Good morning and welcome to the Fourth Quarter 2018 Orion Group Holdings Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Mr. Preston Graham. Please go ahead.

Thank you. Good morning, everyone and welcome to Orion Group Holdings' fourth quarter and full-year 2018 earnings conference call and webcast. Joining me today are Mark Stauffer, Orion Group Holdings' President and Chief Executive Officer; Robert Tabb, our Vice President and Interim Chief Financial Officer. Regarding the format of the call, we've allocated about 15 minutes for prepared remarks, in which Mark and Robert 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, projects 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 uncertainties, 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 the rules of the Securities and Exchange Commission, including Regulation G. Please refer to the reconciliations and definitions inclusive to 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, Preston, and good morning, everyone. Thank you for joining our call. Today we will discuss our 2018 fourth quarter results and provide you with our current outlook for full-year 2019. I will begin with an overview of the fourth quarter, then Robert will discuss our financial performance and capitalization in more detail. Then, I'll return to discuss what we are seeing in our market sectors and share our thoughts around our expectations for our business. As always, I'd like to start by thanking our number -- nearly 2,500 co-workers for all their continued hard work, dedication and commitment to our company. It's through our combined efforts we strive every day to safely meet our customer's needs, while focusing towards our strategic objective. As we announced in our earnings press release this morning, our fourth quarter reported results were impacted by shifts in the timing of commencement of several Marine projects as well as weather-related delays for our concrete operations as a result of heavy rains and disruptive weather patterns throughout Texas during the quarter. These were issues that began in the third quarter of 2018 and unfortunately they persisted through the final month of the year, which we indicated were risk when we reported Q3 results in November. Additionally, our fourth quarter results included non-cash charges for the impairment of goodwill, reserves on accounts receivable as well as write-downs on gross profits in our Marine segment resulting from cost overruns on certain projects created by customer schedules, customer delays and other customer impacts to production. We are seeking recovery through change orders for these cost overruns. However, we cannot assure recovery at this time. Despite the challenges we encountered in the fourth quarter, we remain focused on executing our strategy of being a premier specialty construction company focused on providing solutions for our customers across the infrastructure, industrial and building sectors, while maintaining a healthy financial position and maximizing stakeholder value. We also remain focused on the operational transformation underway throughout our company, which we believe will become increasingly evident as 2019 progresses. We began 2019 with the backlog at all-time high and we have continued to add backlog since the end of the year. We expect significant improvements in our results for the full-year 2019 relative to the prior year with results returning to at least levels posted in 2017. Now I will turn the call over to Robert to discuss the financial results for Q4 '18.

