Corps Slowdown Continues to Hammer Orion
In a November 3 press release, Mike Pearson, Orion Marine Group’s president and chief executive officer, said, “We continue to witness pressure on our margins as we weather the current economic storm. Funding inaction by the federal government has continued through the end of the third quarter.”
Uncertainties regarding the continuing resolution that was ultimately passed by Congress contributed to the Corps’ funding cutbacks. In Orion’s second-quarter report released August 4, Pearson blamed Congress for inaction on the Corps’ budget, resulting in project gaps that “extended longer than we anticipated.
“However, the Corps did let some dredging projects during the third quarter, [for] several of which we were the successful bidder,” said Pearson. “Additionally, we are finding the appropriate price points on projects involving marine construction services, which resulted in a strong bill-to-book ratio for the third quarter.”
He called the delays “unprecedented dysfunction of the U.S. government.”
In the third quarter, contract revenues were $54.6 million, a decrease of 45.4 percent, compared with the third quarter of 2010, when revenues were $100 million. Orion said declines were partly due to “gaps between projects as a result of delays in project lettings by the Army Corps of Engineers, as well as delays in start dates on two major jobs.”
Gross profit was negative $2.4 million, as opposed to $20.9 million for the third quarter of 2010.
Third-quarter EBITDA was a negative $3.4 million, representing a negative EBITDA margin of 6.3 percent, compared to a third-quarter-2010 EBITDA of $16.4 million, or a 16.4 percent EBITDA margin. EBITDA margins were “significantly impacted by underutilization of higher margin assets such as large dredges” because of gaps in projects. Orion reported a backlog of work under contract of $146.1 million compared to $217.3 million for the same period a year earlier.
Although admitting to being “frustrated” with the federal slowdown, Pearson said, “The need for our services has not gone away. In fact, we believe we are seeing an increase in the demand for our services over the long-term...As we continue through this tough environment we will focus on protecting the intrinsic value of the company by controlling costs, while manage through this downturn and preparing for future opportunities. There is pent-up demand for our services and we are ready to meet these needs.”