, we said we expected about $100 million of our backlog would liquidate during 2011. So, just in terms of directional -- how we think directionally revenue is going, I'd refer you back to that.

I think, again, as Mike said, we do expect some of the dredging equipment to go back to work during the fourth quarter. But we do -- still expect that margins would be pressured during the quarter.

Okay, thanks, guys. And then, Mark, I appreciate your detailed comments on your cost-cutting initiatives. Do you guys have a target or could you quantify it anyway how much costs you think you can take out?

Well, again, I want to emphasize that it's along the lines of cost containment. I mean, certainly, part of it depends on where we are with any given jobs and jobs we get into backlog. But as we look at our indirects and overhead, there's a certain amount of that that we can cut out; there's a certain other amount of that that we feel like we have to maintain, particularly with certain positions that are highly skilled, more difficult to reacquire. We feel like, as we talked about last quarter, that we've made the decision to retain some of those costs through some of these gaps.

So, again, this is a function of containing costs versus permanently eliminating some of these. Some are easier to get rid of in the short-term. Some are ones we have to keep during a gap. So, again, I would just go back to the comment about we do expect margins to continue to be pressured.

And then if we look at our SG&A, of course, we noted the things that we kind of have done there with respect to eliminating the bonus and looking at microlevel of stuff. So we'll continue our efforts on those cost cuts and containments, but it's hard for us to quantify for it, as you've asked.

I think it's fair to say that we've looked all throughout the organization, top to bottom, to see where we can reduce unnecessary costs. We certainly curtailed CapEx. That's an area we've made some substantial savings, and -- but you have to look at every aspect of your operation. SG&A, indirects, direct cost, rental equipment, the whole bit. So it's just something we're reviewing month by month, and it has to match the activity level that we're encountering.

Appreciate the color. I have a few more questions, but I'll jump back in the queue for now.

Trey Grooms, Stephens.

This is actually BG Dickey in for Trey. First question is just having to do with opportunity that's out there for you guys. We've heard a little bit about maybe in the Gulf Coast region, particularly having to do with BP. We've got about $1 billion in opportunity there for some coastal restoration work as well as just general port expansions that are starting to take place. Is that something that you guys can participate in? What s the kind of opportunity that you guys see there?

Yes. That's a very interesting addition to the Corps' budget. We looked at the 2012 budget and felt like if it would get past, it would offer the similar opportunities in O&M to prior years. And the additional $1 billion in supplemental funding is going to be applied towards reconstruction of river flood damage, storm damage.

We've already seen several bid packages coming out from the different coastal restoration authorities that we are bidding on. And there's no complete breakdown of the $1 billion that I've seen yet. It's still a work in progress. But I'm encouraged that we're beginning to see the first of some bid packages coming out that are definitive, that we're going, hey, these are the kind of projects we can pursue.

Yes, it's definitely positive development for sure.

Okay, great. Thanks very much. And then just taking all of your comments and putting them in context about -- for the pricing pressures to continue and that sort of thing, and obviously, things are very competitive. But from a margin standpoint, the trend has been to the downside this year. It sounds like you guys are implementing some cost-cutting measures. But in terms -- to offset that -- but in terms of the actual pricing pressure, is that actually something that's getting worse over time? Or has it kind of hit a bottom and we're plateauing out now?

No, I think we feel like we understand where the zone is and it's not the margins that we enjoyed a couple of years ago. It's certainly well below that. But we're comfortable that we understand it now, and you have to react to what the market is enabling you to price. And that's why our cost restructuring program has to go hand-in-hand with those lowered margins.

But I feel like our success rate has improved. Our book to bill ratio has improved in two successive quarters. So we're getting more comfortable with that, okay, we understand what this market will accept. And we've got to position our company to be profitable in that type of environment.

Yes, and I think just to follow-up on that, I think that we don't necessarily see it getting worse. As Mike said, I think we've got a good handle on where the market is. It does seem to have reached a -- I don't know if plateau is the right word -- but maybe the trough. We found the trough.

