Orion Group Holdings Inc (ORN) 2012 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Q1 2012 Orion Marine Group Inc. earnings conference call. My name is Allison and I will be your operator for today.

At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Christopher DeAlmeida, Director of Finance. Please proceed, sir.

Good morning and welcome to the Orion Marine Group first-quarter 2012 earnings conference call. Joining me today are Mike Pearson, Orion Marine Group's President and Chief Executive Officer, and Mark Stauffer, our Executive Vice President and Chief Financial Officer.

Regarding the format of the call, we have allocated about 15 minutes for prepared remarks in which Mike and Mark will highlight our results for the quarter and update our outlook for 2012. We will then open up the call for sell-side analysts' questions for the remainder of the time.

During the course of this conference call we 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 in negotiation and pending award, as well as our estimates and assumptions regarding our future growth, EBITDA, EBITDA margin, gross margin, administrative expenses, and capital expenditures. These statements are predictions that are subject to risk and uncertainties, including those described in our 10-K for 2011, 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 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, May 3, 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. Despite the challenges of the first quarter we continue to see positive results from our adjusted bidding philosophy in the form of improved win rates and a continued sequential increases in backlog. We are encouraged to see that pricing has stabilized and that irrational bidding that we have seen in prior periods has begun to subside.

The strategy that we began to implement during the third quarter of last year is continuing to yield the desired results with increased backlog for the fourth consecutive quarter.

We are pleased to see a continued strong private sector market. During the quarter we bid on and won several private sector opportunities, including the award of a large multiple dock construction for a liquid bulk terminal. This level of activity gives us optimism about the private sector, both near and long term. However, there is no doubt we still face many challenges and we are still in for a few a few rough quarters.

That said, things are beginning to move in the right direction. As we have said before, getting our large dredges back to historic utilization levels is the quickest way for us to return to higher profit margins.

During the first quarter we began to see some of our dredging equipment come off-line again as a result of the lack of core letting since the beginning of the fiscal year. This will result in more idle equipment during the second quarter. However, there were limited bid lettings from the core during the quarter and we were able to secure an indefinite delivery and definite quantity, or what is referred to as an IDIQ contract, with the Mobile District with the Corps of Engineers that should put some dredging equipment back to work beginning this summer.

Additionally, we are beginning to see the pace of Corps lettings improve. That is encouraging, but we have to keep a close eye on this activity level over the next few months.

Also, there remains potential legislation that could help us see additional opportunities in the future. First, a resolution of a long-term highway bill by Congress would help ease some of the competitive pressures that we have seen from smaller, non-traditional marine construction players that have entered our marketplace.

As we have said before, we do not expect the passage of the highway bill will significantly add to our project tracking database. However, we do expect this to be a factor in the easing of pricing pressure as smaller non-traditional marine construction players return to their normal market areas and visibility to large, long-term infrastructure projects improves. That said, we don't expect to see a long-term funding bill passed until after the election.

We do expect to see continuing resolutions to keep the funding steady. While this is good, it doesn't help alleviate the current pricing pressures in the marketplace. Additionally, resolution of the Harbor Maintenance Trust Fund issue could help provide the necessary funds for harbor maintenance and expansion projects. The good news is we are seeing positive momentum for some resolution on the Harbor Maintenance Trust Fund issue.

In fact, the House was successful in passing a highway bill extension that included an amendment which would remedy the Harbor Maintenance Trust Fund issue by matching the level of trust fund expenditures with the level of revenue that the fund takes in every year. The bill has been sent to conference in the Senate and it will be debated further. And while the legislative process is always uncertain, we are certainly encouraged by the positive movement recently and we are hopeful that this legislation will pass over the next year or so.

As we look at the market as a whole, we continue to see strong signs that demand for our services has not and will not go away. In fact, we continue to believe there is a building pent-up demand for projects that involve dredging services and ongoing demand for marine construction projects.

According to the most recent data from the US Census Bureau, the United States continues to export and import at high levels. The first two months of 2012 saw exports increase by 8.3% over the same period in 2011. Additionally, the first two months of 2012 saw imports increase by 4.1% compared to the first two months of 2011.

