Orion Group Holdings Inc (ORN) 2017 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Orion Group Holdings, Inc. Fourth Quarter 2017 Earnings Conference Call. (Operator Instructions) And as a reminder, this conference may be recorded.

I would now like to turn the conference over to Mr. Shane Martin with Investor Relations. Sir, you may begin.

Thank you, Sabrina. Good morning, everyone. Welcome to Orion Group Holdings Fourth Quarter and Full Year 2017 Earnings Conference Call and Webcast.

Joining me today are Mark Stauffer, Orion Group Holdings President and Chief Executive Officer; and Chris DeAlmeida, 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 Mark and Chris will highlight our results and update our market outlook. We will then open the call for questions.

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 profits, gross margin, EBITDA, EBITDA margin, backlog, projections in negotiation and pending awards as well as our estimates and assumptions regarding our future growth, administrative expenses and capital expenditures.

These statements are predictions that are subject to risks and uncertainty, including those described in our 10-K 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 adjusted net income, adjusted earnings per share, EBITDA and EBITDA margin are non-GAAP financial measures under rules of the Securities and Exchange Commission, including Regulation G. Please refer to the reconciliations and definitions inclusive of the most comparable GAAP measures and reconciliation tables accompanying this earnings call within the press release issued this morning. The press release can be found on our website at www.oriongroupholdingsinc.com.

Also for additional discussion of risk factors that could cause actual results to differ materially from our current expectations, please refer to our quarterly and annual filings with the SEC, which are also available in the Investors section of our website.

And with that, I would like to turn the call over to Mark Stauffer, President and Chief Executive Officer. Mark?

Thank you, Shane, and welcome, everyone, to our call this morning. First, I'd like to thank our 2,500 coworkers for all their hard work, dedication and commitment to our company. During 2017, we faced challenges that impacted not only the company, but our coworkers, their families and their communities. I'm very proud and very appreciative of the way our team responded to these challenges.

While 2017 was a challenging year with customer permitting delays impacting the first half of the year and significant adverse hurricane impacts in the third quarter, we ended the year on a strong note with solid operational performance and continued strong market demand. Those same hurricanes created opportunity for additional projects in the fourth quarter and helped lead to better equipment utilization during the quarter in our marine segment.

Here are some of the highlights from 2017. We experienced continued strong demand for our services across market segments. We continued to improve the infrastructure sector by reducing costs and evaluating equipment needs in the marine segment to meet forward market demand. We expanded the building sector by entering into the fast-growing market of Central Texas with the acquisition and integration of a concrete company serving this region. We prepared to further develop our targeted infrastructure, industrial and building sectors.

And lastly, during 2017, we bid on approximately $2.5 billion worth of projects, winning approximately $506 million or a win rate of 20.3%.

Turning to our results, we executed well on our projects during the fourth quarter. It's important to note that for a year-over-year comparison purposes, 2016 included onetime charges related to the accounting treatment of a specific contract with significant highly unusual differing site conditions. That said, we are pleased with our results for the fourth quarter of 2017, including near-record levels of quarterly revenue while generating more than $17 million of EBITDA. This level of revenue and EBITDA performance illustrates our ability to be within our long-term revenue and EBITDA ranges over the next several years.

As we go forward, our strategy remains the same. We seek to be the premier specialty construction company focused on providing solutions for our customers across the infrastructure, industrial and building sectors while building our market share and enhancing our operations in these areas.

We will continue to look for opportunities in these areas through both M&A and greenfield efforts. Specifically, we are focused on solidifying and improving our operational results in the marine segment while continuing to provide high-quality services to our customers, working to expand and grow our concrete segment and pursuing opportunities in the industrial sector by leveraging our skill set and customer relations to expand our addressable market.

As we increase our service offerings, we will continue to work to deploy new capital to high return, high free cash flow businesses with a focus on increasing our return on invested capital.

We expect demand drivers to continue to lead to high-quality bid opportunities across the infrastructure, industrial and building sectors. We believe conditions exist for improved bid pricing and remain hopeful that markets will recognize these conditions and adjust accordingly.

The infrastructure sector, which consists of our marine segment continues to provide both public and private opportunities to maintain and expand marine facilities on U.S. waterways. Throughout our operating areas, market fundamentals remain positive and we are seeing pockets of margin expansion.

