Orion Group Holdings Inc (ORN) 2011 Q4 法說會逐字稿

Good morning, ladies and gentlemen. Welcome to the fourth quarter 2011 Orion Marine Group, Inc. earnings conference call. My name is Chris, and I will be your conference moderator for today. Presently all participants are in a listen-only mode. Later we will facilitate a question and answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

At this time I would now like to turn the conference over to your presenter for today, Mr. Christopher DeAlmeida, Director of Finance. Sir, you may proceed.

Good morning, and welcome to the Orion Marine Group full year 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 year and update our outlook for 2012. We will then open up the call for sale side analysts' questions for the remainder of the time. We would ask that you please limit your questions to one question and one follow-up before getting back in 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, projects and negotiation and pending award, as well as our estimates and assumptions regarding our future growth, EBITDA, EBITDA margin, 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. As a reminder our backlog consists of projects under contract that either, A, not been started, or B, are in progress and not yet complete, and we cannot guarantee that the revenue projected in your backlog will be realized, or if realized, will result in earnings.

Also, please note that EBITDA and EBITDA margin are non-GAAP financial measures under rules of the Securities and Exchange Commission, including regulation G. Please refer to the reconciliation accompanying this earnings call available on our website at www.orionmarinegroup.com for comments on the use of non-GAAP financial measures as well as applicable reconciliations to the most comparable GAAP measures.

Also, please refer to our earnings release issued this morning, March 1, 2012, 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, and thanks for joining us this morning.

As you can see from our results for 2011, this was a very frustrating year, and we are very disappointed with our results. Now, while we are not out of the woods yet, we are seeing some positive signs for the future.

During 2011 our end markets experienced substantial uncertainty as a result of the inability of the federal government to adequately fund important infrastructure programs such as the new highway bill, which increased competition in some of our end markets and also put pressure on pricing. Additionally the federal government's dysfunctional budgeting process has significantly impacted the pace of lettings from the Army Corps of Engineers, and this resulted in some of our equipment being significantly underutilized during 2011.

In response to these developments, we made tough decisions to right-size the business by reducing our workforce, as well as undertaking cost containment programs to better manage non-direct job costs moving forward. We also decided to strategically lower our margins to build backlog. In this competitive environment our ability to obtain higher margin levels is just not practical. Therefore, we need to perform a larger volume of business to cover our fixed costs and ultimately return to profitability.

Over the last few months we have enhanced many of our performance metrics, we have honed our business practices, and we are making strides to react proactively to the changes that we see in our markets. However, we are not out of the woods yet, and we do believe we have entered into the trough of the downturn, as our market outlook continues to grow and we begin to rebuild our backlog. This is not a short-term process, but it is going to require some time for full execution. Therefore we still anticipate a few rough quarters ahead, but we are moving in the right direction. Still, we believe we are well positioned to compete in a market in which pent-up demand for our services exists.

We are encouraged about the opportunities ahead and the level of market activity. Specifically, our market tracking database continues to grow as we expand geographically, expand our capabilities to go after larger work, and the overall need for marine construction services increases. Today we are tracking over $6 billion worth of bid opportunities for the next few years. Of which 14% are federal projects, 28% are state, 19% are local, and 39% are in the private sector. This remains the highest level of tracking database we have ever seen, which gives us optimism about the overall market demand.

For example, the overall use of our nation's aging marine infrastructure continues to grow, and that's evidenced by increasing imports and exports, the vast majority of which are shipped via waterways. According to the US Census Bureau, US imports of goods have increased 15% in 2011 over 2010, and exports have rose 16% over 2010 levels. So continued increases in imports and exports will only accelerate the need for improvements to marine infrastructure.

The maintenance of the nation's waterways is chronically underfunded. In fact, it was estimated that among the nation's 59 busiest ports, full channel dimensions are available less than 35% of the time according to a 2011 study by the Congressional Research Service. Restoring full channel dimensions will not only provide a business opportunity for us, it will ensure the safe and efficient passage of ships around the nation's ports, so we expect to see these funding issues eventually resolved.

We also expect the expansion of the Panama Canal to be a long-term driver of port expansion on the Gulf and East Coast over the next decade. Recently Alberto Zubieta, the CEO of Panama Canal Authority, expressed his concern that ports in the United States were not adequately prepared for the larger ships that are going to be able to transit the canal once the expansion is completed in 2014. We concur with Mr. Zubieta. The United States must expand its port infrastructure in order to remain globally competitive in the future. We believe these expansion projects will happen throughout the next decade, and we are excited to be working on this type of work right now on a major project in the Corpus Christi, Texas, area.