It was also reported by [Zapoll] that 18 of the top 20 container ports in the United States reported gains in the level of cargo handled in 2011 versus 2010. As levels of waterborne commerce continue to increase so will the need to upgrade and improve and maintain our nation's marine infrastructure.

Now today we are tracking over $6 billion worth of bid opportunities for the next few years, and of that amount 11% are federal projects, 27% are state, 21% are local, and 41% are in the private sector. This high level of activity in our tracking database gives us optimism about the overall market demand. However, close attention has to be paid to pricing and funding to see how these opportunities ultimately play out.

In closing, our strategy to rebuild backlog is working. Our win rates are up. Our book-to-bill ratio for the quarter is the highest it has been since the third quarter of 2009 over two-and-a-half years ago. We are controlling our overhead costs and working to reduce the impact of underutilized equipment. We believe the strong market fundamentals exist to support a return to profitability.

Maintenance of our nation's waterways is of great economic and strategic importance. Neglect of vital transportation routes will only hamper our economic recovery, so the expansion of the Panama Canal and the larger ships that will transit through to the Gulf and East Coast ports will necessitate expansion of these facilities over the long term.

There is no doubt the challenges that we faced in 2011 have persisted into 2012 and there will be difficult quarters ahead. However, we put a plan in place and we are beginning to see it work. We will weather the storm; we are focused on returning to profitability.

We are beginning to see some encouraging signs on multiple fronts, but we must execute on our projects, protect the intrinsic value of the Company, and return value to the shareholders. We believe Orion Marine Group has a strong and bright future, and we are working hard to build our backlog and maintain a strong balance sheet, increase our margins, and explore complementary, but diversified, service offerings.

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

Thanks, Mike, and thank you again for joining us. For the first quarter 2012 we reported a net loss of $6.3 million, or $0.23 per diluted share, which compares with the $1.5 million net income, or $0.06 per diluted share in the prior-year period.

First-quarter contract revenues decreased 36% year over year to $50.9 million, of which 62% was generated from federal, state, and local government agencies and 38% from the private sector, which compares to 74% from federal, state, and local government agencies and 26% from the private sector in the prior-year period.

During the first quarter of 2012 our book-to-bill ratio, which measures the replenishment of our backlog, was 2.0 times, which is up from the first quarter 2011 book-to-bill ratio of 0.3 times. Our heightened book-to-bill ratio is evidence that we are making strides in executing our strategy to rebuild backlog by strategically adjusting margins. This is the third consecutive quarter our book-to-bill ratio has been above 1.0 times and we believe we have a good handle on where pricing should be in order to win work.

During the quarter we bid on approximately $420 million worth of opportunities and we are successful on approximately $100 million. This represents a 24% win rate, which is on par with our historical norms.

As we look at the next 12 to 18 months we expect to continue to see strong market opportunities for marine construction projects; however, with continued margin pressure. On projects involving dredging services we are still optimistic that lettings will pick up as we enter into the summer months and the back half of the Corps of Engineers fiscal year.

As Mike mentioned, we are also encouraged by the potential congressional activity to finally match Harbor Maintenance Fund Expenditures with the amount collected by the Harbor Maintenance Tax.

Turning to backlog, as of March 31, 2012, we had backlog of work under contract of $215.4 million, of which 25% is for federal projects, 24% is for state projects, 19% is for local projects, and 32% is in the private sector. Subsequent to the end of the quarter we have been successful in continuing to obtain additional awards for new work, although at pressured margins.

We continue to monitor and execute cost containment measures implemented during 2011 in order to control costs and right-size the Company to the current market conditions. During the past year we developed and implemented programs that focused on controlling costs associated with idle crews, non-essential repairs, and overhead costs. We are pleased with the progress we have made in this area.

The programs we have developed should help limit the impact of idle crews and equipment once they are no longer being charged to a specific project. Keep in mind, job margins have been pressured so we will 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.

While we are seeing signs of improvement in the market, significant challenges still exist, primarily the lack of Corps lettings and their impact on the utilization of our dredging assets. We believe the obstacles we face are short term in nature and we expect an eventual return to normal market conditions. 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, combine with our specialized fleet, workforce, and support facilities, position us to be a leader in the market for the foreseeable future. Much of the waterways infrastructure in the US needs repair, improvement, or replacement and we believe this work will 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 over to Chris to begin the Q&A portion of the call.