As I previously mentioned, we anticipate increased bid opportunities in the near term related to weather events in 2017. This could provide an additional catalyst for increased asset utilization. Additionally, private sector bid opportunities continue from downstream energy customers as they expand their waterside facilities associated with refining and storage. Also, recreational demand continues from private and public customers as local marinas are being expanded and remodeled and bid opportunities related to cruise lines remain promising as we attract projects related to new destinations or refurbishment of existing destinations in the Caribbean.

The underlying fundamentals of our marine business remain sound with solid demand drivers, bid opportunities and a solid backlog. We will continue to be a leading and premier marine construction company now and in the future.

As mentioned on previous calls, volatility in the marine segment remains a concern and we have and will continue to take the necessary steps to be nimble with respect to idle labor and equipment costs to address volatility. Our goal has been and will continue to be focused on providing high-quality marine construction services to our customers throughout our operating markets.

The building sector, which consists of our concrete segment continues to have solid long-term demand drivers as well. The markets we currently serve continue to retain their positions as leading growth areas for population and businesses. Population growth throughout our markets continues to drive new distribution centers, office expansion, retail facilities, multifamily housing units, educational facilities and medical facilities. In Houston, we are experiencing a very competitive environment, but we expect to continue to maintain market share. We are focused on expanding our market share in the Dallas-Fort Worth market, including pursuing structural opportunities.

Finally, we expect to continue to see solid growth in the Central Texas market as we work to expand market share with strong end market drivers.

In the industrial sector, we will continue our greenfield expansion by combining talent and resources from both the marine segment and the concrete segment to continue to pursue foundation work inside the industrial environment.

The massive long-term, petrochemical-driven opportunities along the Gulf Coast provide significant potential to expand our addressable project opportunities. In fact, according to the American Chemistry Council, the U.S. is on pace to become the next -- net exporter of natural gas this year as a result of the shale revolution, which has led to increased domestic production of natural gas. We believe this should lead to an outpaced growth in petrochemical industry that is forecast to account for more than half of the construction spending in the manufacturing sector.

Additionally, we continue to monitor macroeconomic factors that could impact our business. The Tax Cuts and Jobs Act of 2017 could prove a catalyst for general economic growth, which should in turn provide for additional opportunities across our business. Action on an infrastructure bill to address the nation's deteriorating infrastructure could likewise provide additional opportunities across our business. The latest report from the American Society of Civil Engineers gives the nation's infrastructure a grade of D+, highlighting the need for action on infrastructure.

Lastly, we will continue to monitor recent developments on the proposed imposition of tariffs on steel imports. While it is currently unclear what the total impact would be, imposition of tariffs on steel imports could cause short-term disruptions in the bid letting cycle as customers recalibrate their budgets as a result of higher steel prices caused by the tariffs.

In closing, we had a strong fourth quarter and end to our year. The fourth quarter demonstrates our ability to execute well with solid bottom line results. Through a combination of strong fundamentals, improving efficiencies in our business and targeted acquisitions, we believe we are extremely well positioned to take advantage of improved economic condition and increases in infrastructure spending. At the same time, we are focused on improving our operational results in our marine segment, expanding and growing our concrete segment in the Dallas-Fort Worth and Central Texas markets and pursuing opportunities in the industrial sector.

We will continue to focus on delivering high-quality projects to our customers with continued expansion of our services across our operating segments and areas. While the past couple of years have been choppy, we believe we have developed a strong go-forward strategy that will result in continued bottom line improvement with more consistent earnings and higher free cash flow returns. We remain excited about the future and believe we have solid fundamentals for future success.

Now I'd like to turn the call over to Chris to review the financial results in more detail. Chris?

Thank you, Mark, and thanks for joining us. For the full year 2017, we reported net income of $400,000 or $0.01 diluted earnings per share. Excluding the fourth quarter tax-related benefit we mentioned in our earnings release this morning, adjusted net loss for the full year 2017 was $3.9 million or $0.14 diluted loss per share. These results compare to net loss of $3.6 million or a $0.13 diluted loss per share in the prior year period.

