Orion Group Holdings Inc (ORN) 2015 Q2 法說會逐字稿

Hello and welcome to the Orion Marine Group Q2 2015 earnings conference call. (Operator Instructions).

I would now like to introduce your host for today's call, Andrew Swerdlow. You may begin.

Good morning and welcome to the Orion Marine Group second-quarter 2015 earnings conference call. Joining me today are Mark Stauffer, Orion Marine Group's President and Chief Executive Officer, and Chris DeAlmeida, our Vice President and Chief Financial Officer.

Regarding the format of the call, we have allocated about 20 minutes for prepared remarks in which Mark and Chris will highlight our results and update our market outlook. We will then open the call for sell-side analyst questions for the reminder of the time. We would ask that you limit your questions to one question and one follow-up before getting back into 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 in 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 2014 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 margins 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 reconciliation to the most comparable GAAP measures.

Also please refer to the press release issued this morning August 6, 2015 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 Mark Stauffer, President and Chief Executive Officer. Mark?

Thank you, Drew, and thanks for joining us this morning. I would like to start by thanking the entire Orion Marine Group team for their continued hard work and dedication along with welcoming over 1200 TAS employees to the Orion organization. I look forward to continuing to build on both companies' past successes as a leading construction company.

As expected, inconsistent lendings by the Corps of Engineers led to underutilized equipment in the second quarter. Additionally as noted in our mid-period update, Texas experienced the wettest second quarter in over 120 years. This inclement weather caused delays in existing jobs and the start-up of new jobs which further impacted our second-quarter results.

Despite the temporary impact of these delays, we expect to see additional opportunities related to the record rainfall in the form of additional bid opportunities in the coming months. In fact, we recently received a change order on an existing contract, performed dredging where excess trolling have occurred as a result of the recent rains.

While I'm disappointed in the results for the first half of 2015, our improving backlog and the continued improvement across many other end market drivers gives me confidence in the second half of 2015 and beyond.

As we had said previously, we are focused on returning to the historical mid-teen EBITDA margins we enjoyed a few years ago. We are also focused on returning to and maintaining a double-digit return on invested capital. To achieve these goals, we need to see better continuity between jobs which will lead to higher sustained asset utilization and continued bid pricing improvement. However, we must also be adaptive to the current market.

In order to achieve our return on invested capital goal, we have accelerated our review of our fleet to ensure our assets are meeting current and future market demand. We accelerated this detailed review process during the second quarter and expect to continue to work on it throughout the remainder of this year.

We remain confident in our business drivers and outlook for the future. We believe Orion is a successful company with a strong past and an even stronger future. We remain committed to increasing shareholder value and providing solid long-term returns.

Before turning to our outlook, I would like to take some time to discuss our recent acquisition. Throughout the history of the Company, growth through acquisitions has been rooted in expanding our existing geographic footprint and enhancing our ability to control the critical path on any job in order to meet our customers' needs. Today and as we move forward we will continue to look for opportunities to grow the business through organic growth and greenfield expansion and as we previously stated, we will look for ways to continue to enhance and diversify our service offerings.

As we have said before, we have been exploring opportunities to provide services in adjacent areas while staying true to our project management roots. In this regard we have identified several strategic areas for growth. One of these areas is to develop more upland infrastructure capabilities beyond the water's edge.

As a result, I am pleased to announce that yesterday we acquired TAS Commercial Concrete based in Houston, Texas. Throughout its 35 year history, TAS has developed a reputation for safely delivering quality work to its customers that consist largely of private repeat customers. This success has helped TAS grow into the second largest Texas-based commercial concrete contractor. TAS currently operates in both Houston and the Dallas-Fort Worth Metroplex and provides commercial concrete services through its three primary business lines, light commercial or flat work, structural concrete and labor-only pour and finished services.

TAS generally acts as a subcontractor on the projects it performs for a variety of largely private-sector customers in the industrial, warehouse, office, retail, medical, multifamily and educational space.

While growth in our Marine Construction segment is primarily driven by the increasing demand for waterside infrastructure, as the usage of the waterways to move goods and people increases, growth in the Commercial Concrete segment is driven by overall population changes in its operating areas and the commercial construction that follows.

Nonresidential construction in both Houston and the DFW Metroplex have grown approximately 68% since 2011 as both areas have experienced tremendous growth. TAS has grown its revenue over 100% in the same timeframe from $115 million in 2011 to $263 million in 2014.

This acquisition adds another operating segment to our business and provides diversification of end market drivers and a diversified customer base including non-marine customers.

TAS will continue to focus on its markets and the customers it serves. However, it will allow us to also bid on opportunities in the Marine Construction segment that include upland foundation and flat work particularly in the warehouse and industrial areas.

With strong demand for Commercial Concrete being driven by population growth in Texas, we believe we have the opportunity to continue to grow the solid platform TAS has developed and expand these services in other areas in the future. We look forward to building on the success TAS has achieved over the last 35 years and expect that over time TAS will be an integral part of providing additional turnkey services to a wide variety of customers.