But I would remind you that we still are seeing what appears to be irrational bidding, and we just never know which bid that's going to show up on. So that's kind of -- continues to be a wildcard. And as we talked about in our remarks, while our success rate has increased, it's still well below historical norms.

So, again, we still expect that we'll continue to see some of that irrational bidding from -- and again, you just never know when it's going to show up. But again, I do think that to your question that we've -- it sort of feels like we're at the trough on pricing and, again, if we can have some of these things occur and that we've talked about. It'd be nice to get a federal budget in place; general economic activity picking up. We feel like that we can begin rebuilding there.

Okay, great, thanks. I'll pass it on.

Rich Wesolowski, Sidoti & Company.

Last quarter, you had detailed a cut of about 300 to your labor force. It sounds like that number may even have grown a little bit since the last quarter. How many of those jobs were eliminated in 3Q? And over what timeframe would you expect to cut the remainder?

Most of those have been -- were cut in Q3. Some were cut in the beginning of the year. Some were cut in Q2. The vast majority in Q3. We think at this juncture -- obviously, we'll continue to monitor, but at this juncture, we feel like most of what we have done to date, we're satisfied with where we are right now. But again, we'll continue to monitor.

I did want to point out that the majority of those positions eliminated, though, are related to direct-cost field positions. However, a number of them were in the indirect category and some in the SG&A category.

So would you suspect the fourth quarter is going to have the first clean representation of your new cost structure?

I would say it would have the full impact of the cost containment that we've done to date. But again, I'd remind you that if you go back to my remarks, that this is cost containment for the most part on costs that otherwise would have been absorbed in direct costs on a job. So we are containing them, but there's a certain amount of cost structure related to our equipment. As an example, crews that we have to retain through these gaps, that is cost that we can't eliminate quickly or in the short-term.

So, we'll still have those costs. And again, that would put downward pressure on the margins, and again -- so we expect margins to continue to be pressured as a result of unabsorbed costs. However, what we've implemented has restrained or contained the growth in those indirect costs.

Yes, we're down to just over 1,000 employees. I think 1,025 is what I saw recently. And we'll carry that into the fourth quarter. And I fully expect that we will grow the Company again. And we can't make cuts that will prevent us from being able to surge back up when the demand comes back.

Okay. I understand that the gross margins are not soon headed back to what we were used to seeing from Orion, but on one hand, you have the margins on offer in the market, and on the other side, you have the bid margin that the Company needs in order to turn a profit. Is there currently an overlap in those two ranges at your new cost structure? I mean, are current bids expected to be profitable? Or are we not there yet?

As we said, I mean, we're working hard to get back to profitability as soon as possible. And to your point, yes, I mean, there's projects involving dredging services. Of course, that's largely dependent on having a steady pace of projects coming out from the Corps. And that's why it's important for us to get certainty in the federal budget and get a budget for 2012, and allow them to execute the work and certainly get some clarity on the $1 billion supplemental funding, and some of this BP work that was asked about earlier.

On the other side, though, yes, definitely, we are aligning our costs to meet the market that we're currently in. So we certainly have the goal of getting us back to profitability, even within the current pressured margins. Again, it's not going to happen overnight. In the short-term, we expect to see this choppiness from the Corps as we talked about, along with these margin pressures. But we're definitely working to -- and what we've done is to try to align that with the market environment that we're currently in right now.

So, again, we're encouraged by the uptick in the success rate. It's not near enough where we want to be, but it's moving in the right direction. And also, as we've talked about in our release and in our remarks today, we've got about $140 million of bids out right now that we're apparent low bidder on $58 million. So, again, we're encouraged by the build in the backlog. And again, we're aligning our costs with the current market environment.

And just a point I wanted to confirm is really that the Company is sizing itself without too much hope that the market will get much better very soon. I appreciate it. Best of luck.

Jack Kasprzak, BB&T.

I wanted to ask about the gross margin specifically as well. I know you made some comments about it, but I mean, do you think this will be -- plainly put, I mean, do you think this will be the worst gross margin quarter of the next -- of this sort of downturn that we're experiencing in the business?