Contract revenues for the full year 2017 were $579 million, of which approximately 50% came from our marine segment and approximately 50% came from our concrete segment. Within the marine segment, approximately 52% of full year 2017 revenue was generated from federal, state and local government agencies while 48% was generated from the private sector. This compares to 46% of full year 2016 revenues being generated from federal, state and local government agencies and 54% from the private sector in the prior year period.

In the concrete segment, more than 83% of full year 2017 revenue was generated from the private sector as compared to 90% in the prior year period. As we move forward, we expect to continue to see a higher mix of private sector revenues driven by the contracts we are pursuing and the overall mix of our concrete and industrial business.

Consolidated full year 2017 gross profit was $67 million or gross margin of 11.6%. This compares to 2016 reported gross profit of $68 million or a gross margin of 11.7%.

SG&A expense for the full year 2017 was $66 million or 12% of contract revenues compared to $65 million or 11% of contract revenues in the prior year period. This slight increase is related to the expansion of our concrete business in the Central Texas, offset by reductions in corporate overhead and consulting fees during 2017. As we move forward, we expect leverage from our SG&A expense and we expect this expense as a percent of revenue to decline starting in 2018.

Full year 2017 EBITDA was $31 million or a 5.4% EBITDA margin. This compares to full year 2016 EBITDA of $38 million or a 6.6% EBITDA margin. The decrease in EBITDA is primarily related to the customer permitting delays we saw in the first half of the year and the hurricane events in Q3, mostly offset by solid execution in the fourth quarter. For the full year 2017, we bid on $2.5 million (sic) [$2.5 billion]worth of opportunities and were successful in $506 million. This resulted in 20% win rate for the year and a book-to-bill ratio of 0.87x.

As of December 31, 2017, we had backlog of work under contract of $361 million, of which $177 million was related to the marine segment, while $184 million was related to the concrete segment. Moreover, the company is the apparent well bidder or has been awarded subsequent to the end of 2017 an additional $114 million worth of opportunities. Of that, $87 million is related to the marine segment while $28 million is related to the concrete segment. In total, this means we currently have $475 million of projects between backlog and low bids.

Now turning to the balance sheet. As of December 31, 2017, we had $9 million of cash on hand and access to $39 million under our revolving line of credit. We ended the year with $86 million in total debt outstanding, of which $10 million was related to the revolver and $76 million was related to the term loan. As we go forward, we will continue to focus on paying down debt with excess free cash flows. We believe our liquidity position is more than adequate for general business requirements and for servicing our debt going forward. Additionally, we are in compliance with our financial covenants, including being below the 3.0 leverage ratio required at the end of the year. In fact, at the end of the year, our leverage ratio was below 2x, partially as a result of the total $60 million of debt we have paid down since inception of this facility in 2015.

Additionally, our bonding program remains solid and is more than adequate to support our bid activities. As we look ahead, we are pleased with the level of opportunities we have in front of us across our business sectors. Our backlog and low bid activity remains strong and we are optimistic given the healthy bid opportunities we've been seeing over the past several months. Currently, we have approximately $749 million worth of total bids outstanding, of which $247 million are related to the marine segment and $503 million are related to the concrete segment.

As Mark mentioned, we will continue to focus on delivering profitable returns to shareholders through the continued expansion of our existing and future operations in the infrastructure, industrial and building sectors.

The fourth quarter showed the level of activity we can achieve with solid execution and strong business drivers. We believe we have the right equipment and teams in place to execute at or above this level long term and we continue to -- we will continue to support our customers in all of our operating sectors. We believe there are solid opportunities to seek good performance in both our marine and concrete segments and we remain excited about the prospects for our industrial sector.

Finally, we are optimistic about 2018 and look to see improved bottom line results as we go forward.

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

(Operator Instructions) And the first question will come up from the line of Matt Duncan with Stephens.

So first, a couple of questions just to help us understand the quarter a little bit better. On the marine business, can you talk about how much revenue you got that was sort of storm related and then the overall impact that, that had on margins? Kind of what would underlying margins have been without that work?

Well, essentially what we had was we did have some dredging projects that occurred during the quarter that were directly related to the storm event. We also just had other work that we executed on. I think that incrementally, we did see some nice uptick in our utilization in marine equipment as a result of some of that increased dredging. So it wasn't the only thing that was going on in the quarter, but it did help contribute to better equipment utilization.