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

(Operator Instructions) Min Cho, FBR.

Good morning, Mike, Mark, and Chris. Good job on the new awards. It's nice to see that come back up, even though it's at the lower margins. But, you know, you got to start somewhere.

Just wanted to get a clarification. Mike, you mentioned that pricing has stabilized and, Mark, in your commentary you mentioned that you expect to win new work at -- there is continued margin pressures. So I am just wondering are you talking more versus the historical basis or margin pressure versus where projects are being bid now.

Basically, we are talking about we stabilized a level that we are comfortable with that we are able to achieve the low bidder status. I am glad to see that it has not moved any lower. I think we have got a margin level that with our cost containment strategy that we can move into a profitable run rate, but our key now is to get our utilization up on the big dredges.

And I think again, Min, we are putting that in context of historical levels.

Sorry, we seem to have lost that line there. (Operator Instructions) Matt Tucker, KeyBanc Capital Markets.

Good morning, guys. First question, I was hoping to get a little more color on a couple of positive trends you mentioned -- the irrational bidding starting to subside and then starting to see Corps lettings pick up. What would you attribute those trends to?

Well, I think what we are saying is that we are not seeing people coming in with as ridiculous of pricing on every bid document that comes out. It's random. There is still a few, but the pack of prices are kind of tightening up and we are seeing a more reasonable range of bid results.

I think that is just a good indicator that things are beginning to stabilize and we are not having to push down any further on our pricing, which we have been testing, and trying to get it pushed back up. And I think we are enjoying some success in that, so that is the best I can.

And I think just further on to Mike's point there, Matt, I think that, again, as we looked at where we really saw that start in 2010 on into 2011, just speculating on that I think that a lot of people filled up on some really cheap work and I think that that kind of started working itself through the system. I think somewhat that is what we are seeing is that people are kind of getting back to reality a little bit.

Again, we are not to where we want to be historically, but we are seeing less of that and I think that is indicative of just people who filled up on some cheap work and so they are adjusting their pricing. I think that is, again, indicative of our win rate improving and, of course, our book-to-bill.

With respect to the Corps of Engineers, I think the thing that gives us hope there is that clearly the Corps has got a budget in place. That was put in place at the end of the December, as we noted on our prior call.

Government agencies liquidate their budgets, so we fully anticipate that the Corps would liquidate its budget before the end of the fiscal year. Meaning that they would commit the projects before September 30. And so that is why we believe we will see an uptick in bid opportunities as we move through the summer months.

Thanks, that is helpful. To follow up on the Corps lettings, I know they had a budget in place for a while where you have been kind of scratching your head and wondering why the lettings have been so slow. In your discussions with your contacts at the Corps have they given yet any explanation on why the pace has been so slow, and have they explicitly told you that the pace will be picking up soon?

Yes, we are getting indications that the pace is going to pick up in the summer here, and we are already starting to see some signs of uptick with lettings coming out for May, which we are glad to see.

But one factor in there is that this is the time of the year where the change of command takes place at the top level of the Corps Commander all the way down to the districts, so we have got new personnel taking over each one of these districts. It takes time for them to get into play and get adjusted. We expect things to start kicking open here pretty soon.

And as the pace of lettings does pick up are you going to see opportunities for work that you could work off in 2011, i.e., will contribute to this year's results?

2012, yes.

Sorry, 2012.

Just as a reminder and, again, this is a general rule, so there is exceptions to it. But, generally speaking, the dredging projects, particularly Corps dredging projects, have a relatively fast start. So to the extent we can get some awards it's very possible that a substantial portion of any projects we pick up will be liquidated in 2012.

Thanks, guys. Very helpful. I have a couple more questions, but I will hop back in the queue.

Min Cho.

Great, sorry about that. So actually I just had one final question.

Can you just give us a status -- actually two questions, sorry -- a status of your recent project awards? I know the bridge replacement project in Charlotte County, Florida, and the berth construction at Canaveral Port Authority were both supposed to start early in 2012. Wanted to know if those, in fact, have started as well as the shipping and barge docks in the Gulf Coast.