Thank you, Mark, and thanks, everyone for joining us. Revenues for the fourth quarter 2018 were $99.2 million compared to $162.2 million in the fourth quarter 2017. Revenues were impacted by continued negative weather patterns in Texas as well as changes in estimates on certain Marine projects. The project adjustments are reflected in gross profits as well. Fourth quarter 2018 reported gross profits were negative $20.9 million. This included $22.8 million of adjustments where we had to recognize project costs without being able to recognize the associated revenues from future potential change orders or claims as dictated by a percentage of completion accounting rules. Gross profits for the fourth quarter 2017 were $27.8 million. SG&A for the fourth quarter 2018 was $15.2 million or 15.3% of revenues, which compares to fourth quarter 2017 SG&A expense of $17 million or 10.5% of revenues. The increase in SG&A as a percentage of sales reflects the reduced revenues in the quarter resulting in part from the aforementioned project adjustments. SG&A dollars were down year-over-year as a result of cost saving initiatives. Over the course of 2019, we expect to gain leverage over our SG&A expense as a percentage of revenue. For the fourth quarter 2018, we reported a net loss of $94.4 million or $3.32 loss -- diluted loss per share. These results compare to a net income of $9.5 million or $0.34 diluted earnings per share for the same period a year-ago. In our earnings release, we also provided adjusted results, which adjust for the following: project adjustments for Marine business of $22.8 million pre-tax, $17.8 million after tax. Goodwill impairment of $69.5 million pre-tax, $54.3 million after tax which was split roughly even between both segments. And accounts receivable reserves associated with our Marine business of $4.3 million pre-tax, $3.3 million after tax. On an adjusted basis, fourth quarter 2018 net loss was $8 million and a loss per share of $0.28 as compared to adjusted net income of an EPS in the prior year of $5.2 million and $0.19, respectively. Our adjusted net income for 2017 backs out the net favorable impacts of last year's tax legislation. Fourth quarter 2018 adjusted EBITDA was $2.5 million, representing adjusted EBITDA margin of 2.5% compared to adjusted EBITDA of $17.9 million or a margin of 11.1% in the fourth quarter last year. Looking at our results with respect to our two segments. In the fourth quarter of 2018, our Marine segment had revenues of $36.9 million and adjusted EBITDA of $5.6 million with an adjusted EBITDA margin of 15.3%. This compares to revenues of $88.2 million and adjusted EBITDA of $15.4 million with a margin of 17.4% for our Marine segment in the fourth quarter of 2017. Our Concrete segment had fourth quarter 2018 revenues of $62.3 million as compared to $74 million in the fourth quarter of 2017. Adjusted EBITDA for the Concrete segment was negative $3.2 million, representing a negative 5.1% margin in the fourth quarter of 2018 as compared to $2.5 million and 3.5% in the fourth quarter of 2017. In terms of breakup by customer type, the Marine segment's fourth quarter 2018 revenues were comprised of 69% from federal state and local government agencies, while 31% was generated from the private sector. This compares to 40% and 60% from government and private sector customers respectively in the fourth quarter of 2017. The Concrete segment's fourth quarter 2018 revenues were comprised of 80% from private sector versus 90% in the fourth quarter of 2017. For the fourth quarter 2018, we’ve been on $839 million worth of opportunities and were successful on $113 million. This resulted in a book-to-bill ratio of 1.14x and a win rate of 13.5% for the quarter. For the full-year 2018 we bid on $3.1 billion in projects and won $600 million which equates to a win rate of 19.2% and a book-to-bill ratio of 1.15x. As of December 31, 2018, we had a backlog of work under contract of $441 million, of which approximately $257 million was associated with our Marine segment and $194 million with the Concrete segment. Additionally, we are the apparent low bidder or have been awarded subsequent to the end of the fourth quarter $157 million worth of opportunities. Of this, $77 million is related to the Marine segment and $80 million is related to the Concrete segment. In total, currently we have over $598 million of projects between backlog and low bid, which positions us well for growth in 2019. Now turning to the balance sheet. As of December 31, 2018, we had nearly $9 million of cash on hand and access to $42 million under our revolving line of credit. We ended the quarter with approximately $79 million in total debt outstanding, of which $22 million was related to the revolver and $57 million was related to the term loan. As mentioned in our press release, we recently amended our credit agreement effective for the quarter ending December 31, 2018. The amendment provides for the calculation of adjusted EBITDA that adds back various project-specific costs and increases the leverage requirement to 4.75x to trailing 12 months adjusted EBITDA for the first and second quarters of 2019 before reverting back to 3x in the third quarter of 2019. Additionally, the amendment caps the draws the company may make on its revolver to $65 million until the leverage ratio is below 3x for two consecutive quarters at which time draw up to the full $100 million revolver are allowed. We are pleased with the support our lenders have shown us with this amendment and it will provide the flexibility we need during the next two quarters as we execute our transformation strategy. Additionally, our bonding program remains solid and is more than adequate to support our bidding activities. Now, I will turn the call back over Mark to wrap up.

