Orion Group Holdings Inc [ORN] Filings

10-Q 1 orn-20230930x10q.htm 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


☑	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________ to ________

Commission file number: 1-33891

ORION GROUP HOLDINGS, INC.

(Exact name of registrant as specified in its charter)


Delaware State of Incorporation	26-0097459 IRS Employer Identification Number

12000 Aerospace Avenue, Suite 300 Houston, Texas 77034 Address of Principal Executive Office	(713) 852-6500 Registrant’s telephone number (including area code)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common stock, $0.01 par value per share	ORN	The New York Stock Exchange

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days: ☑ Yes ☐ No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files Yes ☑ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, "accelerated filer", "small reporting" company and "emerging growth" company in Rule 12b-2 of the Exchange Act:

32,424,399
Large Accelerated Filer ☐	Accelerated Filer ☑
Non-accelerated filer ☐	Smaller reporting company ☑
	Emerging growth company ☐

If an emerging growth company, initiate by check mark if the registrant has elected not to use the extended transition period for complying with any, new or revised financial accounting standards provided pursuant to Section 13 (a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act) ☐ Yes ☑ No

There were 32,491,110 shares of common stock outstanding as of October 26, 2023.

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ORION GROUP HOLDINGS, INC.

Quarterly Report on Form 10-Q for the period ended September 30, 2023

Index


		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets at September 30, 2023 and December 31, 2022	3
	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2023 and 2022	4
	Condensed Consolidated Statements of Stockholders’ Equity for the Three and Nine Months Ended September 30, 2023 and 2022	5
	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	40
Item 4.	Controls and Procedures	40
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	40
Item 1A.	Risk Factors	40
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds and Issuer Purchases of Equity Securities	41
Item 3.	Defaults upon Senior Securities	41
Item 4.	Mine Safety Disclosures (not applicable)	41
Item 5.	Other Information	41
Item 6.	Exhibits	41
SIGNATURES		43

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Part

PART I.FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Information)


	September 30,		December 31,
	2023		2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	3,881	$	3,784
Accounts receivable:
Trade, net of allowance for credit losses of $496 and $606, respectively		111,624		106,758
Retainage		55,096		50,873
Income taxes receivable		468		402
Other current		3,820		3,526
Inventory		2,885		2,862
Contract assets		44,618		43,903
Prepaid expenses and other		6,073		8,229
Total current assets		228,465		220,337
Property and equipment, net of depreciation		89,585		100,977
Operating lease right-of-use assets, net of amortization		27,374		14,978
Financing lease right-of-use assets, net of amortization		20,601		15,839
Inventory, non-current		5,961		5,469
Intangible assets, net of amortization		6,934		7,317
Deferred income tax asset		54		70
Other non-current		1,248		2,168
Total assets	$	380,222	$	367,155
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current debt, net of debt issuance costs	$	13,852	$	34,956
Accounts payable:
Trade		49,435		87,605
Retainage		1,799		1,198
Accrued liabilities		31,847		18,466
Income taxes payable		525		522
Contract liabilities		47,655		37,720
Current portion of operating lease liabilities		9,089		4,738
Current portion of financing lease liabilities		6,342		4,031
Total current liabilities		160,544		189,236
Long-term debt, net of debt issuance costs		36,452		716
Operating lease liabilities		18,406		11,018
Financing lease liabilities		12,920		11,102
Other long-term liabilities		26,149		17,072
Deferred income tax liability		119		211
Total liabilities		254,590		229,355
Stockholders’ equity:
Preferred stock -- $0.01 par value, 10,000,000 authorized, none issued		—		—
Common stock -- $0.01 par value, 50,000,000 authorized, 33,053,341 and 32,770,550 issued; 32,342,110 and 32,059,319 outstanding at September 30, 2023 and December 31, 2022, respectively		331		328
Treasury stock, 711,231 shares, at cost, as of September 30, 2023 and December 31, 2022, respectively		(6,540)		(6,540)
Additional paid-in capital		189,523		188,184
Retained loss		(57,682)		(44,172)
Total stockholders’ equity		125,632		137,800
Total liabilities and stockholders’ equity	$	380,222	$	367,155