They are -- all of them are started. They are in various stages of starting, and as we kind of commented previously, there is various stages of ramp up in terms of what activity is going on there. So, again, as we said previously, we expect those really to get ramped up in the third and fourth quarter, but we are beginning to do work on each of those projects.

Okay, great. Then here is my final question. Regarding the IDIQ award for the US Army Corps in the Mobile District, are the IDIQs is that a trend that we should expect to continue going forward? And is there anything from that IDIQ in backlog currently?

There is nothing new about the IDIQs. Some districts like to use those where they have got kind of an undefined scope, but they have got a work list of items that need to be accomplished, and they want to be flexible as to how to prioritize it. The way we -- it was a bid -- the bid submitted was somewhere around about $16 million, but we did not recognize all that revenue until the task orders are issued.

They just are in the process of issuing the first task order. It could go upwards to the full amount of $50 million possibly, but it's hard to determine how much of that will liquidate this year. It's just on a task order basis, but it's not uncommon.

Keep in mind, as we -- I think we mentioned this on the last call or in the press release, we will not -- none of that is in the backlog that we reported as of March 31. That will come into backlog as individual projects are released under that IDIQ.

Okay. And then IDIQ is a 14-month contract. Does that start after the first task order is received or did that start in March when the announcement was made?

We got the go but the task order did not get issued until this month. It will probably be June before we get over there and really get kicked off going.

So it will go into the first half of next year.

Okay, great. Thank you.

Jack Kasprzak, BB&T.

Good morning, guys. The comment -- I just want to ask about the second quarter specifically, because there is a comment in the press release about expectations in the second quarter could be pressured compared to the first.

Would you care to offer some commentary in terms of order of magnitude, or are we kind of finding a bottom here in terms of margins and the pressure on the margins and we build up from the second quarter?

One factor there is that we did have dredging activity in the first quarter of the year. We expect that with this gap in the bid letting there will be less utilization of our major dredges in the second quarter, so there will be some impact there as well.

Right. And, Jack, it's tough to get more specific in terms of order of magnitude. As you know, we are not providing guidance, but I think to Mike's point is, again, as we said in our remarks and in the release, with some of the equipment that we had occupied in the first quarter becoming idle again you get into the situation where you have gaps in your projects.

Again, it's encouraging that we are starting to see some opportunities pop up on the bid list, but partially it's dependent on whether or not any of those are in time to have any impact on the quarter or not. So I think, as we said, it's not unreasonable to expect that we might see pressure on the bottom line as compared to Q1. However, that doesn't take away from anything that we have said with regard to the second half of the year and some of the things that we have talked about there with respect to the backlog that we currently have in hand and those projects ramping up.

So if the, I guess similarly, Army Corps lettings pick up prior to the end of the government fiscal year that is part of the reason why we think maybe the second half, at least compared to second quarter maybe is worse than the first, starts to look better.

That is correct.

Correct.

Okay. And from the end of the year to the end of the first quarter some cash moved into restricted cash. Can you just talk about the mechanics of that or what happened to cause that?

Absolutely. As we mentioned in our 10-K, during the first quarter we purchased some property that we had previously been leasing over in Florida. We had partially been leasing it and we viewed it as an opportunity to expand and increase our yard capacity as well as to potentially provide us some opportunities for diversification.

Under our credit agreement -- obviously with the current environment we are in, it's a technical requirement under our credit agreement given the fact that we had a covenant bust given the current environment. But we do think this is temporary.

We are working -- our banks are supportive of us; they understand the environment that we are working in right now. We are working with them right now on a substitute alternative to that cash being restricted and we anticipate that will be resolved during the second quarter.

And I guess a little tough period here and given that factor there was a small drawdown on the credit line. I mean if that -- do those kind of go together? If you get a little relief there (multiple speakers)

Yes, they go hand-in-hand. We drew on the revolver to purchase the property and as a result -- again, under a technical requirement in the credit agreement it requires that cash set aside. Again, we are working with the banks to eliminate that restriction and we should have that completed here in the near term. We certainly think by -- during Q2 that will be resolved.