Thanks, Robert. Turning to review of our market sectors. In the infrastructure sector, which we service through our Marine segment, we continue to have extensive opportunities with both public and private customers to deploy our capabilities in the maintenance and expansion of Marine facilities on U.S waterways. Throughout our operating areas, fundamentals remain positive. We are currently working on projects and continue to see bid opportunities from downstream energy customers as they expand their water site facilities associated with refining, storage and exporting. Other important growth areas for our Marine segment are the recreational and port authority markets. These markets enhance our overall project diversity as they provide access to both private and public customers and give us exposure to multiple macro trend. Recreational driven bid opportunities from cruise lines remain promising as we track projects related to new destinations as well as refurbishment of existing infrastructure both domestically and in the Caribbean. Finally, we continue to see demand from port authorities, which are generating opportunities as they execute their expansion plans to handle larger vessels and increased traffic flow. An example of this is the $97 million contract we announced in September 2018 for an expansion project at Port Everglades in Florida, which is currently our largest project. This project has been progressing well and we expect to see a meaningful contributor to our profitable growth in 2019. The industrial sector represents a broad range of opportunities for our company. By leveraging our skill sets and customer base, we are expanding our addressable market to provide high quality services to meet more of our customer's need. We are continuing our Greenfield expansion by combining talent and resources from the Marine and Concrete segments to continue to pursue and execute foundation and in other work inside the industrial environment and other land-based environment. We expect a massive long-term petrochemical driven opportunities along the Gulf Coast to provide significant potential to expand our addressable project opportunities and have been actively bidding work in this sector in order to build profitable backlog. Within the building sector where our concrete business operates, we continue to have solid long-term demand drivers. The markets we currently serve in Texas continued to be leading centers for population growth and business expansion. Population growth throughout our markets continues to drive demand for new distribution centers, office expansion, retail and grocery facilities, multifamily housing units, educational facilities and medical facilities. Looking across all our business sectors, we’re very excited about the volume of opportunities we have ahead of us at this point in 2019. Our backlog and low bid levels set a record high for our company and we are optimistic about our prospects for adding new awards given the healthy bid opportunities we are seeing. Currently we have over $1.3 billion worth of opportunities outstanding -- bids outstanding, of which $446 million is related to our Marine segment and $823 million is related to the Concrete segment. Overall we're tracking over $9 billion of current and future bid opportunities. While this wealth of project opportunities sets us up for future revenue growth, what is more important is our ability to deliver that growth profitably. In order to enhance our ability to do so on a consistent basis, this past January, we commenced a full-scale operational review and evaluation of Orion's business processes and tools for the purposes of ensuring multi-year profitable growth. We created a special committee of the Board of Directors and engaged services of Alvarez & Marsal Corporate Performance Improvement, LLC, which is a leading global professional services firm to assist in this process, under what we refer to as our invest, scale and grow initiative or ISG. As we noted in our January announcement and in our earnings release this morning, we will provide an update at the conclusion of our review evaluation process, which we estimate to occur during the second quarter. However, I can report this morning that we are identifying key areas of improvement, which we believe will significantly improve our efficiency, performance and predictability. We're developing multiple initiatives and establishing a high level of accountability to our target. Today we also announced the appointment of Austin Shanfelter as Orion's Interim Chief Operating Officer. As many of you know, Austin has served on our Board since 2007. Prior to joining our Board, between 2001 and 2007, Austin was President and CEO of MasTec, a leading publicly traded infrastructure construction company. Overall, Austin's career as a specialty contractor spans over 40 years and it is this wealth of experience that we will draw from as we implement our ISG initiatives and drive towards meeting or exceeding our expectation. Undertaking our business process review and evaluation, our engagement of Alvarez & Marsal, and the appointment of Austin as our Interim COO underscores our commitment to our process improvement plan and our drive with these initiatives for better and more consistent performance. Ultimately our goal for ISG is to put Orion in position to achieve our strategic objective of $100 million in EBITDA and deliver significantly improved value to our shareholders as we progress towards this goal. With that, I will turn the call over to the operator to begin the Q&A portion of the call.

Thank you. [Operator Instructions] Our first question comes from the line of Alex Rygiel with B. Riley FBR. Your line is now open.

Great. Good morning. This is Min Cho for Alex. Just a couple of questions for you. First of all, obviously, we are mostly through the first quarter here and I know you’re not going to provide any specific guidance, but in terms of just weather, I know that weather was still wet in kind of January, February. If you can just provide any update on kind of potential weather impact in the first quarter? Have some of this marine projects that were delayed started, or any update would be helpful.

. Yes. So as we’ve gotten into Q1, we have seen some improvement in the weather pattern. We’ve had pretty wet Q1, but we have seen some improvements relative to what we saw for the last five, six months of 2018. With respect to the Marine division, our large projects -- large project in Florida, the Port Everglades project has kicked off, that's underway. Some of the other work that we were expecting to get started in Q4 has begun in the Marine segment as well. So we are pleased with the work that we've been able to get on and get started on in Q1 relative to what we expected that to start in Q4.

Okay. That’s helpful. And then in terms of your backlog, obviously very nice backlog growth here. If you could talk a little bit about the kind of duration of the backlog if that’s been stretching out with some of your projects and just comfort with the timing overall? I mean, that’s obviously been a big issue and somewhat out of your control, but if you can just talk about just where you’re with your backlog?

Sure. Well, most -- again, a lot of our work is still relatively in that kind of 3 to 9 months type timeframe, particularly on the -- in the Concrete segment. Some of our larger work, Port Everglades project as an example, extends out. So we do have a number of anchor projects that extend out 12, 18, 24 months. One of the issues as you kind of mentioned, Min, that we’ve been addressing and has contributed to some of the volatility is in our Marine segment. Our customer's ability to get timely permit. That’s kind of continue to be somewhat of an issue and part of the reason that has driven some of the volatility or uncertainty of start dates on some of our projects in that segment, that kind of continues to be an issue. We are working very hard with our customers to try and do all we can to help them work through that process and navigated, but that kind of continues to be that bureaucratic process that slowed that effort down or brought some uncertainty into that over the last few years. We are hoping that improves, but we’re glad we’ve been able to get a lot of the work that we were planning to start late last year, underlay as we’ve gotten into Q1, so.