Turning to our Marine Construction segment, we continue to experience a high level of demand for our suite of services to help maintain and expand the infrastructure that facilitates the movement of goods and people on and over the waterways. This continued demand can be seen both in our backlog and the high level love bids outstanding. Our private-sector energy related clients continue to maintain and undertake capital expansion of their marine facilities related to the storage, transportation and refining of domestically produced energy.

The two largest contracts announced in the quarter totaling $64 million reflect the strength of this end market. We believe these storage expansion projects are driven by increases in the quantity of domestically produced crude which is still at record levels.

Taking a longer-term view, we also believe further opportunities in this sector could arise from petrochemical related customers, energy exporters and LNG facilities over the next several years. Private recreational customers also continue to be a solid driver of bid opportunities as they expand, repair and refurbish waterside infrastructure throughout the Caribbean. We believe we will continue to see opportunities from recreational customers for the foreseeable future.

As we mentioned in the past, we are seeing an increased number of design build projects in the private sector which provides us more turnkey opportunities. Local port authorities should also continue to provide a steady source of bid opportunities as they undertake capital expansion plans in anticipation of larger ships and increased cargo volumes many of which are tied to the Panama Canal expansion to be completed in 2016.

Larger ships transiting the Panama Canal are requiring ports in the Gulf Coast and Southeast Atlanta to undertake large-scale deepening projects, infrastructure improvements and associated maintenance services in order to service these larger ships.

As I mentioned previously, a large contributor to the underutilization of equipment in the first half of the year was due to inconsistent lettings from the Army Corps of Engineers. As we approach the end of the federal fiscal year on September 30, we expect to see an increase in bid activity from the core which could provide opportunities for us to improve utilization through the remainder of 2015. We are hopeful the fiscal 2016 Corps appropriations process can be complete with full year funding for the Corps put in place prior to the beginning of October eliminating the need for a continuing resolution and provide for more consistent pace of Corps lettings.

The Corps' fiscal 2016 appropriation has already been passed by the House of Representatives and the Senate Appropriations Subcommittee on Energy and Water Development and awaits a full vote by the Senate.

While 2016 appropriations for the Corps still must be completed, it is encouraging to see progress being made as Congress continues its appropriation process through regular order, something that hasn't occurred for several years.

We were also pleased to see the recently announced settlements related to the 2010 Gulf of Mexico oil spill. The settlement totals $18.7 billion with $5.5 billion going toward Clean Water Act fines, $7.1 billion to the five Gulf Coast states for natural resource damages over the next 15 years, and $4.9 billion over the next 18 years to the five Gulf Coast states to settle economic and other claims. Payments will begin 12 months after the agreements become final.

Given the timeframe of the payments we expect we could see bid opportunities related to this funding beginning late in 2016 or early in 2017.

Turning to DOTs, Congress recently passed a three-month extension for highway funding and the Senate is considering a long-term six-year bill that is garnering bipartisan support in that chamber. Although there is resistance in the House to the Senate version of the bill, we are hopeful that a long-term bill could provide a catalyst for pricing improvement on state DOT jobs.

In closing, we are excited about the acquisition of TAS which has a similar operating philosophy, serves different end markets, broadens our service offerings and is driven by market drivers experiencing sustainable growth. This acquisition will help contribute to solid bottom-line performance, sustainable growth and the return of value to our shareholders.

In our Marine Construction segment, we remain focused on bidding responsibly in order to grow backlog and on project execution to deliver jobs at or above where they are bid.

As we move forward, we will continue to focus on driving bottom-line results and getting back to midteen EBITDA margins in our Heavy Civil Marine Construction business while looking forward for ways to grow the successful model TAS has built in our Commercial Concrete business.

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

Thank you, Mark, and thanks again for joining us. For the second quarter 2015, we reported a net loss of approximately $1.8 million or a loss of $0.07 per diluted share. These results compare with a net loss of $1.2 million or a loss of $0.04 per diluted share in the prior year period.

Excluding the delays caused by the heavy rain and flooding in Texas, results for the second quarter would have been a slight improvement over last year.

Second-quarter 2015 contract revenue was $86.1 million of which 63% was generated from federal, state and local government agencies while 37% was generated from the private sector. This compares to 42% being generated from federal, state and local government agencies and 58% from the private sector in the prior year period.

Second-quarter 2015 gross profit was $6 million or a gross profit margin of 7% which compares to gross profit in the prior year period of $5.8 million or a gross profit margin of 6.5%.

During the second quarter of 2015, we bid on approximately $376 million of opportunities and were successful on approximately $100 million. This resulted in a 27% win rate for the quarter and a book to bill ratio of 1.16 times.

We are pleased with our win rate in the quarter and the visibility our backlog provides us for the remainder of 2015 and beyond.

SG&A expense for the second quarter of 2015 was $8.8 million which compares to $8.1 million in the prior year period. The increase is primarily attributable to increased stock compensation expense, one-time recruitment expenses and acquisition-related costs.