Okay, great. Thank you very much.

You bet.

Trey Grooms, Stephens.

Good morning, guys. Couple of questions, one kind of following up on the 2Q discussion you had there. So looking for earnings kind of lower sequentially possibly, but is that on lower revenue as well or are we just thinking about the additional margin pressure from these idle dredges?

Again, it's tough to get specific because we are not providing guidance, but I think it's a matter -- it's more a function --. I think the two things going on that we have talked about is, one, we are beginning to ramp up on some of the work that we have been a successful bidder on and is in the backlog. So we have got that going on.

But the headwind to that is the dredge utilization and the gaps that we have in the schedule for that equipment. So you have got kind of two competing things going on there and that is why we say that it's not unreasonable to think that we will see some pressure there as compared to Q1.

Right, and you just kind of specifically pointed to some pressure on earnings. Really what I am trying to get at is should we expect additional margin pressure sequentially or is this -- could we see the top line move down as well?

It's less top line and more utilization.

Okay, all right, thanks. Looking at the kind of margin potential a little bit longer term looking out, and I am not asking for specific guidance necessarily, but how do we think about margin potential once we start to see some of this equipment, some of these dredges, and so forth get back to work given the new pricing approach? Where could we think about -- how do we kind of think about margins a little bit longer term?

I think the way we think about it is, again, we think -- step one is like we talked about and Mike mentioned in his remarks, where we think we have seen pricing stabilize. So that is kind of the first part.

The second part is seeing dredge utilization pick back up. If we can get that happen and kind of minimize some of the gaps in the utilization of the dredges and get them moving back towards a more normal or historical utilization point, then we think that we could definitely be at the bottom with respect to margins and then start moving them up. It's not unreasonable to think that we get them in the single digits as we move forward and then build from there.

Okay, all right. That is helpful. Then, Mike, you mentioned port expansions and there are a few things that are looking promising here in the short run, some of those kind of getting started. Can you talk about any opportunity that you see for you guys out there on those projects?

I will tell you, our bid activity on the marine construction side is just really very active right now. So we are very encouraged that there seems to be quite a bit of opportunities, whether it's in the private sector; the oil and gas companies are expanding docks. I think we are going to see more of these bulk terminals like we just got awarded.

The ports are talking about expanding their container terminal facilities, and the Gulf Coast has been very active along those lines. We are still pursuing a lot of bridge work. In spite of the lack of a highway bill, there has still been bridge replacement work taking place and we continue to add that to our backlog. It's a good base to build on.

I just feel real encouraged that this Panama Canal is going to be a real catalyst here, as we have all hoped it would be, and we are starting to bid on projects now for that purpose. I think you will see some smaller port development expansions because they realize the dredging of the channels for these deeper ships is just not going to be ready when that canal opens. So there is just quite a good level of activity going on at this stage.

And on that, so it sounds like, as far as port expansions go for you guys, do you see more opportunity -- it sounds like you might see more opportunity on the construction side than on the dredging side.

Well, the bid level activity is more robust on the marine construction side, but I think on the dredging side the key there is just getting the Corps to start flowing at a normal pace. There is a lot of discussion going on about how to get the Corps properly funded. I think Congress now realizes that the Corps just is inadequately funded to meet the needs of this Panama Canal ship traffic.

They commissioned a study with the -- it's call the Institute for Water Resources to report to Congress in June as to what are going to be the funding needs long term to get these channels widened and deepened to accommodate Panama Canal ship traffic. So we are anxiously awaiting that, and I am sure it's going to say, hey, you have been giving the Corps all these decades is inadequate and you have got to pump up the volume.

It's going to be interesting to see how that plays out with this budget debate, but surely the Harbor Maintenance Trust Fund can be an easy solution that does not increase the debt. It just uses the monies in the trust fund. We think there is just a lot of good indicators there that could get dredging back on track again. It has been a very unusual 18 months watching not much dredging take place.