Okay. And then obviously you laid out the longer term EBITDA goal of $100 million and that’s kind of at the high-end of the range of where you had your -- the potential financial that you had provided before for your existing business. I was just wondering if that $100 million is still kind of on the base of like $900 million to a $1 billion in revenue?

Yes.

It is? And do you expect the operational review that you’re going through right now in just some of the implementations, do you expect that to help you achieve those targets faster or do you expect margins to be a little bit higher than what you had anticipated?

Well, I think we do expect to be able to achieve that goal faster. I think that in terms -- I mean the market is going to be the market in terms of bid margins and things of that nature. But the part that we can control is our efficiency in executing that work. And I definitely think it's going to be helping us with regard to that. And as I said in the remarks and in the release this morning, we will have more to say about that later on in Q2. We will begin to be in a position where we can talk a little more specifically, and then provide updates on that. But definitely I think it's going to improve execution efficiency as we move forward.

All right. Thank you. That’s it for me.

Thanks, Min.

Thank you. Our next question comes from the line of Jon Tanwanteng with CJS Securities. Your line is now open.

Good morning, guys. Thank you for taking my questions. The first one is going to be regarding the project that you had change -- the change in estimates and cost overruns on, what exactly happened there? Did your customer sign off on the additional work? And also, is there an ongoing impact to the P&Ls for Q1 and when do you expect recoveries there?

There -- first things first is that the customer has not signed off on -- there's not additional work, there is acceleration of our cost in order to recover schedules from impacts that we incurred as a result of actions or inactions from our customer on the large project that that impacted the predominant amount of the money that Robert was talking about. Essentially it kind of put us in a point as we accelerated cost particularly in the back half of 2018, excuse me. We reached a point where we were kind of forced by the -- kind of the process to account for or for expense -- expected future cost, but we were not in a position to record anything relative to recovery at this point. We do think that we have the ability to recover on the project through change orders, but of course as we said in our remarks we can't say that with any assurance at this point, but we are pursuing that. But, again, it's a matter of the impacts that we incurred forcing us to incur additional cost to get us on schedule to complete the project. We still need to complete the project even though we’ve been impacted. Again, that’s why we had to record the expected future expenditures there. We still have a significant amount on this contract to bill as we go forward. But we just -- we’re at a point where we’ve got to recognize those future expected cost, but we’re not at a point for the rules where we can record anything for any expected future recoveries.

Okay. So to be clear, your customer caused a delay, which is now causing you to accelerate the cost forward and to be able to finish the project. Is that what I’m hearing correctly?

That’s correct.

Okay.

And this one -- and just to be further clear, this is a multiyear project. It's a little bit different from an impact that we would normally see. It’s seasonality impacts to the work. And as we progress through the work, what we've seen is kind of a compounding of the impacts that we've seen from the customer. And so that led us to the increased cost and essentially we’ve spent more than in terms of cost than where we are in terms of production at this point. Again, it's sort of a compounding of the issues and problems there created by the customer. And where we are right now is again we're continuing to work on that project as the season begins, we will be up there to continue progress on that project. At the same time we're working diligently on change order at REAs for recovery. But we believe at this point that we have recorded the expected future expenditures on that project so that any P&L impact going forward is really kind of opportunity cost versus additional costs associated with the project at this time. And of course in the future if we give recovery on that, and that would be a benefit in the future period.

Okay, got it. So any recoveries would be pure gross profit?

Yes.

Okay, got it. Okay, great. That’s helpful. And then just given where the backlogs are, the focus on improved performance with this review that you have going on, can you detail how you expect margins to progress in the segment this year and would that be inclusive of any recoveries that may or may not be occurring?

Well, I think in terms of -- as we kind of said in our remarks, we would expect performance to be obviously better than it was in 2018, but we’re also kind of saying that relative to adjusted EBITDA numbers. So I think, absent unusual weather patterns like we saw last year, we would expect to see more of a normal progression as we go through 2019 relative to how our year normally progresses out. As we always have stated, Q1 is kind of our -- always kind of our seasonally weakest quarter. Having said that, we do expect improvement over Q4 as we said earlier, and at this point we had not factored in any recovery into our thought process in the remarks we made this morning about 2019 EBITDA relative to 2018 that does not include any recovery under the projects.