The accompanying notes are an integral part of these condensed consolidated financial statements

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Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Information)

(Unaudited)


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Contract revenues	$	168,476	$	182,621	$	510,184	$	552,127
Costs of contract revenues		149,406		169,189		471,488		511,548
Gross profit		19,070		13,432		38,696		40,579
Selling, general and administrative expenses		17,135		15,380		52,271		48,783
Amortization of intangible assets		59		309		383		929
Gain on disposal of assets, net		(685)		(3,388)		(7,915)		(4,561)
Operating income (loss)		2,561		1,131		(6,043)		(4,572)
Other (expense) income:
Other income		49		48		592		147
Interest income		21		36		90		71
Interest expense		(3,414)		(1,215)		(7,674)		(2,913)
Other expense, net		(3,344)		(1,131)		(6,992)		(2,695)
Loss before income taxes		(783)		—		(13,035)		(7,267)
Income tax (benefit) expense		(123)		(247)		475		396
Net (loss) income	$	(660)	$	247	$	(13,510)	$	(7,663)

Basic (loss) income per share	$	(0.02)	$	0.01	$	(0.42)	$	(0.25)
Diluted( loss) income per share	$	(0.02)	$	0.01	$	(0.42)	$	(0.25)
Shares used to compute (loss) income per share:
Basic		32,384,446		31,613,519		32,285,921		31,180,417
Diluted		32,384,446		31,613,519		32,285,921		31,180,417

The accompanying notes are an integral part of these condensed consolidated financial statements

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Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ Equity

(In Thousands, Except Share and Per Share Information) (Unaudited)

(Unaudited)
	Common			Treasury			Additional
	Stock			Stock			Paid-In		Retained
	Shares	Amount		Shares	Amount		Capital		Loss		Total
Balance, December 31, 2022	32,770,550	$	328	(711,231)	$	(6,540)	$	188,184	$	(44,172)	$	137,800
Stock-based compensation	—		—	—		—		524		—		524
Issuance of restricted stock	187,775		2	—		—		(2)		—		—
Forfeiture of restricted stock	(8,977)		—	—		—		—		—		—
Payments related to tax withholding for stock-based compensation	(62,876)		(1)	—		—		(171)		—		(172)
Net loss	—		—	—		—		—		(12,595)		(12,595)
Balance, March 31, 2023	32,886,472	$	329	(711,231)	$	(6,540)	$	188,535	$	(56,767)	$	125,557
Stock-based compensation	—		—	—		—		945		—		945
Issuance of restricted stock	242,637		2	—		—		(2)		—		—
Forfeiture of restricted stock	—		—	—		—		—		—		—
Payments related to tax withholding for stock-based compensation	(6,341)		—	—		—		(17)		—		(17)
Net loss	—		—	—		—		—		(255)		(255)
Balance, June 30, 2023	33,122,768	$	331	(711,231)	$	(6,540)	$	189,461	$	(57,022)	$	126,230
Stock-based compensation	—		—	—		—		364		—		364
Issuance of restricted stock	12,862		—	—		—		—		—		—
Forfeiture of restricted stock	—		—	—		—		—		—		—
Payments related to tax withholding for share-based compensation	(82,289)		—	—		—		(302)		—		(302)
Net loss	—		—	—		—		—		(660)		(660)
Balance, September 30, 2023	33,053,341	$	331	(711,231)	$	(6,540)	$	189,523	$	(57,682)	$	125,632