Additionally, opportunities in coastal restoration along the Gulf Coast are also expanding, as more attention is given to our role that the coastline plays, both as a source of economic growth and a natural storm barrier. The first round of restoration projects has been approved, which total approximately $60 million, and are funded through the $1 billion commitment that BP announced in early 2011. Now, a portion of these fines that are going to be collected by the federal government from BF under the Clean Water Act could also fund expanded coastal restoration funds in the future. Now, we're well positioned to participate in this market, and we are excited about the future opportunities that it presents.

We are also encouraged by the return of the private sector opportunities. Work in this sector fell dramatically in the first three quarters of 2011, but it's since shown signs of improvement, especially in the fourth quarter where private revenues accounted for 50% of our revenues, versus 15% of our revenues in the third quarter of 2011. So we expect to continue to see good demand from the private sector throughout 2012.

With regard to federal spending, Congress did manage to pass a budget for the Corps' 2012 fiscal year in late December. As you will remember, one of the key events that impacted 2011 for us were delays in the US Army Corps of Engineers lettings due to short-term continuing resolutions from Congress for the majority of the 2011 fiscal year. Now, this impacted the utilization of our dredging assets, and it made significant negative impacts on our results for the year. The good news is Congress has passed a budget for this year. However, we are still concerned about the pace of lettings from the Corps.

At this point we really haven't seen an uptick in the pace of Corps lettings. So this will once again result in some idle dredges and increased costs during at least the first half of 2012 due to gaps in projects. Now, we would expect to benefit from the Corps' budget in the latter half of 2012 if the lettings and awards return to their historic norms. So we are cautious with regards to the Corps lettings this year, and we urge you to monitor Corps letting activities and any potential impacts on our full year results.

Finally, with regard to state DOT projects, we don't expect a new highway bill in the short-term. We have seen some action in both the House and the Senate on the issue, but we believe a new highway bill will not be passed until after the 2012 elections are over. That said, we are bidding, and we are winning, and we're working on bridge projects and expect this activity to continue. Let me just take a moment to clear one thing about this point. We don't really expect that the passage of a highway bill is going to significantly add to our project tracking database. However, we do expect it is going to be a factor in the easing of pricing pressure, as some of the non-traditional marine construction players will be able to return to their normal market areas, and visibility to large long-term infrastructure projects improves.

In summary, we are disappointed with our results in 2011, but we are optimistic about the long-term road ahead. We believe Orion Marine Group has a strong and bright future, and we are working hard on our strategy to build our backlog, maintain a strong balance sheet, increase our margins and explore come complementary but diversified service offerings. We will return to profitability as quickly as possible, and we are working hard to increase shareholder value and build an even stronger company.

With that, I will 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 full year 2011 we reported a net loss of $13.1 million or $0.49 per diluted share, which compares with a $21.9 million net income or $0.81 per diluted share in the prior year period. Full year contract revenues decreased 26% year-over-year to $260 million, of which 76% was generated from federal, state and local government agencies, and 24% from private industry. This compares to 64% from federal, state and local government agencies and 36% from private industry in the prior year period.

During the full year 2011 our book to bill ratio, which measures the replenishment of our backlog, was 0.9 times, which is up from our full year 2010 book to bill ratio of 0.8 times. More specifically, our fourth quarter book to bill ratio was 1.3 times, making the second half 2011 book to bill ratio 1.4 times, versus a first half of 2011 book to bill ratio of 0.5 times. As Mike mentioned we made the decision to strategically lower margins to replenish backlog, and we believe we have a good handle on where pricing should be in order to win work.

To give you some more color behind our fourth quarter, we bid on $352 million worth of opportunities and were successful on $80 million. This represents a 22% win rate, which is slightly lower than our historical norm, but much improved from the first nine months of 2011. As we look at the next 12 to 18 months we expect to continue to see good overall lettings of marine construction projects; however, with continued margin pressure. On projects involving dredging services, we still have not seen lettings return to more normal levels, despite the US Army Corps of Engineers receiving an approved budget in late December. As Mike mentioned, we are hopeful to begin to see opportunities from the Corps on a more normal level as the year progresses.

Turning to backlog. As of December 31, 2011, we had backlog of work under contract of $164.5 million, of which 37% is for federal projects, 32% is for state projects, 16% is for local projects, and 15% is in the private sector. Subsequent to the end of the year, we have been successful in continuing to obtain additional awards for new work although, at pressured margins. Since the end of the year we have announced approximately $70 million worth of new large awards, including the projects in Alaska and Florida we announced this morning. Additionally, we currently have over $200 million worth of bids outstanding, which includes approximately $64 million, on which we are apparent low bidder.