Okay, great. That’s helpful. And then with regards to the ongoing review with the outside consultants, what have they uncovered so far? You mentioned you want to be more predictable, less impacted by these external factors? Are there any specific actions you’re taking in order to increase the predictability and stability of your business as well as the profitability?

There are -- again, at this point, we're not getting into too many details. We will provide further updates and some additional color around this in Q2. I think it's fair to say further remarks that we had this morning, we are identifying several key areas. We are developing several key initiatives that we think will have significant impact on the execution of our work and the efficiency in how we do that, and we think that will flow through and provide additional benefit to us. And again, we will have -- we will provide more color on that as we get into the second quarter.

Okay, great. And then just one housekeeping question. Given the impairments, how does that change the total D&A run rate for the year?

It does not impacted at all. As you know, goodwill is not amortized now. One thing that we will -- want to factor in D&A is accounting standard A42 where we’re going to be putting leases on the balance sheet, so there's going to be a little bit more D&A related to those items. But the goodwill piece shouldn’t impact D&A going forward.

Okay, great. Thank you.

You bet.

Thank you. [Operator Instructions] Our next question comes from the line of Marco Rodriguez with Stonegate Capital. Your line is now open.

Good morning. Thank you for taking my questions. Really quick follow-up on that last question on D&A, I did notice that kind of a very large sequential increase in D&A for the quarter, about 50%. Is that just a function of the leases coming on that are inside of the D&A or is there something else inside it?

Yes, it's a function of leases. We took several capital leases to the balance sheet and we had to catch-up in D&A for the period. So going forward, you will see a heightened D&A number for those capital leases as they -- as we put more leases on the balance sheet. Going forward, it will stabilize out. It won't spike up, but we did in the quarter increase leases on the balance sheet.

Got you. So that $10.7 million rate you had in Q4, that’s a relatively good run rate to model from?

Yes, it is.

Got you. Then coming back to prior questions in terms of your Q1 results here that obviously -- not looking for anything specific here, but you talked about the weather impacts, just wondering if you can talk a little bit about the ITC fire that came down -- that was down there in Houston? If there is any sort of impact from that related to your operations?

Initially there was not. We did not have any work around that area. We had work sort of up the ship channel from that site, the Houston ship channel from that site. However, since the fire has been put out as you may have seen in the news, there is a lot of aftereffects from that fire in the ship channel. There's a lot of sheen, if you will, floating around and the ship channel is closed in a section of just North or just West of that location and then East on the ship channel of that location. And that closure does impact where our local yard facilities are, so we've got some impacts from that that we will be addressing that appropriately. We -- at this point, it's too soon to tell or sort of order of magnitude. We do have one mechanical dredging job that we are attempting to mow to that -- this week that has been impacted with the closure of the ship channel and then the need to kind of clean that sheen or that that impacts off of our Marine equipment. So we will know more about that in the days ahead that we obviously will be looking to address any impacts that we have there.

Got you. And then maybe if you could talk a little bit about your guys' expectations for cash flow? How that sort of progresses and trend through the year, and then CapEx related trends as well.

Well, I think CapEx will be at its normal run rate of what we’ve done in the past. Cash flow expectations are as Mark stated earlier, we expect Q1 to be the seasonally weak -- the weakest quarter and then building into Q3 and peaking in Q3 and coming back now a little bit in Q4. I think quarter-over-quarter that will be flat from Q4, maybe slightly higher, just depending on the collections in this last week. But we think the progression is the normal progression, the normal seasonality that we've experienced before.

And then just kind of follow-up on that, just to reiterate what Robert said in his remarks, a lot of the stuff with this goodwill impairments stuff that we took in the quarter, of course noncash charges, we still think we have solid fundamentals in our business. We’ve got the highest backlog and low bid as we talked about. From a cash position, we feel very comfortable where we are with both cash and cash generation, from operations and as well as the access to the revolver. So we think in terms of executing ahead in 2019, we are comfortable with where we’re with cash and working capital and executing our strategy and as we go forward.

Got it. Thanks a lot guys. I appreciate your time.

You bet.

Thanks, Marco.

Thank you. This does conclude today’s question-and-answer session. I would now like to turn the call back to Mr. Preston Graham for any further remarks.

Thank you everyone for joining us today on the call this morning. We look forward to updating you again next quarter. Have a great day.

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