Mark, can you quantify what the revenue was from that please?

We do not specifically break that out, the exact amount related to the hurricanes. It did make a contribution to it. Like Mark said, we did have some other jobs as well. So looking at it, I think it would be lower on the total scale as far as revenue is concerned...

Got you. That helps. And then on the commercial concrete business, it sounds like there was a negative weather impact. I don't know if it's possible to quantify that, but if so, that would be great. And then I assume weather has probably been a little bit of an issue here in the first quarter in that business as well, so maybe help us think through how to think about revenue in that business in the first quarter specifically with weather in mind.

Yes. I'll let Chris touch on that a little bit. But yes, the weather pattern over the winter has been a little bit funky in Texas. We've had a couple of, kind of, winter storm events that impacted us. We've also had, kind of, very -- kind of a weather pattern that has not let us get the good continuity on some of our stuff. We're hoping that we're getting out of that pattern and can get some good production going, but it definitely has an impact in the construction -- in the concrete business.

Okay. And then, again, on the revenue number, I don't know if you can help us. Just trying to make sure we can understand all moving parts here, how much of an impact was weather?

It made a couple of percentage points difference in the weather. Again, some of that's just timing of when it executes, but it's a couple of percentage points overall.

Okay. And then last thing for me, just looking ahead to 2018. Your comment is you expect improved profit. You obviously had a loss at the earnings line in '17. So does that mean profitable with the earnings line in '18 on the EBITDA side? How much of an improvement might we see there? I was hoping maybe you could give a little more detailed outlook than just some improvement.

We want to be able to a little bit vague as we go into the year clearly here. But yes, from the standpoint -- from an operating income perspective or net income perspective, we would expect to be profitable for the full year 2018, so we would expect to move into that. On an EBITDA side of things, we've laid out that we think long term the business can get to $60 million to $100 million EBITDA sustainability. I don't think we'll be there in 2018 just with -- like we talked about on the last quarter call, just with some of the moves we've made in the different segments, it takes a little bit to see that fully come through, but I do think we could see some growth in that. So as we look forward, I would expect to see some nice healthy growth in the EBITDA year-over-year.

Okay. So Chris -- and again, maybe you don't want to give a spot number, but to give you an opportunity to maybe help us out a little bit, the current consensus EBITDA forecast is in the low 40s, call it $42 million. Is that doable this year based on what you see today? I know you expect some improvement this year, probably more of it in 2019. I just don't want us to get too far ahead of what you guys are expecting.

As I would look at it, yes, I think the upper 30s, low 40s is a doable percentage -- doable EBITDA number in 2018.

And the next question will come from the line of Jon Tanwanteng with SJ -- CJS Securities.

From a margin perspective, especially with regards to what you have in the current backlog, how sustainable do you think the gross margins are heading into the first quarter of '18 and kind of through the year?

I think they're sustainable at this time. Keep in mind, there's some cyclicality based on the timing. Q1 is always our weakest period and we grow into the third quarter, but what you're kind of seeing in that margin profile that you saw in the fourth quarter is good continuity between projects, good utilization of our assets overall. So that's what's driving it. If we look back to the first half of the year, clearly in the first half, we had a lot of the permitting delays that impacted the business. We had idle labor and equipment. Clearly, in the third quarter, 85% of our business was impacted by hurricanes overall, so that made an impact in utilization and timing. So as far as looking at our backlog, looking at where margins are, those are representative of where that spans and what we expect going forward. We continue to see some pockets of pricing improvement as well. So I would expect from a gross margin perspective -- assuming -- again, factoring in some cyclicality that this is a very reasonable expectation.

Okay, great. That's very helpful. And then just on the backlog themselves, they're a bit lower than they were entering '17. I think you attribute that mostly to timing and maybe a big project exiting '16, but are there any other factors impacting that? And from an end-demand perspective or percentage of wins on bids, that's really impacting that and how does that score up with the positive outlook for '18? Do you expect relatively more awards in general?