	Common			Treasury			Additional
	Stock			Stock			Paid-In		Retained
	Shares	Amount		Shares	Amount		Capital		Loss		Total
Balance, December 31, 2021	31,712,457	$	317	(711,231)	$	(6,540)	$	185,881	$	(31,560)	$	148,098
Stock-based compensation	—		—	—		—		370		—		370
Issuance of restricted stock	8,929		—	—		—		—		—		—
Forfeiture of restricted stock	(39,922)		—	—		—		—		—
Payments related to tax withholding for stock-based compensation	(4,739)		—	—		—		(15)		—		(15)
Net loss	—		—	—		—		—		(4,856)		(4,856)
Balance, March 31, 2022	31,676,725	$	317	(711,231)	$	(6,540)	$	186,236	$	(36,416)	$	143,597
Stock-based compensation	—		—	—		—		794		—		794
Issuance of restricted stock	623,655		6	—		—		(6)		—		—
Forfeiture of restricted stock	(302,561)		(3)	—		—		3		—		—
Payments related to tax withholding for stock-based compensation	(31,004)		—	—		—		(82)		—		(82)
Net loss	—		—	—		—		—		(3,054)		(3,054)
Balance, June 30, 2022	31,966,815	$	320	(711,231)	$	(6,540)	$	186,945	$	(39,470)	$	141,255
Stock-based compensation	—		—	—		—		951		—		951
Issuance of restricted stock	905,915		9	—		—		(9)		—		—
Forfeiture of restricted stock	(3,750)		—	—		—		—		—		—
Payments related to tax withholding for stock-based compensation	(102,864)		(1)	—		—		(286)				(287)
Net income	—		—	—		—		—		247		247
Balance, September 30, 2022	32,766,116	$	328	(711,231)	$	(6,540)	$	187,601	$	(39,223)	$	142,166

The accompanying notes are an integral part of these condensed consolidated financial statements

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Orion Group Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in Thousands)

(Unaudited)


	Nine months ended September 30,
	2023		2022
Cash flows from operating activities:
Net loss	$	(13,510)	$	(7,663)
Adjustments to reconcile net (loss) income to net cash used in operating activities:
Operating activities:
Depreciation and amortization		13,874		16,035
Amortization of ROU operating leases		4,456		3,612
Amortization of ROU finance leases		3,008		2,391
Write-off of debt issuance costs upon debt modification		119		—
Amortization of deferred debt issuance costs		1,067		290
Deferred income taxes		(76)		20
Stock-based compensation		1,833		2,115
Gain on disposal of assets, net		(7,914)		(4,561)
Allowance for credit losses		26		262
Change in operating assets and liabilities:
Accounts receivable		(9,410)		(21,375)
Income tax receivable		(66)		(73)
Inventory		(514)		(893)
Prepaid expenses and other		3,076		6,239
Contract assets		(715)		(7,845)
Accounts payable		(36,223)		27,339
Accrued liabilities		7,096		(2,329)
Operating lease liabilities		(4,566)		(3,556)
Income tax payable		3		(84)
Contract liabilities		9,935		(823)
Net cash (used in) provided by operating activities		(28,501)		9,101
Cash flows from investing activities:
Proceeds from sale of property and equipment		12,069		4,472
Purchase of property and equipment		(6,678)		(10,627)
Net cash provided by (used in) investing activities		5,391		(6,155)
Cash flows from financing activities:
Borrowings on credit		89,491		9,000
Payments made on borrowings on credit		(73,236)		(18,219)
Proceeds from failed sale-leaseback arrangement		14,140		—
Proceeds from sale-leaseback financing		2,359		—
Loan costs from borrowings on credit		(6,532)		(664)
Payments of finance lease liabilities		(2,524)		(2,235)
Payments related to tax withholding for share-based compensation		(491)		(384)
Net cash provided by (used in) financing activities		23,207		(12,502)
Net change in cash, cash equivalents and restricted cash		97		(9,556)
Cash, cash equivalents and restricted cash at beginning of period		3,784		12,293
Cash, cash equivalents and restricted cash at end of period	$	3,881	$	2,737

Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest	$	10,111	$	1,990
Taxes, net of refunds	$	615	$	533

The accompanying notes are an integral part of these condensed consolidated financial statements

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Orion Group Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Tabular Amounts in Thousands, Except Share and per Share Amounts)

(Unaudited)

1.Description of Business and Basis of Presentation

Description of Business

Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the “Company”), provide a broad range of specialty construction services in the infrastructure, industrial, and building sectors, provides services both on and off the water in the continental United States, Alaska, Hawaii, Canada and the Caribbean Basin through its marine segment and its concrete segment. The Company’s marine segment provides construction and dredging services relating to marine transportation facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design and specialty services. Its concrete segment provides turnkey concrete construction services including place and finish, site prep, layout, forming, and rebar placement for large commercial, structural and other associated business areas. The Company is headquartered in Houston, Texas with regional offices throughout its operating areas.

Although we describe the business in this report in terms of the services the Company provides, its base of customers and the areas in which it operates, the Company has determined that its operations currently comprise two reportable segments pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 280, Segment Reporting.

The tools used by the chief operating decision maker (“CODM”) to allocate resources and assess performance are based on two reportable and operating segments: marine, which operates under the Orion brand and logo, and concrete, which operates under the TAS Commercial Concrete brand and logo.

In making this determination, the Company considered the similar economic characteristics of its operations that comprise its marine segment. For the marine segment, the methods used, and the internal processes employed, to deliver marine construction services are similar throughout the segment, including standardized estimating, project controls and project management. This segment has the same customers with similar funding drivers and are subject to similar regulatory regimes driven through Federal agencies such as the U.S. Army Corps of Engineers, U.S. Fish and Wildlife Service, U.S. Environmental Protection Agency and U.S. Occupational Safety and Health Administration (“OSHA”), among others. Additionally, the segment is driven by macro-economic considerations including the level of import/export seaborne transportation, development of energy-related infrastructure, cruise line expansion and operations, marine bridge infrastructure development, waterway pipeline crossings and the maintenance of waterways. These considerations, and others, are key catalysts for future prospects and are similar across the segment.

For the concrete segment, the Company also considered the similar economic characteristics of these operations. The methods used, and the internal processes employed, to deliver concrete construction services are similar throughout the segment, including standardized estimating, project controls and project management. The projects of this segment are subject to similar regulatory regimes such as OSHA. Additionally, this segment is driven by macro-economic considerations, including movements in population, commercial real estate development, institutional funding and expansion, and recreational development,

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specifically in metropolitan areas of Texas. These considerations, and others, are key catalysts for current operations and future prospects and are similar across the segment.

Basis of Presentation

The accompanying condensed consolidated financial statements and financial information included herein have been prepared pursuant to the interim period reporting requirements of Form 10-Q. Consequently, certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP”) have been condensed or omitted. Readers of this report should also read the Company’s consolidated financial statements and the notes thereto included in its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (“2022 Form 10-K”) as well as Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations also included in its 2022 Form 10-K.

In the opinion of management, the accompanying unaudited condensed consolidated financial statements contain all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows for the periods presented. Such adjustments are of a normal recurring nature. Interim results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results realizable for the year ending December 31, 2023.

In connection with preparing consolidated financial statements for each annual and interim reporting period, the Company is required to evaluate whether there are conditions or events, considered in aggregate, that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Substantial doubt exists when conditions and events, considered in aggregate, indicate that it is probable that a company will be unable to meet its obligations as they become due within one year after the date that the consolidated financial statements are issued. This evaluation initially does not take into consideration the potential mitigating effect of management’s plans and actions that have not been fully implemented as of the date that the financial statements are issued. When substantial doubt exists, management evaluates whether the mitigating effect of its plans sufficiently alleviates substantial doubt about the Company’s ability to continue as a going concern. The mitigating effect of management’s plans, however, is only considered if both: (1) it is probable that the plans will be effectively implemented within one year after the date that the financial statements are issued; and (2) it is probable that the plans, when implemented, will mitigate the relevant conditions or events that raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date that the financial statements are issued. Generally, to be considered probable of being effectively implemented, the plans must have been approved before the date that the financial statements are issued.