We have undertaken significant cost containment measures throughout 2011 in order to control costs and right-size the Company to the current market conditions. During the year we developed and implemented programs that focus on controlling costs associated with idle crews, non-essential repairs and overhead costs. The programs we have developed 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.

In closing, 2011 was a difficult and frustrating year, far beyond our initial expectations. As a company we have implemented programs to help us better predict trends and more quickly respond to changes in our operating environment. We are executing our plan to build backlog, contain costs, manage through this downturn and position ourselves to take advantage of a return to more normal market conditions.

As we look ahead we remain excited about future bid prospects and the strength of our end markets. We believe the market is there to support growth and are optimistic about the road ahead. Much of the waterways infrastructure in the US needs repair, improvement or replacement, and we he believe this work about be accomplished over time. We have solid long-term end market drivers to give us confidence in the future ahead.

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

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

(Operator Instructions). Our first question comes from the line of Matt Tucker with KeyBanc Capital. You may proceed.

Good morning, guys. Thanks for taking my question.

Good morning, Matt.

First question on the pace of Army Corps lettings. I know that you guys have been kind of surprised that it hasn't improved now that the budget is in place. Do you have any better ideas as to why you haven't seen the pace pick up more, and do you have any expectation on when it might?

Well, it is certainly not very clear at this point. They have an excellent budget, one that has been topped up pretty nicely in terms of additional funding for coastal restoration projects and Mississippi River remediation from the flooding. My impression is that it is probably going to be the second quarter before we see some real activity, and the budgets have to be spent by the end of September. So I think we are looking at Q2, Q3 activity.

Got it, thanks. And then looking at the gross margin for the fourth quarter. It rebounded nicely from the third quarter when you were at a gross profit loss, despite the total revenues being pretty flat sequentially. I was curious what contributed to that improvement, and in particular, does that reflect better utilization on the dredging side in the fourth quarter?

Yes, Matt, we did have better utilization with the dredges on -- in Q4. That certainly contributed to that. As Mike said in his comments though, as we are moving into this year and with the pace of those lettings, we do expect to see some continued impacts with gaps as we move through the first part of the year here. So we would expect to see some of that pressure continue, at least through the first half.

Again, as Mike said, with the pace, the assumption is, of course, that the Corps is going to spend its budget. We think that is a fair assumption. So as we move through the year we do expect the pace to pick up in the lettings, but just haven't seen it occur just yet.

Last question, on the same topic then. Based on what you have in your backlog right now, do you see the dredge utilization being in line with the fourth quarter without a near term pick up in the pace lettings -- or sorry, the near term pickup in the pace of the Army Corps lettings? Or could there be another gap similar to the third quarter if you don't see that pick up near term?

There could be a gap similar to third quarter if we don't see that pick up near term. At this point that is a fair assumption, because we are two thirds of the way through the quarter.

We would hope that activity in the second half would pick up significantly. I mean, last year -- we have never been in a position where we've have had so many dredges, not just in our Company, just throughout the United States idle during the best weather windows that are present. And normally Q3 is very active, and that just didn't occur last year. So we don't expect to see a repeat of that, but it could if they don't get going.

Very helpful, thanks. I'll jump back in the queue.

Thank you, Matt.

Our next question comes from the line of Steve Dyer with Craig-Hallum. You may proceed.

Thank you. Good morning, guys.

Good morning, Steve.

I'm wondering -- so the Corps budget has to be -- all the projects have to be let or awarded by the end of September?

That is the end of their fiscal year.

Yes, generally they would be awarded. So the funds don't necessarily get spent, but they would get awarded before then.

Okay. Any sense, just I think in general, how much of that would be relatively quick-turn business versus long multi-year awards?

Well, a lot of it is short-term duration, six to nine months.

Most of the work that we would be participating in out of that budget that we would typically go after with the dredging fleet would be relatively quick-turn and the shorter durations as Mike said. There could be some in there that might be of interest to us when we start talking about coastal restoration projects and things like that, that we've worked about before. The big project down in Corpus that Mike talked about in his remarks, that is a Corps project, but that is a longer term item. So there certainly is opportunities for us that could be longer term, but there also is -- we would anticipate a lot of opportunities that are fairly quick-turn.

And the second thing I would say there is that in general -- and this is a generalization -- a lot of the work that the Corps would award, at least historically, has fairly quick start times for us. So there is a relatively short duration between time of award and beginning to work on the project. So, unlike when you get into some design build type projects and stuff like that, where there can be a longer gap between award and when we start churning revenue out of a project.