Well, I think we're still very pleased with what we're seeing out in the end market drivers. We had a nice win rate for the full year '17 with -- it was 23%, which is in line with what our expectations are. It is a timing thing. There's a normal ebb and flow of that, a lot of projects particularly in the private sector take some time, sometimes they take a while to come to fruition. So that factors into it. As you pointed out, we did have a large project come in at the end of '16 that kind of skews a little bit the year-over-year comparison, but as we look at the backlog, that's one data point. We look at -- we also look at what we have in low bid and we also look at what we have upcoming to bid. So -- with all of that, we're pleased. Again, as we talked about, there's normal ebb and flow. There's different levels of competitiveness in different areas of both segments of our markets that still factor into -- we still occasionally will see projects with more bidders than we'd like to see in some of the marine areas and other projects. We see fewer bidders and so we're appreciative of that. We are very competitive in the Houston market in our concrete business, but we expect to maintain market share. So -- overall, we're confident that the end market drivers and our ability to win work is there, so that we can achieve our objectives going forward.

Okay, great. Chris, you may have mentioned this and I'm not sure if I caught it or not, but what is the cash impact of the new tax law in 2018? And kind of where that stand before December?

So here's what I would say. We didn't define a cash impact totally, but we expect the income tax rate to be 26% to 28% on a go-forward basis that would be effective in 2018. Clearly, we still have a year to get kind of everything fully examined. So that could fluctuate as we go, but we'll update you if we start to see dramatic. As far as the fourth quarter itself, we had a $4.3 million benefit related to the implementation of the new tax law and that's predominantly related to reevaluating our deferred tax assets.

Okay, great. And then just one final one. I think you mentioned a lot more competition in Houston relative to maybe a quarter ago. Is that correct? And if so, what's the margin impact that you're expecting from that increased competition?

So I -- Jon, I'm glad you're clarifying that. That is not a quarterly comment. We -- I'm just saying it a little bit differently than we've said it in the past. I've commented on that in the last couple of calls. The Houston market -- I've said it differently. We've had tightness in the Houston market in the concrete business. There has been no change. It has been kind of a tight market and by that I mean, it's very competitive. So again, we've -- we continue to win work. We continue to do good quality work for our customers and our intention is to keep doing that. We do think we will, as we have done, maintain market share, but it has put some pressure on margins in Houston. They're down maybe 1 point or 2 in Houston on the concrete side. We're hopeful that, that adjusts out. We think going forward there's a lot of good demand drivers. And as I said, just in a general statement and I've said this before, we believe that bid pricing should be stronger than it is and we think there's a lot of good catalysts across both segments that -- as we see it, we think that the conditions exist for better bid pricing and we hope the markets recognize that as well, but no change from what we've said before implied in my comment.

And the next question will come from the line of Ben Klieve with NOBLE Capital Markets.

A few questions here. First, question regarding the hurricane impact in the fourth quarter. Curious at what point in the quarter did you return kind of to business as usual following the hurricane? And did you enter the quarter at a full utilization rate on day 1? Or was there a lingering impact and you didn't get back to kind of normalized operations until midway through the quarter?

Well, a couple of things. One is the events -- the storm events were largely completed as we wound up September. So we were getting back to normal in September towards the end of the third quarter. And so we were basically getting back up and started executing on the work that we had in hand. And we're just back to work and working on that stuff. So a lot of what we did during the quarter going back to the first question was stuff that we already had in hand and it was just getting back to work. We did have some incremental work that came about during the quarter, particularly related to emergency dredging projects that did help with equipment utilization, but the bulk of our equipment utilization was centered around work that we had in hand that -- again, after the delays going on in the third quarter around the storm events plus, as you may recall, the delay in particular on one project around the customer permitting issues was resolved in the third quarter, so that we could begin executing on that project in the fourth quarter. So that occurred as well. So that's kind of what went on in terms of our execution of work.

Okay, perfect. And I'm trying to understand the gross margin improvement from '16 to 17 during the quarter. On this call last year, onetime tax charge, as you said, were almost wholly responsible for the 270 basis point decline from Q4 '16 -- from '15 to '16. Can I assume that basically, once you add that back that the remaining 600 basis point improvement on the gross margin line from last year to this year was attributable to the marine segment? Or was there any other significant puts and takes on the gross margin line?

I mean, keep in mind, last year in 2016 we did have some additional costs associated with job that there was a claim outstanding on that did impact the fourth quarter. But if you look from a year-over-year -- and that was related to the marine segment, not concrete segment. Beyond that, then it just gets into the timing and mix of work. And clearly, we had some good execution last year, but we have really solid execution this year, comparatively speaking.