As of June 30, 2015, we had approximately $21 million of cash on hand which compares to approximately $39 million of cash on hand at the end of last year. The decrease in cash balances is primarily related to the project timing and start of new work.

As part of our capital allocation strategy, we continued to execute on our stock repurchase program during the quarter. So far this year we have purchased approximately 350,000 shares totaling approximately 3.1 million. As we go forward, we will remain opportunistic with regard to our share repurchases.

However, the specific timing and amount of actual future share repurchases if any, will vary based on our capital needs, market conditions, security law limitations and other factors.

EBITDA for the second quarter 2015 was $2.5 million or an EBITDA margin of 2.9% which compares to EBITDA of $3.9 million or an EBITDA margin of 4.4% in the prior year period. Our free cash flow for the second quarter 2015 was $700,000 which compares to a negative $4.8 million in the prior year period.

As a reminder we define free cash flow as EBITDA less CapEx. Our free cash flow was higher during the second quarter 2015 as a result of the timing of certain CapEx projects this year versus the prior year period.

As Mark mentioned, we have accelerated our review of our fleet to ensure our asset mix meets the current and future market demand while delivering solid returns. We are accomplishing this through a deep analysis of our existing capital expenditure plan to maximize return on owned equipment and determine the correct balance of equipment to own versus rent. In that regard, we expect full-year 2015 capital expenditures to be $18 million.

Overall we are pleased with the financial health of the Company and we are focused on maintaining a solid financial position and returning value to shareholders.

Now turning to the acquisition of TAS, as Mark mentioned, the acquisition meets our strategic goal of enhancing our service offerings while gaining exposure to a new market that supports growth for years to come. TAS recorded full-year 2014 revenue of $236.2 million and EBITDA of $24.2 million with capital expenditures of approximately $5 million resulting in free cash flow for TAS in 2014 of approximately $19.2 million.

We anticipate TAS's CapEx program for 2015 to total approximately $5 million of which $2 million will occur between now and the end of the year resulting in combined 2015 full-year capital expenditures of approximately $20 million.

While TAS historically has an EBITDA margin less than the midteens, the acquisition provides an attractive free cash flow with strong bid opportunities for the future.

Now turning to our new credit facility. During the second quarter, we executed an extension of our prior credit facility for one year. However, subsequent to the end of the quarter and associated with this transaction, we entered into a new five-year $185 million senior secured syndicated credit facility led by Regions Bank. This new facility consists of a $135 million term loan and a $50 million revolver. Proceeds from the new facility were used to refinance our existing $33 million of debt and fund the purchase of TAS.

Today we have approximately $149 million of debt outstanding and availability under our revolver of approximately $36 million.

Under the term loan facility, amortization during the first year will be 5% per and him paid quarterly. Our initial interest rate is LIBOR +250 basis points with a 50 basis point commitment fee on the unused portion of the revolver.

With regard to covenants, we are required to maintain a fixed charge coverage ratio of no less than 1.25 to 1 with an initial leverage ratio of no greater than 3.25 times. Based on the combined trailing 12-month pro forma results as of June 30, 2015, our leverage ratio is 2.58 times.

We are pleased with this new facility and the capital it provides us for the future. The robust support for this facility allowed us to establish a new credit program with solid financing terms at attractive pricing levels. This facility provided financing for the TAS acquisition while leaving flexibility for future acquisitions and operating needs. We believe the TAS acquisition will help continue to drive growth over the long-term.

On a pro forma basis, combined 2014 revenue including TAS was $622 million with $58 million of EBITDA or an EBITDA margin of 9.3%. As of June 30, 2015, combined backlog for both companies was approximately $400 million. The inclement weather in Texas during the second quarter affected both Orion and TAS which will impact our combined full-year results despite an expected strong back half of the year.

Looking ahead, we expect to continue to see modest growth in both revenue and EBITDA. Specifically, we expect combined 2015 pro forma full-year revenue to grow 3% to 5% as compared to combined full-year pro forma 2014 revenue with combined EBITDA margins similar to 2014. We expect a higher growth rate to return in 2016 given the strong market fundamentals that exist in both segments.

SG&A expense for the full-year 2015 including TAS is expected to be approximately 9% of full-year 2015 reported revenue.

Going forward, we will operate as two reportable segments, our Heavy Civil Marine Construction segment and our new Commercial Concrete segment. As of June 30, 2015, our Heavy Civil Marine Construction segment had backlog of work under contract of $223 million of which 13% is for several projects, 10% is for state projects, 39% is for local projects and 37% is in the private sector.

TAS, our new Commercial Concrete segment, ended the second quarter with backlog of approximately $174 million, up 14% year-over-year. Additionally, we currently have combined bids outstanding of approximately $576 million of which we have been notified that we are the apparent low bidder where we have received awards subsequent to the end of the quarter of approximately $70 million. Of this, approximately $260 million of the bids outstanding are related to the Marine Construction segment with approximately $316 million related to the Commercial Concrete segment.