Okay. Can you -- I'm sorry if I missed this. Can you remind me what the number is on the O&M portion of that budget, and maybe how that compares to years past?

It is somewhere around about $2.5 billion. Somewhere in that range, $2.5 billion, and it is generally pretty flat. And I think that is about the same number they got in there for 2013. So the O&M activity for us, it needs to be done consistently year after year, or you have got siltation problems. And that is one of the issues right now is that the Corps commander is saying he can no longer meet his mandate of maintaining the waterways at the right width and depth, because of this staggered funding and lack of funding.

But the point is the O&M can be liquidated -- it can be awarded quickly, liquidated within a one year period. And the additional funding that the Corps gets -- for like to repair damage on the Mississippi River or coastal restoration, things like that -- you have to go through this permitting process and get all of the EPA agencies involved. And that job -- that type work may get awarded this year, but not liquidated fully in the year. So that one is a little harder to figure out. But the O&M portion is pretty steady-eddy maintenance work.

But there wasn't much of that at all last year, right, just given the fact it was a series of continuing resolutions?

Yes, that is the problem last year was the dysfunction in the budgeting process. That significantly impacts the ability of the local Corps districts to carry out their programs.

And that is really what I was trying to point out about Q3, us having equipment tied up to the dock during Q3 is just extraordinary. That is right after the budget debate got into a log jam, and things were just kind of frozen. So -- but we got an approved budget, it just needs to get spent now. So we are ready to go.

Right. Okay. So I guess with all things then considered, can you keep gross margin positive? I mean, is it waiting for a lot of these jobs to get let here more mid-year, or is there the chance that swings negative again?

Well, just -- I will start off by saying we are not giving guidance. So I just want to be -- point that out. But I do think it is all going to depend, certainly as we talked about not only this call but last call, we are trying to -- we have implemented programs to contain our costs. And certainly with respect to the dredging fleet there is a certain amount of that cost that we can flex down during idle periods, there is a certain amount of that we can't. And that includes our labor; key positions and key folks in our -- that operate that equipment we think it is prudent to retain, even during gap periods. So it is all going to kind of depend on the timing and the severity of any gaps that we encounter here in this upcoming periods here.

Okay. And then a couple of housekeeping questions. You guys haven't done anything with the buyback authorization, have you?

Not in Q4, we did not. We did certainly in 2011. I think for the full -- since we implemented the program, in the first three quarters we did purchase $3 million worth of stock. And again that is just -- we didn't do any activity in Q4, but that is something that we just continue to evaluate along with the rest of our strategy that we are implementing right now.

Yes, our Board has authorized a buyback plan for up to $40 million through May of this year.

So given the fact that you actually had a pretty decent year last year from a free cash flow perspective, considering everything else that went on and the fact that you feel like you are entering a trough period here, wouldn't that suggest that is a better option here in the near term?

It is something we will continually evaluate and discuss with our Board, but we can't comment on the timing of purchases.

Last thing. Mark, what was the amount of the property tax true-up that hit the SG&A in the quarter?

It was about $600,000, so ex that we would have been flat on G&A. And one thing I would want to point out there is we also did make an impact with our cost containment efforts on G&A. The one thing, though, that partially offset that was our group health expenditures, which just as a reminder, we are largely self-insured on group health, and so that is a little more difficult to control on a near term basis, and particularly with some of the changes going on in the healthcare laws in this country. But we would have been flat year-over-year ex that true-up.

Okay, so, again, kind of understanding you guys aren't providing guidance, as we think about SG&A for the full year 2012, I would assume that should actually be lower year on year?

I guess -- it probably -- I guess a fair assumption would be that it is flat or down, but again, we don't want to get too specific there as we are not giving guidance.

Okay. Thanks, guys.

You bet.

The next question comes from the line of Trey Grooms with Stephens Inc. You may proceed.

Good morning, everybody.

Good morning, Trey.

So coming back on the margins here, you guys are definitely accepting lower margins to rebuild backlog, and it is obviously this is generating more contract wins for you guys. But how do we think about kind of the mix of lower margin bidding with higher fleet utilization and the impact that could have to overall margins this year?

Well, utilization is important. We are not bidding work below our costs. We are not trying to buy work. And we are bidding with margins that are lower than our historical norms, but you know, we realize in order to get work you have to match what the current market is. There is still a lot of pressure out there amongst our competitors. We have seen some companies that have gotten into a jam, had bonding issues, and their livelihood of being viable is in question.