The assessment of the liquidity and going concern requires the Company to make estimates of future activity and judgments about whether the Company is compliant with financial covenant calculations under its debt and other agreements and has adequate liquidity to operate. Significant assumptions used in the Company's forecasted model of liquidity include forecasted sales, costs, and capital expenditures and expected timing and proceeds of planned real estate transactions. The Company has sustained operating losses for the years ended December 31, 2022 and 2021. Also as described in Note 11, the Company had $40.0 million of outstanding indebtedness under its Credit Facility as of March 31, 2023 which was scheduled to mature on July 31, 2023. As of the date of the filing of the Company’s 2022 Form 10-K on March 16, 2023, the Company’s existing cash and cash equivalents were not sufficient to satisfy the Company’s operating cash needs for at least one year after the issuance of the financial statements. These conditions raised substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements were issued. As

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such, management concluded at the date of the issuance of the financial statements included in the Company’s 2022 Form 10-K that substantial doubt existed as to going concern.

At the beginning of 2023, the Company began a process to refinance the outstanding debt. On May 15, 2023, the Company entered into a new three-year $103.0 million senior secured credit facility (the “Credit Agreement”) with White Oak ABL, LLC and White Oak Commercial Finance, LLC (collectively, “White Oak”) which includes a $65.0 million asset based revolving credit facility (the “Revolver”) and a $38.0 million fixed asset term loan (the “Term Loan”). See Note 11 for more information regarding the debt refinancing.

Based on an assessment of the completion of the debt refinancing process and the other factors above, management believes that the Company will have adequate liquidity for its operations for at least the next 12 months. Therefore, management’s conclusion is that the conditions that previously raised substantial doubt have been resolved and substantial doubt is no longer raised as to the Company’s ability to continue as a going concern.

2.Summary of Significant Accounting Policies

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Management’s estimates, judgments and assumptions are continually evaluated based on available information and experience; however, actual amounts could differ from those estimates.

On an ongoing basis, the Company evaluates the significant accounting policies used to prepare its condensed consolidated financial statements, including, but not limited to, those related to:

●

Revenue recognition from construction contracts;

●

The recording of accounts receivable and allowance for credit losses;

●

The carrying value of property, plant and equipment;

●

Leases;

●

Finite and infinite-lived intangible assets, testing for indicators of impairment;

●

Stock-based compensation;

●

Income taxes; and

●

Self-insurance.

Revenue Recognition

The Company’s revenue is derived from contracts to provide marine construction, dredging, turnkey concrete services, and other specialty services. The Company’s projects are typically brief in duration, but occasionally, span a period of over one year. The Company determines the appropriate accounting treatment for each contract before work begins and, subject to qualifications discussed in the next paragraph, generally records contract revenue over time.

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Performance obligations are promises in a contract to transfer distinct goods or services to the customer and are the unit of account under Topic 606. Each of the Company’s contracts and related change orders typically represent a single performance obligation because the Company provides an integrated service and individual goods and services are not separately identifiable. Revenue is recognized over time because control of the promised goods and services are continuously transferred to the customer over the life of the contract. For contracts with multiple performance obligations, the Company allocates the contract’s transaction price to each performance obligation using its best estimate of the stand-alone selling price of each distinct good or service. Progress is measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract. This method is used because management considers contract costs incurred to be the best available measure of progress on these contracts. Contract costs include all direct costs, such as material and labor, and those indirect costs incurred that are related to contract performance such as payroll taxes and insurance. General and administrative costs are charged to expense as incurred. Upfront costs, such as costs to mobilize personnel and equipment prior to satisfying a performance obligation are capitalized and amortized over the contract performance period.

Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and reported revenue and are recognized in the period in which the revisions are determined. The effect of changes in estimates of contract revenue or contract costs is recognized as an adjustment to recognized revenue on a cumulative catch-up basis to match contract progress with revenue recognition. When the Company anticipates a loss on a contract that is not yet complete, it recognizes the entire loss in the period in which such losses are determined. Revenue is recorded net of any sales taxes collected and paid on behalf of the customer, if applicable.

Contract revenue is derived from the original contract price as modified by agreed-upon change orders and estimates of variable consideration related to incentive fees and change orders or claims for which price has not yet been agreed by the customer. The Company estimates variable consideration based on its assessment of the most likely amount to which it expects to be entitled. Variable consideration is included in the estimated recognition of revenue to the extent it is probable that a significant reversal of cumulative recognized revenue will not occur. A determination that the collection of a claim is probable is based upon the Company’s evaluation of its compliance with the terms of the contract and the extent to which the Company performed in accordance therewith but does not guarantee collection in full.

Assets and liabilities derived from contracts with customers include the following:

●

Accounts Receivable: Trade, net of allowance - Represent amounts billed and currently due from customers and are stated at their estimated net realizable value.

●

Accounts Receivable: Retainage - Represent amounts which have not been billed to or paid by customers due to retainage provisions in construction contracts, which amounts generally become payable upon contract completion and acceptance by the customer.

●

Contract Assets - Represent revenues recognized in excess of amounts billed, which management believes will be billed and collected within one year of the completion of the contract and are recorded as a current asset, until such amounts are either received or written off.

●

Contract Liabilities - Represent billings in excess of revenues recognized and are recorded as a current liability, until the underlying obligation has been performed or discharged.

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Classification of Current Assets and Liabilities

The Company includes in current assets and liabilities amounts realizable and payable in the next twelve months.

Cash and Cash Equivalents and Restricted Cash

The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. At times, cash held by financial institutions may exceed federally insured limits. The Company has not historically sustained losses on its cash balances in excess of federally insured limits. Cash equivalents at September 30, 2023 and December 31, 2022 consisted primarily of overnight bank deposits.

Risk Concentrations

Financial instruments that potentially subject the Company to concentrations of credit risk principally consist of accounts receivable.

A significant portion of the Company’s revenue base depends on its ability to continue to obtain federal, state and local governmental contracts, and indirectly, on the amount of funding available to these agencies for new and current governmental projects. Therefore, a portion of the Company’s operations is dependent upon the level and timing of government funding. Statutory mechanics liens provide the Company high priority in the event of lien foreclosures following financial difficulties of private owners, thus minimizing credit risk with private customers.

Accounts Receivable

Accounts receivable are stated at the historical carrying value, net of allowances for credit losses. The Company had significant investments in billed and unbilled receivables as of September 30, 2023 and December 31, 2022. Billed receivables represent amounts billed upon the completion of small contracts and progress billings on large contracts in accordance with contract terms and milestone achievements. Unbilled receivables on contracts represent recoverable costs and accrued profits that are not yet capable of being billed under the terms of the applicable contracts. Revenue associated with these billings is recorded net of any sales tax, if applicable.

In establishing an allowance for credit losses, the Company evaluates its contract receivables and contract assets and thoroughly reviews historical collection experience, the financial condition of its customers, billing disputes and other factors. The Company writes off potentially uncollectible accounts receivable against the allowance for credit losses if it is determined that the amounts will not be collected or if a settlement with respect to a disputed receivable is reached for an amount that is less than its carrying value. As of September 30, 2023 and December 31, 2022, the Company had recorded an allowance for credit losses of $0.5 million and $0.6 million, respectively.

Balances billed to customers but not paid pursuant to retainage provisions in construction contracts generally become payable upon contract completion and acceptance by the owner. Retainage at September 30, 2023 totaled $55.1 million, of which $4.8 million is expected to be collected beyond September 30, 2024. Retainage at December 31, 2022 totaled $50.9 million.