Okay. And a couple of other questions. I guess, what I'm curious about, where you stand kind of in the time line regarding the rightsizing of your asset base. Specifically, I'm kind of curious what you expect -- what cash impact do you expect from the sale of assets in 2018 relative to 2017? I'm trying to figure out what CapEx is going to look like on a net basis when you factor in the sale of assets group for this year?

So if you look this year, we have proceeds from the disposition of property equipment of about $6.8 million, prior year was about $2.9 million, if I'm not mistaken. From that perspective, I think in 2017 we were able to move through -- a lot of the pieces we wanted to move through, so there will be some -- a little bit of additional that happens in 2018. But I would expect it to be probably closer in the realm of the 2016 number versus the $6.8 million we did this year.

Okay. That's very helpful. Okay, and one question relative to the impact of the tax law in your clients, particularly in the industrial and concrete segment. Do you get the sense that the impact of the tax law will lead to increased activity in 2018? Or do you think the positive development from that law will be more of a 2019 event on your customers?

Well, that kind of -- that's the $64,000 question, right? I mean, I think that in general, as just kind of an overall comment, if we see the tax law lead to higher GDP growth and I'm -- that should generally be a good catalyst across the board. Specific to the relative industries, I think that it gets a little more complicated when we talk about our -- the impact to our segment. I think there's no doubt on the marine side and the industrial side, a lot of activity is related around what's going on in the energy business in terms of production stories, export, things of that nature. And again, if you look at it from a macro level, if the tax act drives greater economic activity in this country coupled with global activity, it lifts demand for energy, that's going to be a positive impact for those businesses. If we look at just, again, general activity -- general increase in economic activity that drives economic activity that leads to further population expansion in Dallas-Fort Worth and the Central Texas area that are largely and mostly unrelated to what's going on in energy, again, that's going to lead to increased opportunities for us. So from a macro standpoint, we think it's a positive. We'll see what happens there. I think I do tend to think right now, we're kind of -- from an economic standpoint, we're sort of as an economy sorting through what all the impacts are going to be. So I would expect that the second half of the year before we see general -- a good feel for what the general economic impact's going to be and then that carries on into '19. And so net-net, I think that's a positive for us.

And the next question will come from the line of Marco Rodriguez with Stonegate Capital.

I was wondering if you can talk just a little bit more about the marine construction side and the hurricane impacts from a revenue and gross margin standpoint. I just want to make sure -- I'm kind of understanding your answers here to some of the prior questions. So if I understood things correctly, the revenue impact in Q4 from the extra hurricane work, if you will, was relatively minimal? And if I understood the gross margin impact, while it was helpful, it didn't sound like that was the big driver for the upside perhaps you saw in gross margin. It was just more of just regular business that you had in hand. Is that a fair statement or am I missing something?

I think that's a fair statement and there's no doubt it contributed. It was incremental, it helped and we did have some increased utilization of some of our assets directly related to that. But I think most of the activity that we saw was just the uptick of activity around work that we had in hand and executing on that. And just kind of -- that's a good part -- way for me to remind everybody that when we see hurricane events, we do see some near-term impact generally related around dredging, which is what we've seen and I think I talked about this on the last call. It's kind of work like clockwork is. We see sort of the inspection efforts. We'll see some immediate things around dredging where -- to the extent that, that's an impact from a storm, which it was in the Gulf Coast related particularly around Harvey. So that -- we see some activity around dredging. And then longer term, we'll see impacts around repair and restoration work and that could be over the next 12 to 48 months that we might see down the (inaudible). We are currently working down the (inaudible) right now. We are tracking opportunities related around -- long-term opportunities related to repairing and restoration activities. That typically takes a long time to work through and it's an additive catalyst to everything else we might have going on. So it's kind of worked out according to how it typically does. So again, we did have some increased activity in Q4 on the marine side related around that, but the bulk of what we did was just execution of work that was -- that we already had.

Got it. Very helpful. And then in terms of the way we should be thinking -- if I heard you correctly, the utilization levels in the marine construction side going to fiscal '18, it sounds like you should have relatively higher level of utilization rates, if I understood you correctly. Is that correct?