And we are trying to maintain a strong balance sheet, and in order to do that and keep our cash flows intact as we have done, we have got to keep our equipment utilized as best we can. So I think the margins that we have got in here are reasonable. The issue is not having continuity between projects can cause deterioration to your gross margins that you bid. So if -- by increasing our volume, we believe that will mitigate that down time for utilization.

Yes, and just to follow on to that, Trey. Certainly some of the work that we have announced recently -- and again, not all projects are going to be similar, some are going to use less equipment than others -- but part of what our effort is, is to impact the utilization of equipment, because that does have a positive impact on margins. And certainly the other aspect of that is in getting backlog up -- and this is a general statement, because again there are certain issues with the dredge fleet that are unique to that versus some of the other issues. But in getting backlog up, getting equipment utilized, then what that allows us to do is to begin the process of testing margins upward. Testing, pushing margins upward on the next bid that comes out. So that is a key part of trying to get where we want to be.

So is it -- I guess kind of looking out into the industry and the competitors that you have out there, I would assume that most folks are kind of taking a similar approach to lowering their, I guess, their threshold for margins, or their margin discipline I guess? I mean, is what you guys are doing, is that similar to what you are seeing out in the industry?

I think what we can say is that we know what it takes to get a job at a reasonable margin, even though it may be below what we would like to get. But we have seen several cases of companies that are obviously bidding below their cost, and we don't intend to fall into that trap. That is -- it's not worth buying a job.

And I guess, Trey, the other I guess color I would hang on that is, it does seem -- and I think by definition the fact that we're -- our win rates ticked up, our book to bill has ticked up, and we are very pleased with that. The fact that we've -- as Mike said, we are not going to bid below our cost to try to buy work, but the fact that we are building backlog or winning some work here at better percentages, I think as a general statement we are seeing a little bit less of that irrational pricing out there that was really, really intense last year and impacted us significantly last year. So I guess -- I think, again, pricing pressure is still tough out there, but it seems like that irrational bidder on any given job is happening a little less frequently than we saw it 12 months ago.

Well, another aspect too of some about these bigger jobs we've been announcing award on is that it's utilizing all of our services. Some of these projects involve construction, dredging, diving, demolition, the whole kit and kaboodle. So those are the type projects we like to see, where all of our services are required, and we have got opportunities to pick up follow-on work in the area there.

All right. And then my last question is when we look at your historical margins for the Company, is that a level that you think you can get back to, or has there been any kind of fundamental change in the industry or in your business at Orion that would create kind of a longer term margin expectation to be different than what we have seen historically?

No, we -- our goal and our belief is that we think that the end markets are there. The strength in the end markets over the long-term is there. We think that ultimately some of the funding issues that are impacting various of the end markets eventually get resolved. So our belief is and our goal is to get back to our historical norms, and we do think we will get there. I mean, certainly this has kind of been a tough recession, a tough economic environment, but we think ultimately this changes. And like I said, we think some of these things that have impacted the short-term results eventually get resolved. I mean, again we think we are in for a couple -- some -- a few more rough quarters. We think we are going to see some of this pricing pressure over the near term, but we do think over the long-term that we get back to the environment that historically we have been at.

And when you say environment, I mean, is that -- with that environment, kind of a historical normal environment, is that environment that would allow you guys to get back to historic margins, or has there been anything changed that would --

No. Yes, let me -- I mean, that is certainly our goal and objective. So I guess your question is do we think there has been a paradigm shift in the long term in terms of our ability to generate margins. I think the answer is in the long-term, no, we do not think that. We do think we will be able to get back to that. It is a matter of time. I can't give you -- we can't nail it down on exactly when we think that occurs, but certainly we think that does occur, and certainly that is our objective to drive back to that.

Great. That is what I was looking for. Thank you, guys, and good luck.

You bet.

The text next question from the line of Jack Kasprzak with BB&T. Please proceed.

Thanks. Good morning, guys.

Good morning, Jack.

I think you mentioned with regard to the BP work, where they have set aside $1 billion, that you have seen $60 million of projects approved? Is that -- I mean, are you guys disappointed with that? Is that in line? And when -- over what span of time -- because it just seems like a small number, so over what span of time would you expect to see the bulk of that work hit?

They just committed to that money earlier this year and are putting it into projects -- specific projects. A lot of the BP money is going to be spread over five different states. Some of it came out with some immediate dredging, coastal restoration work that we bid on. We were not successful in it. But we are still continuing to see those type packages come out quickly. But the bulk of that money is going to be spent on restoration projects that will require an evaluation/comment phase, permitting phase, and may not really kick in really until next year. So that is why only $60 million has trickled out there.