Trey, I guess it is reasonable to think, too, that we would see more of the construction activity be active while the -- as you know, the federal government is responsible for the deepening and widening of any ship channels. And so while that budgeting and funding for that gets sorted out we do expect to see some of these ports -- in fact, many of these ports have expansion projects in the design phase right now, so we did think that that is probably -- would be a little bit ahead of the dredging projects coming out.

Okay, that is all for me. Thanks a lot and good luck.

You bet, thanks.

Tristan Richardson, D.A. Davidson.

Good morning, guys. Just calling in for John Rogers. In terms of your optimism for utilization in the second half, is that just looking at only the business you have in hand now with the improved backlog, or is that also somewhat predicated on your cautious optimism that you are seeing the Corps lettings improve?

It's both. We are going to need to capture more work in the second half from what we have in our backlog, but I think our ability to do that is there. Historically, we have been successful on the dredging side.

My gosh, it has just been so quiet with the Corps in the first three or four months here that they got a lot of catch up to do to get all that budget out the door and committed. So I think it should be a real active period for us.

And definitely with a lot of the backlog we have and when we do expect with that backlog in hand that a lot of the barges and cranes and things of that nature will be -- we will see a market increase in utilization. So definitely the expectation in the second half related to further utilization of the dredge assets is dependent upon the core activity in large measure.

Obviously there is some things going on in the private side with respect to the dredging opportunities, but, by and large, I mean the Corps is the biggest driver of being able to get the dredge fleet utilization to where we want it to be.

Okay, great. Thank you. In terms of your backlog now, can you give us a general sense of how much is 2012 work, and versus 2013 if there is a proportion of what you have now that would be worked off next year?

We are beginning to build backlog for next year. I would say that most of the work that we have in hand or in backlog right now liquidates in the current year, but we are starting to build a nice amount of that for next year as well. But the majority of it will liquidate this year.

Okay. Well, thank you guys very much.

Rich Wesolowski, Sidoti.com.

Thanks, good morning. How many of your primary nine, I think it is, cutter suction dredges are currently working on projects?

Well, we don't give utilization for competitive reasons, but I think it's fair to say that we have been well below our historic utilization rates. We saw that pickup in the fourth quarter last year. Again, as we moved into the first quarter this year, as projects completed and with the lack of lettings, not having new work to go to, we saw all that pull back.

Again, we made the comments about how we feel about Q2, but we don't get specific there just for competitive reasons.

Okay. Your backlog -- $215 million is fast approaching the record set in early 2010, yet since then you have cut by memory 20% or 25% of the workforce. Are you already adding to your field crews or are you processing the recent backlog and whatever you have built since then with only the people that survived the cuts?

We are going to be adding to our workforce. We have made some substantial cuts and reduced personnel, both in overhead and in the field, so we are going to be hiring. We will be bringing back in some additional staff as well to manage the work, so that is all part of the process. We went from 1,400 down to 1,000 so it's quite a few people there to get back.

It's also possible that we might be hiring in some areas and have some offsets elsewhere. We have stabilized around the 1,000 headcount for the last few quarters and we think that will -- we seemed to have bottomed out there.

But certainly in some of the areas with the backlog we have we are -- in some areas we have already added folks. In other areas we will be adding folks. Then the balance of that is going to be dependent upon the dredge utilization and winning some of this work we see coming out and getting that utilization backup.

When management says that the Company is not bidding work below costs, you are not necessarily saying you expect a job to be profitable on a company-wide level or add gross profit? You are talking about your direct marginal costs to complete a project, correct?

Correct.

That is right.

Okay. I understand you have lowered your bid margin during the past few quarters, but I am wondering what you suspect you would have won under this pricing scheme a year ago. Do you think you would have had similar bookings to December and March had you been pricing your work a year ago at this level?

Not with the kind of prices we saw out there. They were like 50% of what we were bidding.

Exactly, exactly. I mean that is why we say, and Mike said this earlier that --

We are not going to do that.

Yes, we are not going to do that and we didn't do it. Even if we had adjusted back then, with the amount of irrational pricing we saw --I mean we might have seen an incremental increase in our win rates and whatnot, but nowhere near historical norms just because the irrational bidding was just so rampant and off the wall. Again, that is a positive thing that we are seeing.

We are seeing much less of that. We are just seeing the odd jobs here and there, and so that is encouraging to us.