Well, that's certainly what we strive for. I mean, as Chris talked about earlier with the -- on the CapEx question, we are looking to make sure that we've got a good balance of equipment on the marine side between what we have, what we need to address our business. Is there -- getting a good balance between owned equipment and equipment that maybe we rent or lease on a shorter-term basis for flexibility purposes. So we've been going through that process and part of that has been around, just to your point, to make sure that we have a good balance there, so that we have good utilization. We're going to continue on with that. But again, we'll -- we're striving to be more nimble, as I talked about in my remarks, to address that point. And we'll continue to focus on that as we go into 2018 and our goal is to drive -- to get that equipment utilization in a nice balance.

And also one thing, keep in mind, of course, the cyclicality of the business, Q1 is our weakest period. Typically, Q3 is our strongest -- particularly the back end of the year. So keep that in mind as that can affect utilization as well.

Got it. And in terms of the marine side, the right size of that business -- has pretty much all the heavy lifting been done and now it's just some tweaks here and there going forward? How should we kind of think through that?

Yes, I think -- well, we've made a lot -- let me say it this way, we've made a lot of progress last year in that regard. We're still looking at that this year, but we think we've got a lot of good talent on the -- throughout the company, but we have good talent on the marine side that is focused on going after work, executing work well and making sure that we have a good balance of equipment there. So again, we're going to continue to focus on that. I think a lot of efforts that we went through last year has gotten us where we want to be largely, but we're going to continue to focus on that going forward. And so I think there's some left on our equipment side. But as Chris said earlier, I think we do expect that to come down significantly this year. But again, we are just -- we are focused on getting that balance right. And again, dealing with, as Chris said, we still have the cyclicality of the business particularly on the marine side. And so that -- nothing's changed there, but I think -- again, we did make good progress last year with our efforts.

Got you. And last quick question here. On the concrete side, just kind of circling back around to the comments in Houston. Obviously, you've made mention in past calls about tightness down there and increased levels of competition. If you can maybe talk a little bit about some of the dynamics that are down -- going on down there that are kind of increasing that level of competition versus maybe a year or so ago? And then how that sort of relates to the competitive levels in the off scenario and in Dallas as well?

Well, again, I don't think -- I think I'm speaking about it a little bit differently on this call than in past calls, but I don't think the net effect is any different here. I've said for some time going back in the last year that we've seen and expected tightness in the Houston market, I'm saying that in just a different way, but mean the same thing. It's a competitive environment in the Houston market. We've had kind of some shift going on, on the types of work that are ongoing. I think we've -- we -- obviously, in the Houston area, we had some disruptions last year with -- just in the general market with the big impact in the Q3 from the hurricane. So I think that's just there remains -- it remains a competitive market. And we -- that being said, we are excellent at what we do. We've got a lot of great people. We've got a great reputation. We do great work for our customers, so we do expect to maintain market share. In the Dallas-Fort Worth market, again, we're starting as a -- with a less market share perspective up there in the Dallas market. Again, did not have the impacts from the hurricane last year. They are driven by different economic drivers in that market that we believe is going to continue to be a growth area in terms of population and businesses and corporate reloads and things like that, that are going to drive business opportunities up there. And so we're starting from a great solid base, but we've got room to take market share up there, just given our relative size in that market to our size in the Houston market. And of course, in the Central Texas market, we're just getting started in that market. We're very pleased with the efforts to -- of our concrete team to integrate those operations into our systems and we want to be very careful that we don't get ahead of ourselves in terms of our -- going after work and making sure that we do it smartly and efficiently and profitably. And so our team is focused on that right now, but again, those markets are driven by factors that we believe are going to provide long-term population growth and business growth in those areas. And so again, we're starting out from really -- a very small market share relative to the overall size of that market. So we've got a lot of room to grow in that market in terms of taking market share. So that kind of gives you a little bit of flavor about the different markets on our concrete side.

And the next question will come from the line of Bobby Burleson with Canaccord.

It's Jon DeCourcey on for Bobby. A couple of quick questions for you. I mean, lots have been already answered and I appreciate the additional color. But just following up on emergency dredging work that contributed to the fourth quarter, can you just touch on kind of what's left in that area in the Houston market? Is there still emergency dredging work kicking into the first quarter, the first half of this year that kind of falls in that immediate restoration kind of time frame that we talked about?