Yes, Jack, I think -- and we kind of, I think, said this last year -- is our belief on the whole spill situation it is not unlike hurricane activity. When we see a big hurricane event we typically expect to see opportunities for us anywhere from one to two years out to five years plus. I mean, certainly with respect to the massive hurricanes that hit the Central Gulf, Louisiana and stuff about six or seven years ago we are still seeing opportunities as a result of that activity. So we have always viewed this as creating long-term opportunities for us. So I don't think we are necessarily surprised. As Mike said, some of this stuff takes some time to get teed up.

But the point of it is we have got this $1 billion that they have committed to. Then behind that -- and we will have to see how this plays out, but there is the possibility that a significant portion of the fines under the Clean Water Act could also wind up funding opportunities along the Gulf Coast, and so we will keep monitoring that. But I think the news for us there is that may provide a longer term funding source over the next several years to execute work.

Okay. The 22% Q4 win rate you mentioned was higher than what you saw in the first nine months. Could you remind us what it was in the first nine months?

In the first nine months it was in the low -- it was like 10%, 11% in the first few quarters of last year.

Q3 was just over 11%.

11%. So it was kind of in that 6%, 7% to 11% in the first -- each quarter in the first three quarters last year.

And why do you think -- do you have a sense why the private sector seemed to kick up, improve in the fourth quarter?

Well, see are seeing a lot of activity in the oil and gas sector and refined products and terminals associated with transport of oil and gas products, and you are even seeing the southern route of the Keystone Pipeline looks like it is going to get constructed in spite of all the debate that has been going on about that. And we just see a lot of our private clients going forward with some of their development plans, and we are even seeing projects like coal export taking place, and LNG. And we are just pretty excited that we have been needing the private sector to get bullion again, and that's where a lot of our bid activity has been focused on here in the last three months.

Got you. And lastly, can you tell us your expectations, Mark, for CapEx and D&A in 2012.

D&A should be at similar levels, the $20 million to $22 million range, similar to what it was this year. CapEx, we would anticipate low to mid teens, and just as a reminder, I think for 2011 we were at about $14 million.

$14.9 million.

So we would be kind of at or below that in kind of the mid to low teens for 2012.

Got you. Okay. Thanks very much, guys.

Thank you.

Our next question comes from the line of John Rogers of Davidson. You may proceed.

Hi, good morning.

Good morning, John.

Just a couple of points of clarification. In terms of the work that you were low bid on in the first quarter, the $64 million, I mean, that should book in the first quarter?

The bulk of it, yes. In other words, in terms of -- we would expect backlog to -- and book to bill -- to be up in Q1 based on those getting into booked work.

I mean, with what you have announced and that, I mean, your bookings are going to be very, very substantial. I mean, I think the highest in many quarters.

I think that is the story, that our strategy is really working. That is exactly what we needed to have happen, and we are pleased in that regard.

And John, just to clarify in case I wasn't clear, the projects that we have announced, including the ones today, they are in booked work, so they are under contract.

Right. Right.

For Q1. For Q1.

For Q1.

They are not in $164.5 million that we reported as of 12/31.

Right. No. But I mean it looks like you've got about $135 million in bookings in the first quarter. What are you potentially?

It all depends if that $64 million, the ones that we are low bid, if all those do come in this month, and if we [get contracted underneath] them, then absolutely, yes.

Yes. Okay.

Sometimes we can't control the exact date of signing the contract, but we feel confident that those projects are going to go forward.

Right, the ones we have announced are in the first quarter will be in backlog by the end of the quarter or are in backlog.

$70 million.

The $70 million. The ones we are low bidder on that we talked about out of the $200 million that we have outstanding, those may or may not be. That it is timing that is somewhat out of our hands.

Sure. Fair enough. But I guess my question comes down to at what point do you -- and I realize it depends whether it is construction or diving or dredging, but at that point do you have enough that you can kind of back off in terms of pricing?

Well, it is going to vary region by region, and I will say that I think in some of the regions that we are in, we are kind of getting to that point. In other words, we are getting to the point where, as I said earlier, we start getting backlog and utilization up, we can begin to think about testing the market in terms of better pricing. And so I think in a couple of the areas we are at that point. Again, that is not to say that it is going to turn on a dime or we are going to see that immediate impact, because there is a longer term issue there in terms of getting the win and getting it in the queue to execute on. But the encouraging point is that we think in a couple of the areas we are to the point where we can begin testing margins.