Of the low bid and subsequent award, approximately $17 million is related to the Marine Construction segment with $53 million related to the Commercial Concrete segment.

In conclusion, we are excited about the progress the acquisition of TAS represents in achieving our strategic vision for the company. This acquisition provides solid EBITDA at a reasonable purchase multiple along with robust free cash flow metrics.

Additionally, we still anticipate the results in the Marine Construction segment to improve in the back half of the year. We remain confident in our market fundamentals and we believe there remains ample opportunity for growth given the improving conditions across our end markets.

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

Thank you, Chris. We would now like to open the call up for questions. Would you please review the procedures for placing a question?

(Operator Instructions). Jon Tanwanteng, CJS Securities.

Can you break out the expected growth rate for the legacy Marine business and TAS separately at all?

We can a little bit. Looking at the combined again, we had $622 million of revenue pro forma combined for 2014. We expect that to grow 3% to 5%. Coming into the year, we expected to see similar growth rates in kind of legacy Orion business or Heavy Civil Construction segment. Similar to last year it was around 9%. However with the weather impacts in the second quarter, that is going to shift out the timing of jobs. Keep in mind that is a 12-month job, it is now a 12-month job that starting three months later but it is still the same kind of aspect. So that will put some pressure on the full-year growth rate for the Marine Construction Segment.

With the TAS acquisition, we do expect to see a little bit of growth from them year-over-year for the full year again, partially based on they were impacted as well by the tremendous amount of rain here in Texas in the second quarter.

Okay, got it. Just in terms of the growth rate at TAS itself, it seems like they are coming off a pretty steep ramp. What is the reason for the slowdown in 2015? I am assuming it is energy but any more color would be appreciated there. Also what gives you the confidence in reacceleration next year?

No, I don't think it is energy. We have been going through this process obviously with these guys. I think part of it is just the timing of stuff. They are committed to growing but they want to do that smartly as well. So that entails making sure they have got the appropriate people, that they've got the appropriate oversight. So I think we have got a lot of room to grow in the Dallas-Fort Worth market with that segment and there is still a bunch of stuff going on in Houston that is very exciting.

And so we think primarily as Chris just said, they were impacted as we were in the second quarter. Very unusual, the wettest three months we have had in 120 years in Texas. But I think as we move forward to 2016 assuming we don't have a repeat of that which would be unusual, we would expect continued growth in their segment as well.

And how accretive do you expect the acquisition to actually be this year and next and are there any cost synergies at all or is it mostly kind of an organic and sales kind of thing?

We are considering it an organic and sales growth opportunity. I'm a little hesitant to give you -- we do believe it is accretive, it will be accretive in 2015 and 2016. Keep in mind, we did sign a new credit facility associated with that and I kind of laid out the expected interest expense. And then also there will be some amortization of the intangibles associated with the purchase as well.

But it will be accretive in 2015 and it will be accretive in 2016 and going forward so we think it will have good positive bottom-line results overall for us.

And John, I do think again as I said in my remarks, TAS is going to be focused on what they have been doing and we expect them to continue to do that and continue to do that well as they have done. We do think though that as we move forward again as I said, there are opportunities for potential cross-selling and potential operational synergies. We think that will come with time. But we are very excited about exploring what those opportunities are and looking forward to both segments to be able to assist each other on certain projects.

Okay, great. And then just one quick one. What is the net debt position going to be after the close?

Well, at the end of the quarter, we had $20 million of cash. Considering the acquisition that would be a cash free, debt-free balance sheet that they delivered to us. You've got $20 million of cash, roughly $21 million of cash with $149 million of debt outstanding today.

Okay, perfect. Thank you.

Trey Grooms, Stephens.

Good morning, guys. This is Blake filling in for Trey. Congrats on the acquisition. So my first question is can you give a little more color on the strategic rationale of the deal and then elaborate on the cross-sell opportunities that TAS provides to your more traditional marine work?

Yes, absolutely. The rationale behind it is as we have talked about for quite some time as we look for growth opportunities and execute our strategic plan, we have identified a number of different areas, one of which was upland capability. And keep in mind that I will call it our traditional Heavy Civil Marine Construction business, we pour a lot of contrary today in the dock constructions that we do, DOT work and such. We have tremendous experience pouring concrete. We pour a lot of it day in and day out. We also have a lot of -- historically we performed a lot of land based aspects of work on our projects over the years. So this is not something that is foreign to us at all.

Secondly though is we look for growth opportunities in some of these areas that we have identified, we are looking for things that provide either perhaps vertical integration or are good solid matches for our core competencies, our skill sets. And we touched on that in the remarks about project management. This essentially a lot of the projects or the project and the work that TAS does, they are similar in duration, similar in the variety of sizes as we have in the Marine Construction segment. It is project management that is what we know and what we do every day.