I tell you we saw some bidders on some of the bigger projects leave $50 million, $60 million on the table. Just crazy. I don't think we are seeing that now this year so far, not to that extent, but a lot of panic took place in 2011.

Right. Lastly, considering the absence of financial risk for the company is most valuable to sureties and investors during today's difficult business conditions, I am curious about the timing of the building transaction. You still have a great balance sheet, of course, but was the return on the investment so great that it needed to be done or was there some other factor that created a sense of urgency around the timing?

Yes, there is -- sometimes timing is not of your choosing. Sometimes when opportunities come along you have to seize them despite conditions, and we felt it was important to --

It was strategically important.

Exactly. Again, obviously we are still committed to protecting the balance sheet and preserving cash and focusing on cash and protecting the balance sheet. But as we have said, there is certain times where opportunities come around and you have to kind of seize them or they are not going to be there again. So we felt it was a reasonable transaction to complete even in these tough times.

If you would, I know you touched on it earlier in the call -- this is the last one for me -- review, perhaps in a little more detail, what the ownership of that building brings to you from a cost reduction or any other strategic perspective?

One aspect of it is that we consolidated our operations on the dredging side and the marine construction side, and this kind of fit with that well. There is not much waterfront property available in port areas on the western side of Florida. This is some of the last of that property.

It was good to be able to lock that up. We have been leasing it for some time and we just feel like that is going to be important to our expansion plans down the road to have that property owning it as opposed to leasing it and possibly losing it.

The other thing that it does for us is, as we said in our remarks, we believe -- or I said earlier I think -- it provides an opportunity for diversification. It's premature to talk about that any further, but we think with that addition and the property we have in that area already that it provides us with an opportunity for diversification. And that is why we felt it was important to do.

Great. I appreciate your time. Best of luck.

Matt Tucker, KeyBanc Capital Markets.

Just a few follow-up questions. While I realize that you are not providing guidance, you have been talking about a ramp up in the second half and the growth in your backlog would seem to support that. Could you provide maybe a little more color on kind of the magnitude of that ramp up? In particular, do you think you will be profitable in the second half?

I think that -- again, it's tough to answer that question because we are not giving guidance. As we said in I think both in our remarks and on our calls previously, we are in for some rough quarters. Obviously, our number one focus right now is to first get back to a breakeven and then start a positive run rate again.

When that exactly happens it's tough to say. Clearly, one of the big variables that we have right now is the dredge utilization. Having said that, we are comfortable or we are very pleased with some positive things that we are seeing out there with the private sector opportunities picking up, the backlog build that we have had, the book-to-bill ratio that has been very positive the last few quarters. The pricing stabilization and the reduction of irrational bidding is a big thing for us.

So there is some positive things out there, but it's difficult for us to comment further on when we might see that positive run rate return.

Okay, thanks. Then you indicated that you were the low bidder on I believe it was $26 million currently of your bids outstanding. I don't know if you have won work this quarter already outside of that, but it would seem to suggest a bit of a slowdown in the pace of bookings versus the first quarter.

How much should we read into that, and could you talk just a little bit about your expectations for bookings in the second quarter?

Well, keep in mind that not all projects are large projects and the timing of things can fluctuate and be lumpy, if you will. But, again, the short answer is we don't read anything negative into that at all.

As Mike said earlier, we are very actively bidding on a lot of fronts. We are encouraged that we expect to see an uptick in Corps lettings as well as we get through the summer months and they liquidate their budget. We got a lot of bidding activity going on.

Again, we are always kind of subject to the timing of when things get awarded and things of that nature, but bid activity remains very high and so we are encouraged about that. We are encouraged that we have got the foundation out there, if you will, to start climbing out of the hole and get the bid margin back up as much as we can. And, again, ultimately down the road get them back to historical norms.

That is all I had. Thanks again and good luck with the second quarter.

Thanks, Matt.

Thank you. I would now like to turn the call back over to Christophe DeAlmeida, Director of Finance, for closing remarks.

On behalf of Orion Marine Group, Mike, Mark, and myself, we thank you for joining us this morning and we look forward to speaking 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 and have a good day.