Well, again, we're not providing guidance, so it's difficult for me to answer that this will be the worst. I certainly think that we're in a -- as I said a minute ago, I think we're sort of in the trough, as it were. And I refer back to the comments that we've made about last quarter, regarding how much of our backlog at that time that we expected to liquidate, which we said about $100 million of that during the remainder of 2011.

So, certainly, I think that as we move through the fourth quarter, and we have the -- get the full impact of our cost containment benefit, and then we start building our backlog here that, as we move into next year, again, we would hope we would return to profitability as soon as possible.

Given the ongoing pricing pressures that you're saying you think will continue for the next 12 to 18 months, I think is what you said, you're having to be competitive to get work. So you're building a backlog, but we're going to continue to see the margins remain under pressure as that new backlog flows through. Is that a fair assessment?

That's correct. I mean, one thing I want to be clear about, we're not out chasing work to build up losses. We're bidding profitably. We are challenged each year with having our utilization being back to back on our projects. And we can bid jobs with a profit in them, but if we have a gap or a delay on a particular piece of equipment, in any given month, that has the effect of negating your gross profit and impacting your gross margin by having underutilized equipment. So getting projects back to back is very important, particularly on the dredging side of the business.

Okay, great. That's helpful. Thank you very much.

Alex Rygiel, FBR.

It looks like about $45 million of new awards in the quarter were from the Army Corps. How much of that could be liquidated in the fourth quarter?

Not a lot, Alex. Some will be. Some of the -- as we said, we'll have dredges going back to work in the fourth quarter, but some of that work goes out for an extended period of time. As I think we've said in the press release on the big -- one of the big projects that we announced --

La Quinta channel.

-- La Quinta channel, that liquidates out through 2012.

Were there any specific project closeouts in the quarter that were maybe a drag on profitability more so than in the past?

No, I think more of the things that were dragged on profitability where the items we mentioned in our remarks about the delay in the federal project, and the delay on the private project. That -- and the gaps in the -- the lack of utilization that Mike talked about a minute ago, being caused by the gaps in lettings earlier in the year.

And lastly, as it relates to the projects yet to be awarded, but you're low bidder on, are any of those dredging projects?

I don't think there are any in that -- if there are, that's predominantly non-dredging work in that $58 million.

Great. Thank you very much.

John Rogers, D.A. Davidson.

Mark, I'm sorry I heard two different numbers. How much work did you say you were expecting to liquidate in the remainder of 2011?

Well, we said on our Q2 call -- that we did not update that this call, but in our Q -- I referred back to the Q2 call. At that time, we expected $100 million of our backlog to liquidate in the back half of the year.

Oh, okay, so for the back half of the year. So less the [$55 million] that you (multiple speakers) -- in the quarter?

Correct. And of course, you know we have some call-out work and things of that nature.

Right. Okay. Sorry, I just wanted to make sure I had that right. My question is -- just given -- and I realize margins are balanced between utilization and as-bid margins. How much work do you need now, given the current pricing structure, to get to breakeven on an annual basis?

Well, again, I hate to quantify that for you because then --

That's okay.

-- it relates to (inaudible). But I guess I would refer back to the answer we gave just a minute ago is, we think we are -- and we are continuing to monitor, and we will make adjustments as necessary, to get the cost structure in-line with revenues. So I guess to your point is, is that we think regardless of where we wind up with going forward on a run rate, going forward, we are going to align the cost with that to make sure that we return to profitability.

Okay. And is the impact of the lower pricing that you are seeing, are you fully recognizing that pricing in the third quarter or is the pricing in your backlog still lower?

Well, compared to historical norms, I mean the back -- (multiple speakers) -- the backlog is would be pressured. Just given, again, given the comments we have made about the pressures that we are seeing in the marketplace. So certainly that is going to be reflected in the margins that are in the backlog.

But relative to what you saw in the third quarter.