So it checked really all the boxes that we had in looking for opportunities to execute on our strategic vision. Having said that, as we look at a lot of the work that we do, there are many times when in particular turnkey operations where there is upland portions of work that to date we generally pass on, we will team with somebody else, we will subcontract that out, a variety of different things. But what TAS will afford us to do is look at those in a different light and potentially do some cross-selling with some of these opportunities.

We are excited about that but we are also excited about what is going on with the work that TAS historically does which again they will continue to do. We are excited about the growth potentials there and think the sustainability of that with the drivers in the Texas market are pretty significant.

And so we are excited about that but again we think that there will be opportunities for us to join forces on certain projects where both segments can come together and execute on that work.

Okay, great. That helps a lot. Thanks. My second question is can you just go into more detail on the size of each of TAS's three sub segments and then a little more detail on the revenue breakdown of their customers' end markets?

Well, they don't really manage the business such that they view those as different. It is kind of like with us, it ebbs and flows. We may work on a dock job for the Navy or for a port authority for a private sector client, so they have kind of a fairly broad mix of light commercial, structural and stuff like that. If we look back to last year, it is a pretty good spread between warehouse, office, retail, the education space, the medical space and each one of these is going to entail projects either in the light commercial vein or structural vein.

So it is kind of a mix, it is going to ebb and flow as the different types of projects are let. So it is going to change from period to period based on what they bid on, what they go after and what they get.

Okay, thanks a lot.

Adam Thalhimer, BB&T Capital.

Good morning, congrats on the acquisition. Do we have SG&A for the TAS business?

We do. Last year they reported SG&A of $15.6 million overall. And again as we look at it combined, of course, this will include the amortization of the intangibles. As we look at our full-year combined revenue, we would expect SG&A to be about 9% of that total cost -- total revenue, sorry.

And then what would be the depreciation, Chris?

Depreciation of their assets last year was $2.1 million.

Okay. Are you and inheriting any non-cash amortization that they already had?

No, I don't believe we are.

Okay. And then the interest expense you said -- did I hear you right, you said 5%?

No, it is LIBOR +250 and there is a 50 basis point commitment fee on the unused portion of the revolver which today is about $36 million.

Okay. So what will be your thoughts on 2016 CapEx?

2016 CapEx combined we would expect the full-year -- keep in mind we will only have a portion of the year this year -- but expect full-year CapEx next year to be $22 million to $25 million for the combined company.

And then you talked about -- how should I understand your comments about what you want to do with your core Marine fleet?

I think the point there is as we look at our markets, as we look at our market, the activity in the various markets where we are with bid pricing, where we have been with the core budgeting and stuff like that, what we are taking a hard look at is do we have -- is our fleet matched up with what the current market is and the future market is? So we are just taking a look at whether or not some of the things that we own today we need to own and maintain. Is there an aspect of some of this that we would be better off renting.

So effectively it is a process of just making sure that we have got the fleet matched up with where we are in the market not only today but going forward and also correspondingly is the CapEx program tied because one leads to the others. So as you know a lot of our CapEx expenditures has been on maintaining the existing fleet, in fact most of it is.

So as we look at that program, it has impacts on both, it impacts just the carrying cost of it but also the maintenance cost of it. So we are taking a real deep dive on that to just determined do we have the right mix of equipment for the market conditions today and going forward.

I'm jumping around here but does TAS -- and I know we have touched on this -- but how much energy and public infrastructure exposure do you think they have or is it all kind of light commercial?

Today if you call working on a building or a structure something that is used by an energy company, exposure to the energy sector, that is probably a little bit of it. But I think primarily what they are focused on is warehouse to office retail, light commercial, structural stuff that may or may not be used.

I think one of the things that we are excited about as I spoke earlier about in terms of opportunities is looking for stuff in the kind of industrial warehouse space tied to what the Marine Construction segment does which they are doing virtually none of today.

So in short answer to your question is I would say not much is tied to that. I think the vast majority of what they are doing is tied to population growth in the markets they serve which again is Houston and Dallas Fort Worth primarily.

Okay. Did you give any color on who you are buying this from and what the kind of process was getting to this point?

Yes, the founder and financial backers were involved on the sell side but the founder was involved in that and he will remain involved with us going forward, management of TAS will continue to manage the business going forward. It really wasn't a formal process. We have gotten to know these guys over more than the last year and so it was really not a kind of a formal process, this was more of the kind of a one-off negotiated transaction.

Okay, great. Last one just on your Marine bid funnel, your bids outstanding were down kind of 15%-ish month over month so is there any take away from that or just timing?

Just timing.

Scott Levin, Imperial Capital.

Good morning, guys. I want to ask if you are going to think about changing the name of the company to something a little bit more broad here given the increased focus on the mainland construction there.

But in all seriousness, I guess I would ask you the nature of the customer base seems on the surface like it might be a bit different than kind of your core. I am guessing it is mostly private sector. Is there anything we should think about in terms of just the nature of the contracts, the nature of the customer base and how that might differ from your marine business? And might that make for a bit more lumpiness in the reported earnings quarter to quarter on a go-forward basis or is that not the case?