Okay. And --I don't know whether you can answer this, but looking at your revenue over the last couple of quarters and your margins in there, is there a reasonable expectation or can you comment on what level of revenue do you need now, given the current market environment, to get to break even?

Well, John, it is variable, because it is not necessarily a revenue thing. It is a what is the margin you have in the revenue. So of course clearly the lower the margin on a given -- on a set of projects, the more volume you need to break even, the higher -- you know how that works, so --

But given the current pricing environment.

It is kind of difficult to answer that question, given the fact that we are not given guidance so --

Yes, I know. I thought I would try.

But clearly our objective and our strategy is to get to that point. And as we said, we do think we have got a few more rough quarters here, but clearly that is what we are driving towards is to get exactly where you are saying, to get to that point of first break even but then return to profitability.

Okay. Okay. And then one other thing is -- Mark, is there a point with your -- with the business at its current levels that you have to look at goodwill charges?

Well, as you know, we are required to look at that every year, at least annually. I mean, and it is a fair question, it is something we look at given the environment we are in. We look at just informally. But --

It's part of our audit process.

It's part of the process. Currently we do not have an impairment, but obviously that is something that we will have to continue to monitor as we move forward in the current environment and depending on how things play out in the next 12 months or so. Obviously, we will be revisiting that.

Okay. And just lastly, and, Mike, you referred to this as well, but there is some reports of private companies that are really struggling in this environment. Are you seeing equipment available, and are you tempted to look at it?

There is plenty of equipment out there. Right now I think we are going to stand pat on our CapEx, not make any substantial CapEx acquisitions of equipment. We could. We know of equipment out there. But I think we just want to preserve our cash until we get through this trough and get our run rate back up positive. We don't need anything right now. I think we are just looking at more preserving our fleet, refurbishing our fleet, and modernizing our existing fleet, and we will just rent on top of that for the time being. I would like to get in a much stronger position before we look at taking on any more big assets.

Okay. Fair enough. Thank you very much.

Thanks, John.

Our next question comes from the line of Min Cho with FBR. You may proceed.

Good morning. Thanks for taking my questions here. Most of them have already been asked and answered, but a couple things. Kind of going back to John's question about the available equipment. At what point do you think to sell some of your idle equipment? I understand that the outlook right now looks pretty promising, but how much longer are you willing to hold on to it in anticipation of business improving?

Well, I think certainly for the near term -- I mean, again, I think that we have got with the work that we've picked up, we think we will have good utilization by the end of the year in a substantial part of our fleet. Certainly the dredging fleet is one of the areas that's been impacted the most with the utilization issues, and we believe strongly that is an ongoing recurring need that will be addressed, despite some of the federal government dysfunction that we saw last year, and quite frankly into this year. But we think -- certainly, obviously, we continue to always look at what is the best long-term strategy for us, so we will continue to do that. But we think that the work gets done. We don't think this is a matter of the work going away, it is just work being deferred in terms of dredging work.

Yes, but we -- I got to tell you, with the pent-up demand that there is for dredging of ports and all, we don't see the need to consider any substantial sale of our assets in that market. I mean, that it's just a market that will turn around eventually, and we want to be positioned to capitalize on it. We had our entire fleet fully utilized when we started off the year last year, and by summer it was -- half of it was tied up at the dock. And that is an extraordinary situation to be in in this country. Not just our Company, but in this country, to let that happen. And we watched ships run aground. They are having great difficulty in certain sections of the Mississippi River and Gulf intercoastal waterways, and that situation will have to be rectified. So when the gates open, we want to have our fleet ready to go. And that's just kind of the way I look at that.

Okay, that definitely makes sense.

I mean, every year, Min, we look at equipment that is beyond its useful life, or we are spending more money on it than what we can justify, and we will either cannibalize, sell, or what have you, those assets. But the prime movers in our dredging fleet, we are going to invest money to keep those going and operable. That is where the bulk of our CapEx -- maintenance CapEx is spent.

Okay. It's obviously good to see the pickup in backlog even at the lower margins, but can you talk to us a little bit about the overall margins within backlog now versus where they were at the beginning of 2011? Are we talking kind of overall margins being down 5% or 50%? Any type of ballpark there?

Well, it is tough to answer that, because we are not giving guidance, but I think it is fair to say that margins have been pressured certainly. I think it is a fair conclusion to make that they are going to be down from historical norms because, again, we have had to adjust pricing to build backlog, and certainly that is reflected in the win rate. So -- and the book to bill ratio. So I think it's a fair assumption to say that they are down from historical norms. Again, it is difficult for us to get more -- very specific there because we are not giving guidance.