I would say it is similar. (multiple speakers). Yes, I mean, there is a limit as to how far (multiple speakers) go down. And the one thing we are getting feedback on from our bonding surety is that there's companies out there who [are] overly aggressive, and now they're having trouble getting bonding. And that's the kind of jam you can get yourself in when you just bid ridiculous. So we're starting to see some signs of that on certain companies.

Okay, and just lastly if I could, I don't know, Mike or Mark -- in terms of your bonding capacity, I have heard some in the industry refer to a multiple of equity. Is that a good way to think about it?

Well, you know, it's -- bonding capacity is a very nebulous thing and it's largely driven off different indicators on the balance sheet. And as you know, that's one of the focuses that we have is to protect the balance sheet and that's the reason why.

But quite frankly, it also has a lot to do with management and the belief that the surety has in management. So it's a combination of underwriting, plus the relationship that management has with the surety. We believe we have an excellent relationship with ours. And we have -- continue to have a strong balance sheet, so we think we've got a healthy and expect to have a healthy amount of bonding capacity as we go forward.

Yes, I can't overemphasize managing the balance sheet is essential to have good surety relations and comfort going forward. I think we're in great shape. That's the one thing we did do is try to bulletproof our balance sheet and stay on top of it, and keep our cash up.

So we don't have any real concerns there. We've been bidding bigger projects than we've ever done in the past. And I think our bonding company is very confident about the direction the Company is going. And some of these recent awards are larger than our Company has ever seen before. And I think that just shows that we're taking the right steps to get the building blocks in place, and you don't want to lose that surety relationship.

And John, just again, I think it's -- again, I stick to my comment about it's a very nebulous thing, but in general, a couple of things, the key things that the surety is going to look at is working capital, tangible (multiple speakers) --

Tangible (multiple speakers) --

-- and tangible net worth. Those are two of the key things they're going to look at.

Okay, great. Thanks for the help.

Steve Dyer, Craig-Hallum.

Oh, thank you. I apologize. Mine's been answered. Thank you, guys.

Craig Bell, Enerecap Partners.

Mark, I think you said in your prepared remarks that private work this quarter was about 15% of revenue?

Yes.

Just wondering if I could get your take on the private market, because it looks like if we look at the first nine months of this year versus last year, that's been -- it seemed like a huge drop-off in private work. And especially if we compare it back to historical levels. I mean, it looks like your -- about 22% of your work this year has been private versus maybe half in the past. I mean, that seemed like a big drop-off compared to the government work.

Well, I'll tell you, that's an area that we're getting very encouraged about. I think a lot of the private companies have been on the sidelines here the last couple of years, not sure what to invest in, and with this economy. And we've been very active in both bidding work that's coming out for the second half of next year with private clients. And there's a lot of repair activity that's going on that's kind of been pent-up demand holding back.

And I feel like we're going to see an uptick in activity -- driven by these trade statistics. I mean, there's just a lot of shipping traffic going on. And we're seeing investments in coal; the coal is being looked upon negatively in the Northwest and states that don't want coal exports. And that all of a sudden has taken on some interesting activity here, chemical companies and refineries. And I believe we will see a resurgence of private activity, probably in the -- starting in the second half of next year.

Great, thanks a lot.

Thank you for your question. Your final question comes from the line of Matt Tucker, KeyBanc Capital Markets. Please go ahead.

Hey, guys, could you provide the size of that delayed federal project that you mentioned has been delayed for quite a while now?

It was in the -- $30 million range, I believe. We announced the project last year.

Okay, and that amount is still in your backlog?

Yes.

Yes, it is.

Thanks. And (multiple speakers) --

We've finally gotten that project off dead center in terms of looking at getting it kicked off, but it's -- we don't really expect much this year. It will be a 2012 activity now.

Okay, thanks. Then could you just update us on your Pacific Northwest business? Are you able to quantify the contribution in the quarter? Or could you just comment on how that business is tracking versus your expectations?

Well, we're pleased with where we are up there. We've got a healthy amount of work in our database. There's some really nice-sized projects that we're tracking up there that we've been involved in. There's some teaming arrangements that we've -- with various players that we've teamed up with on to pursue various projects.