Actually I think the opposite. I think TAS is a little more smooth throughout the quarters than the Marine Construction segment. Historically they have been a little bit more smooth. That is not to say that it is still not a lumpy business, it is but I think if anything could potentially help smooth out the earnings throughout the year. I think that in terms of their customer base and contracts, contracts very similar. They do primarily act as a subcontractor. We have a lot of experience with that. We act as a subcontractor occasionally as well. So that is a little bit of a change.

But in terms of the actual contracts, very similar contracts and contractual terms that we operate under today. The size and duration of their projects is very similar to what we have historically done. Their approach to jobs, their approach to risk, how they manage that risk is very, very similar to ours. That is one of the things -- I mean this just felt like a very natural fit for both of us.

As we got to know these guys very well over the last year plus, it is very, a lot of similarities to us. Quite honestly looking at their job sites throughout this process, we were kind of looking around occasionally and telling ourselves gosh, if you just add a little water here this looks exactly like something -- some of our existing operations we would be working on today.

So it is a very familiar operation for us. I think that may not be readily apparent on the face of it but it is and we have a lot of experience as I said earlier performing work on land. We also have a lot of experience pouring concrete. And so I don't think in terms of the contracts, project size, project durations, anything like that this is much of a departure.

Scott, just to add a little bit of detail to that on the customer standpoint too, about 90% of their business is generated through repeat customers that for the top 10 they've got an average relationship of about 12 years but some of those top 10 span over two decades of relationship with them and they do multiple jobs per year through that. So we feel really comfortable with that and that leaves more to that smoother earnings cycle for them throughout the year. I think for them Q2 was an anomaly just because of all the rain. There were so many days of delay I mean it was the wettest Q2, wettest three months on history, a record history for the state of Texas. So you can't pour concrete in the rain very well so that did cause delays. But generally speaking we see a lot smoother earnings from them and feel really comfortable about their customer relationships and how that is going to pan out over time.

The other point I would just emphasize again, I said this in the remarks and we put this in the release, but the other thing we like about this as well is the diversification that it provides us because it is primarily private sector and it is in a robust economic sector, Texas, which we expect to continue.

I know the question about the energy prices and all of that stuff but the state of Texas of today much more than just drilling which is primarily what has been affected in the energy patches is the upland piece or upstream piece.

But I think the point is in particular as we have talked about for the last several quarters and all this budgetary dysfunction in Washington DC and the impact that has on the Corps of Engineers budget and the highway budget and all that, we like what this provides not that we are abandoning that by any stretch, that is still very important to us. We still are very focused on the Heavy Civil Marine segment and long-term think that -- are very, very excited about the long-term prospects there and driving that back to historical levels.

Having said that, to get this involved, to get TAS as part of the Orion organization and have a diversification a way into the private sector that is not driven by and dependent upon that budgetary mess in DC is a positive in our view.

Got it. But is it safe to say that given where your margins are on the legacy business that there is more margin upside potential on the marine side and that this is kind of running at what you expect to kind of be go-forward margins or some margin upside potential in the concrete side as well?

I think definitely the margin improvement is definitely much more -- our expectations are much more on the Heavy Civil Marine Construction side. I think on the concrete business as we said, I think we alluded to this earlier but in specifically answering your question, I think their margins where they are now is what we expect going forward.

Having said that though, it is a much less capital-intensive business so from a free cash flow standpoint and a return standpoint, it fits with our goals and objectives. But as we said we are still focused on getting the Heavy Civil Marine Construction segment back to historical levels.

A couple of quick follow-ups. The whether -- you are guiding to I guess pro forma of 3% to 5% growth in 2015 with comparable margins. Is the weather impact in Q2, is that a needle mover versus what it otherwise would have been? And if so, could you quantify that even roughly if that is indeed an impactful number?

It was an impactful number. What I would say to that and what I said in my prepared remarks was had we not had the weather events in Q2, we would have had a slight improvement over last year's results. Keep in mind we expected to see somewhat of a gap just related to the Army Corps of Engineers and the timing of new projects starting here that are starting here in the third quarter. So there was an expected gap in the second quarter but that was worsened by the weather. So that did make an impact on our second-quarter results and we would have seen an improvement year-over-year, a slight improvement year-over-year had we not had that weather.

So maybe $2 million on the legacy business and then was it impactful on the FAS as well?

On the TAS side of things yes, it was impactful. We will show their results of course on a pro forma basis. We are kind of picking up from yesterday really today forward as far as what we will report for financial results for 2015 but it is safe to say it made a meaningful impact in their results and we would have expected to see higher results out of them in the second quarter had they not had all the delays because of weather.

Got it, great. Good luck with it. Thanks.

Marco Rodriguez, Stonegate Partners.