Sure. Yes, there's still some ongoing stuff. I mean, I'm going to call it -- I don't know if -- they might call it emergency work, but it's directly related to it at this point. There definitely is modifications going on to existing work that we have, which is the way that the Corps of Engineers uses to address some of the needs on a quick basis. So that is ongoing, but that is -- that's the reason why I say it's not necessarily emergency as we're in the process of working with the corp to modify some of the existing contracts we had. So that's an ongoing process and that takes time to get that done. So I think we will continue to see some effects of the hurricanes in that regard, providing opportunities for us with the dredging work, but it's not necessarily going to be additive to Q1, but it will be work that we'll execute on as we go throughout the first half and maybe a little bit further in the first half of the year.

Okay. So that shouldn't be so immediate that it would really change seasonality or anything like that?

Correct.

Okay. And then my other question was just in terms of the industrial work, just qualitatively, kind of give some color on progress that you've made kind of in terms of customer wins or bidding or anything of that nature that just kind of show progress of where that new (inaudible) is kind of going?

Sure. Well, we spent a lot of time last year laying the groundwork in the industrial space from a greenfield perspective. We were fortunate to win some work at the end of last year. We are now starting on some work in that regard as we get into the first quarter. We'll begin -- and at the beginning of the second quarter, we'll actually be executing some work related around the industrial sector. So very pleased with that. Again, we are approaching this at this point from a greenfield perspective. We've set, we believe, realistic expectations for what we expect to do there. We're very pleased with the work that we have going on in that regard that -- to achieve our objectives for this year and we continue to pursue work again. This is leveraging existing customers and existing skill sets within our concrete and marine segments and so we continue with those efforts and we're continuing to cultivate those opportunities with our business development people. So we're pleased with where we are relative to the goals that we've set for ourselves internally and are going to continue on with that. And again, this is a space that I've talked about before. It could be an area that makes sense for M&A as we go forward. We'll see what happens there. There's nothing to report on that front at this point, but that's certainly something that may make sense as we get further down the road.

And the next question will come from the line of Min Cho with B. Riley FBR.

So most of my questions have been answered. I have 2 more here. In terms of the marine segment, the project that had the permitting delays that started in the fourth quarter, what's the duration of that project through 2018?

It will continue into the first half of 2018.

Through the first half, okay. And then on the commercial concrete side, this kind of goes to, I think, one of the first questions that you had. Has the weather on the first quarter in Texas been a lot worse than normal, so that we actually see a slower start to the year than with normal seasonality?

It has. There has been a lot of fronts and unfortunately, there has been a lot of time periods particularly here in the Houston market where you got 2 or 3 days of rain, a couple of days of dry and 2 or 3 days of rain. So unfortunately, it's not allowing enough time to get good productivity out of it. So that is -- that has impacted that a little bit. I think though even in the Houston market on the optimistic side of where that market is headed to, we will see that work kind of continue, but we are starting to see a little bit more optimism from architects that are getting busier in Houston and optimism from our customers about increased activity in Q3, Q4.

Okay. And then finally, when you're talking about modifications to existing Army Corps work, does that usually lead to additional work on top of the contract that you're doing? Or is this a pushout of your current work so that you do some of the -- kind of more emergency type of work first, like is it incremental?

It's usually. So what -- typically what it is, is just a way for them to get work out quicker. So it may be completely unrelated to a project that you have. They may -- you may be working on point A and they move you over to point E to do some work, but they (inaudible) your contract on point A. So it's a way for them to get work out quicker than they otherwise would. And again, (inaudible) in the fourth quarter, again, which we talked about several times in terms of that impact on the quarter, but we'll see that going forward. We're working with them right now on some things that would add work. So it's -- I would say generally, it's incremental from the standpoint of its work that will be done sooner than if it was going through the normal letting process. So it just allows them to speed that up and address some of the needs that are out there as a result of the hurricane event.

And I'm showing no further questions. I would now like to turn the conference back over to Mr. Shane Martin for closing remarks.

Thanks for joining us on the call today. We look forward to seeing you guys all on the next call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude your program. You may all disconnect. Everyone, have a great day.