Okay. And then finally a question on the private sector. Mike, you mentioned that part of your tracking -- the businesses that you are tracking, about 39% is in the private sector. Outside of the oil and gas and some of the coal kind of transportation terminals, what other private markets are you tracking right now -- you see an improvement in?

Container terminals, bulk cargo, all those type businesses are on the rise. We are seeing a lot of developments all along the Gulf Coast and the East Coast associated with cargo transport.

And we are beginning to see some private sector opportunities just kind of across-the-board in the Caribbean market as well. So we are encouraged about activity picking up in the private sector.

Okay. That's it for me. Thank you.

Thank you.

Our last question comes from the line of Rich Wesolowski with Sidoti & Company. You may proceed.

Good morning.

Good morning, Rich.

I was late to the call, so please excuse me if these were asked. How much of the $200 million in bids outstanding was from the Pacific Northwest?

Rich, we don't break that down, but I do think, just as a general comment, we are encouraged about the activity in the Pacific Northwest. As you know, the announcement -- one of the announcements we made this morning on projects was up in that division, so we are certainly -- as we talked about previously, that was in effect a greenfield expansion for us, and we think -- we're pleased with the progress with the market up there. We are starting to see that all come to fruition, and again the announcement we made this morning is -- was a big win, the biggest award we have gotten up in that region. So we are moving forward with getting that to a run rate that we want to see with the current assets that we have up there.

Do you have bids outstanding in the Pacific Northwest that are larger than the award that you booked today?

Absolutely. We've pursued projects from the Seattle-Tacoma area all the way up to Alaska and British Columbia, and we've got bids that are outstanding that we may have an opportunity to get some of those bids. And we're pretty excited about seeing some larger projects in that area coming out to bid that fit our equipment good. So I think there'll be more to talk about down the road.

Okay. Separately, your Army corps bids have not been as strong as what I would have expected from their O&M budget and the supplemental funds they received. I realize their bidding is seasonal, but I'm wondering at what time of year would you become worried that they are not spending the money that they have been allocated this fiscal year?

Well, we announced that big project down in Corpus Christi. That was a pretty significant dredging job that we got earlier in the year, and I think there will be a few more come out during the second quarter. But we would -- what we would really like to see the Corps doing is very actively bidding during the first quarter, and this looks like two years in a row where they're are just going piecemeal, and it probably won't be the second quarter until they really kick in again.

But certainly, as we said earlier, their fiscal year ends September 30, so --

They got to spend it by then.

They got to spend it, and you know how government agencies, they know if they don't spend what they got, they are in danger of not getting -- it impacts their follow-on budgets and stuff like that. So I guess as we go through the summer, if we don't see a pickup in pace we might, we will probably be concerned at that point. But certainly, as we saw last year, we saw a flurry of activity in late summer into September as they got towards the end of their fiscal year. So you just never know with them. I mean, certainly what we would like to see is a steady pace of projects, but sometimes that happens and sometimes they dump work out all at once as they get closer to the end of their fiscal year.

It sounds like you would hope or expect that we would see something at least by early to mid-May when we talk about your first quarter results?

We would certainly at least like to see them have stuff on the docket. Again, how much they actually bid and award by then is an open question, but certainly by that time we would hope that we start seeing the calendar stack up for bid dates.

Okay, and last one. Especially when the bid margin in the market is as tight as it is today, I understand that when you are working on a project in a specific location and you have your equipment there already, it leaves you in better position to win the next job or ancillary work in that region. Does that potential for follow-on work actually -- how great an influence is that as to which jobs you bid and how tight you bid them, and which areas do you have anchor projects now that would think leave you better positioned to get follow-on work?

Well, quite frankly, we try to get what you just said; an anchor project in each area with our subsidiaries, and build around that during the year. And I think we have been accomplishing that goal with this strategy of lowering our margins like that, and I do believe we will have some follow-on opportunities.

And, Rich, that is really -- I mean, that has really been a long employed strategy of ours, even when we had better markets than we have today. So that certainly always factors in the to our thought process in terms of positioning ourselves for follow-on work that we know is coming out. And so we look at that continually and -- as we are today, and at this -- it is a function of the margin environment we are in today, but it is still a process and a thought process we go through on an ongoing basis.

Thanks a lot. I appreciate your time.

You bet.

We have no further questions at this time. I would now like to turn the call back over to Mr. DeAlmeida for any closing remarks.

Thank you. 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.

Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect. Have a great day.