Good morning, guys. Thank you for taking my questions. Most of my questions have been asked and answered but just a couple of quick follow-ups here. First one in regard to the acquisition of TAS, can you talk a little bit more about the integration? It kind of sounds like TAS is going to operate as its own entity that is just kind of nothing really changes there. And I think from your prepared remarks you said there is really not much on the cost synergy side. So if you can talk a little about that and then also their seasonality of revenue, you did mention that it was somewhat choppy but still at the same point kind of even on an earnings perspective. Can you kind of elaborate on that as well please?

Yes, absolutely. On the integration side, you are right, this is a little bit different for us compared to historical acquisitions that we have made within the Heavy Civil Marine Construction segment. This is a new segment for us that will be operated as a separate segment but also it will be operated just separately. I think you hit it correctly from the prepared remarks that they will continue to operate as they have. Obviously there is some back office integration that will occur. And then as we go forward we will look for -- there are some back-office things that from an economies of scale standpoint we will take a look at combining. But operationally this will operate as a standalone segment from the existing Heavy Civil Marine Construction segment and again that does not mean that we will not look for operational opportunities as I have discussed earlier but just from an operating standpoint, this will operate as a standalone segment.

And on the cost synergy side of things, we like to look conservatively. We like to look at acquisitions with zero cost synergies and like Mark said, our incentive is to operate this standalone so we both have to true operating segments. So we don't expect must cost synergies. There may be some that come up along the way. Clearly there is some opportunities for just economies of scale like with [cellphone plans] and things of that nature. That may make sense or may not make sense as we go forward.

So there may be some opportunities and clearly we will look for those but at the same time we think it is great acquisition we think it is nicely accretive solely on what was zero cost synergies. So anything that would be from that perspective would just provide a little bit more gravy so to speak.

On kind of the seasonality of the business again, it is less seasonal than the Heavy Civil Marine Construction segment is today. They are generally running a pretty steady number of cubic yards or pouring a pretty steady number of cubic yards on a day in day out basis. I think the biggest factor for them in seasonality can be weather but that being said, it doesn't impact them -- as dramatically as we saw in the second quarter but we haven't had that dramatic rain either. So that is an impact but generally speaking we should see much smoother seasonality from that operating segment's financial results than we do in the Heavy Civil Marine Construction side.

Got it. Very helpful. Last quick follow-up question here. In terms of the guidance, pro forma guidance of 3% to 5% topline year-over-year, just kind of trying to make sure I understand things from your prepared remarks and then responses to questions, TAS has done very well in fiscal 2014 and you are still expecting some growth there and obviously you have the negative impact of weather here for both segments but specifically for the Marine group and the Army Corps of Engineers. Is it fair for me to take from your comments that the Marine group based on what you are guiding for for fiscal 2015, if I were just to look at that segment in isolation that the growth rate year-over-year is either flat to down?

For the full year or the back half of the year?

For the full year.

For the full year, I mean compared to the initial 9% yes. But I think it is probably fair to assume if you want to look at it this way, it is probably fair to assume that that 3% to 5% can kind of be applied to growth rate on both sides, both operating segments for the full year. Again, TAS they did have a nice 2014, we do still expect to see some growth there. But then we continue to expect to see growth on the Marine Construction side of things too.

The biggest impact as we look in the back end of year or for the full-year results on the Marine Construction segment is really the second quarter. We are suggesting a little bit of tapering off here in the third and fourth quarter but we still have a very strong and robust back end of the year and there is still a lot of activity that is going on. Jobs shifted out so the opportunity to kind of double up and make up the second quarter is what is difficult. So that is putting some of that pressure on the full-year results because the way the jobs schedule out, you basically have shifted that job outward and in particular, there were some jobs that we were expecting to start doing work and because of the rain, it delayed other parts of the job. So we will still do that work but that work is going to start now more in November and December than the expected second quarter and it is just because from the timing aspect it is scheduling and it is a scheduling conflict that is going to make that impact.

Got you. Thanks. I appreciate it, guys.

John Rogers, DA Davidson.

Good morning. A couple of things I just wanted to follow up on. On TAS, of the purchase price, what is tangible and what is goodwill of the 115?

So goodwill is going to run about $57 million. They had assets of about -- right about $14 million is the fixed asset kind of valuation. So there is some that would apply to the trade name that we do plan on continuing to use and operating as TAS Commercial Concrete. And then of course there is a portion that will apply to the contracts that we took over. That piece will be amortized over the life of the contract so I think we are doing that over about a three-year period. And then the assets will go over to the depreciated life of the assets.

Okay but, Chris, it is $57 million in incremental goodwill that will be added to your balance sheet?

Correct, and that will be directly related to the TAS operating segment.

Okay. Is there any sort of an earn-out or -- associated with --

No.

-- and no equity, the owners are just being cashed out?

Just being cashed out, correct.

Okay. And then on the Marine equipment side, you talked about renting equipment or streamlining that a little bit. Are you contemplating any asset sales there?