So, we're pleased with where we are in terms of expanding up there in the Northwest. And I would just say stay tuned, because I think we'll have some news coming out of that region as we move forward here.

Yes, in particular, we're seeing activity pick up a bit in Alaska and we're also bidding projects in British Columbia. Again, where our government is in stalemate over whether they're going to put a pipeline from Canada down to Houston. The Canadians are actively seeking outlets in British Columbia to take the tar sand oil and export it on the northwest.

So these jobs will get done and I'm glad that we're in the fray pursuing them. And as Mark said, we hope to be successful on our efforts.

Thanks, that's helpful. Just shifting gears, if the Army Corps lettings on the maintenance dredging side really don't pick up going forward, how long before you start to see some real critical problems in terms of the navigability of waterways in your regions? Or does the current pace of lettings, is that just enough to prevent any significant problems?

We're already seeing problems. We've seen ships run aground in the Mississippi River. We've seen shoaling areas that are caused by the flooding that operators are crying out for relief on. And basically, the Corps has just come out and said, with the mandate we were given to open up these waterway widths and depths, we can no longer give you the width and depth that is our mandate, with the money that we have.

And something's got to give. And I believe that the Ramp Act is now back on the table again. It's -- they're trying to break loose some of this Harbor Maintenance Trust Funding. Some discussion about possibly letting the port spend what they generate, which I think would be a huge positive development.

But it's all up in the federal deficit budget debate right now. And we just don't know what the outcome is going to be. But I have seen announcements that the Corps has made where they've taken some of the smaller ports in the upper Mississippi tributaries. I think in Kentucky, recently, they just said we can no longer maintain this port. It's going to have to shoal up. We're sorry; we don't have the money.

Now that is going to start port by port by port from the smaller guys getting hurt on this, and the big ports have got to get prepared for these Panama Canal ships coming in. So it's going to be really interesting to watch this play out.

And Matt, I would just go back to what we've consistently said too, is again, to your point -- I mean, we think we're kind of there at the critical point right now. And, again, that's why we think, short-term, certainly, this is an issue for the reasons Mike said. This Deficit Commission, everything has kind of been on hold -- or Congressional Commission, I should say, Committee. We don't have 2012 budgets, so we're operating on continuing resolutions, which is never a good thing for lettings.

But, again, we're convinced that this work is -- for the reasons Mike said -- will have to get done. And it's not a matter of if, but when. And so we're hopeful that there will be some resolution as we move forward in both getting a full-year budget, getting some of this supplemental money approved; getting this BP money injected into the system. And longer-term, getting this Harbor Maintenance Trust Fund issue finally resolved so that the money is being generated. It can address a lot of these problems. It's just not being spent in the right place.

Thanks, that's helpful. I have one final question. I realize that an apparent low bid is not the same as a signed contract. But would you say it's probable in terms of timing that the $58 million in low bids can be converted to awards in the fourth quarter? And then how much of the bids outstanding, the $140 million, do you think could be awarded in the fourth quarter, whether to you or competitors? But just from a timing perspective.

On the first point, I think it's very reasonable to -- that the $58 million would be converted to award in the fourth quarter. That's a reasonable assumption. On the second part, with the balance of the $140 million, that could spread. Again, some of that is RFP jobs to where we have RFPs in to the federal government. And they have just been extremely slow this year at awarding work. And in many cases, they have taken a full 90 days to make a decision. And then at the end of the 90 days, they ask for an extension from all the bidders.

So, that one is a little more difficult. I think I would not want to commit to whether or not that would be awarded to us or somebody else in the fourth quarter.

I'm sorry, could you just clarify, does the $140 million include the $58 million?

Yes, the $58 million is included in the $140 million.

Thanks, that's all I had.

Thank you. I would now like to turn the call over to Chris DeAlmeida for closing remarks.

Thank you, Laura. On behalf of Orion Marine Group, we would like to thank you for taking the time to talk to 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.

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