I don't want to take anything off the table. Obviously we've got to be very careful about that. It could be that we have disposals through attrition if you know what I mean like if there are things that are at the end of its life that we don't replace it. It is kind of taking a look at are we optimizing kind of our flex to the market. And are there -- because there are certain things and there are certain pieces of equipment we use that there is no rental market for so we have to own them. So then the question is how much of that type of thing should we own given where the market is and where we see the market going?

There are other things that there is a fairly readily available rental market and so we can take a look at that and just see are we at the optimum owned versus rent from a flex standpoint to meet market demand or projects and stuff like that?

So we are not sitting here saying that we are going to have a whole bunch of assets held for sale or anything like that but what we are saying is that as we take a look at things, can we manage some of these things, do we replace everything that is needing to be replaced? Do we kind of get rid of it at the end of its like? We're going to manage this process smartly. We don't want to do anything that is detrimental but we also want to take a hard look at the whole level of equipment and lease versus own equation so therefore the flex equation on being able to still meet the market demand and execute the work that we need to execute and controlling our own destiny versus taking a hard look at the CapEx expand and the carrying costs.

Okay. And then just in terms of your business or operations in the second quarter, it looks like -- I'm going through the balance sheet fairly quickly -- but a significant uptick in receivables for the quarter. Is there anything unusual there?

There is nothing unusual. It is really the timing. As we have talked about, as we have indicated, we have expected work to begin in the third and fourth quarters so that reflects work starting at material purchases occurring. As soon as that occurs, you are going to go into your accounts receivable, go through the normal collections process and collect it and that is a direct reflection on the cash balance. So looking at cash and AR combined, the two kind of grew and I think that is truly an indication of the projects that are expected to start to liquidate as we go forward.

Chris, is there any impact from your mix of public versus private customers?

No, on the AR side of things, that really doesn't make an impact. It is more the timing of when the job starts, when the material purchases. Keep in mind most of the material purchases we make up front and then that will build up after the customer. Of course to the terms of the contract, to the extent we can, we will bill those out to the customer and just go through the normal billing cycle. So in certain cases like during the quarter, we have made the initial commitment to make the purchase and that will result in some money, cash, being expended for that which will then in turn translate into additional accounts receivable.

Okay. Lastly, maybe for Mark, are there other acquisitions or companies that you are having informal negotiations with?

Well, John, the way I will answer that is you know, we look at a lot of things all the time, that doesn't mean anything is going to happen. I would tell you that we are pleased with this one, obviously this is a significant transaction for us so we are focused on making sure this is a successful for us, it is good for us, it is good for the TAS employees. The TAS employees are key to the success of that operation that they have enjoyed over the last 35 years. So we want to make sure that we are focused on making sure that this is successful for Orion, for Orion shareholders, for the TAS employees, for Orion employees. So that is our focus.

But there is always stuff percolating out there as you can appreciate but there is no news to report today.

And is it your expectation or vision over the next number of years to have a balance between onshore/offshore work or does that come in to the (multiple speakers)? Because this looks like an expansion increases your concentration specifically in the Houston market in the Gulf Coast whereas in the past I thought about your expansion out into other marine markets.

I would answer that two ways. We are still focused on that. Again, we are not taking our focus off the Marine Construction business. We are still very interested in expanding our market share in the Pac Northwest, Alaska, the West Coast, very interested in doing that as well in kind of the mid-Atlantic, the Chesapeake region. So we remain committed to that.

Clearly the Texas market has been -- it is very good for us, it is a very robust market, the Texas economy has obviously recovered very nicely from the recession, a lot of activity here, a lot of population growth, population of Texas is expected to double in the next 25 years.

So we think there is a tremendous amount of activity that is going to occur in Texas and this gives us again good exposure to that in a diversified way. So we are very happy about that.

But in answer to your broader question, I don't know that it would be -- I think again as we look at our strategic plan and areas that we have identified, some may or may not be in this same vein some may be closer tied to vertical integration of the Heavy Civil segment, Heavy Civil Marine segment but you never know about the timing of opportunities. When we look at things, an opportunity, we compare those and measure those against our strategic plan and if they make sense we take a deeper look at it. If they don't make sense in that vein we don't take a further look at it.

So I think some of that it is just kind of like the project side, I mean sometimes it depends on what you go after and what you were successful in getting as to what it is going to look like.

But I think, in your basic question this does give us more exposure to Texas which we view as a good thing and does give us diversity of drivers away from some of the federal government stuff which we view as a good thing. Again, having said that we are still committed to being successful with the Heavy Civil Marine Construction segment.

Fair enough. Thanks and congratulations.

(Operator Instructions). There are no questions in the queue. Now I will turn it back over to Mr. Andrew Swerdlow for closing remarks.

On behalf of Orion Marine Group, we would like to thank you for taking the time to talk with us this morning and we look forward to speaking with you in the future. If you have any follow-up questions, please feel free to give me a call. Thanks and have a good day.

That concludes our conference for today. You may now disconnect.