From time to time, the Company negotiates change orders and claims with its customers. Unsuccessful negotiations of claims could result in a change to contract revenue that is less than amounts previously recorded, which could result in the recording of a loss in the amount of the shortfall. Successful claims negotiations could

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result in the recovery of previously recorded losses. Significant losses on receivables could adversely affect the Company’s financial position, results of operations and overall liquidity.

Advertising Costs

The Company primarily obtains contracts through the open bid process, and therefore advertising costs are not a significant component of expense. Advertising costs are expensed as incurred.

Environmental Costs

Costs related to environmental remediation are charged to expense. Other environmental costs are also charged to expense unless they increase the value of the property and/or provide future economic benefits, in which event the costs are capitalized. Environmental liabilities, if any, are recognized when the liability is considered probable and the amount can be reasonably estimated. The Company did not recognize any environmental liabilities as of September 30, 2023 or December 31, 2022.

Fair Value Measurements

The Company evaluates and presents certain amounts included in the accompanying condensed consolidated financial statements at “fair value” in accordance with U.S. GAAP, which requires the Company to base its estimates on assumptions that market participants, in an orderly transaction, would use to price an asset or liability, and to establish a hierarchy that prioritizes the information used to determine fair value. Refer to Note 8 for more information regarding fair value determination.

The Company generally applies fair value valuation techniques on a non-recurring basis associated with (1) valuing assets and liabilities acquired in connection with business combinations and other transactions; (2) valuing potential impairment loss related to long-lived assets; and (3) valuing potential impairment loss related to goodwill and indefinite-lived intangible assets.

Inventory

Current inventory consists of parts and small equipment held for use in the ordinary course of business and is valued at the lower of cost (using historical average cost) or net realizable value. Where shipping and handling costs are incurred by the Company, these charges are included in inventory and charged to cost of contract revenue upon use. Non-current inventory consists of spare parts (including engines, cutters and gears) that require special order or long-lead times for manufacture or fabrication, but must be kept on hand to reduce downtime and is valued at the lower of cost (using historical average cost) or net realizable value.

Property and Equipment

Property and equipment are recorded at cost. Ordinary maintenance and repairs that do not improve or extend the useful life of the asset are expensed as incurred. Major renewals and betterments of equipment are capitalized and depreciated generally over three to ten years until the next scheduled maintenance.

When property and equipment are retired or otherwise disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in results of operations for the respective period.

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Depreciation is computed using the straight-line method over the estimated useful lives of the related assets for financial statement purposes, as follows:


Automobiles and trucks		3 to 10 years
Buildings and improvements		10 to 30 years
Construction equipment		3 to 10 years
Vessels and other equipment		3 to 40 years
Office equipment		3 to 5 years

The Company generally uses accelerated depreciation methods for tax purposes where beneficial.

Dry-docking costs are capitalized and amortized using the straight-line method over a period ranging from three to seven years. Dry-docking costs include, but are not limited to, the inspection, refurbishment and replacement of steel, engine components, tailshafts, mooring equipment and other parts of the vessel. Amortization related to dry-docking activities is included as a component of depreciation. These costs and the related amortization periods are periodically reviewed to determine if the estimates are accurate. If warranted, a significant upgrade of equipment may result in a revision to the useful life of the asset, in which case the change is accounted for prospectively.

Property and equipment are reviewed for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are separately presented in the balance sheet and reported at the lower of the carrying amount or the fair value, less the costs to sell, and are no longer depreciated. There was $0.8 million of assets classified as held for sale as of both September 30, 2023 and December 31, 2022 included in prepaid expenses and other in the Company’s condensed consolidated balance sheets.

Leases

Management determines if a contract is or contains a lease at inception of the contract or modification of the contract. A contract is or contains a lease if the contract conveys the right to control the use of an identified asset for a period in exchange for consideration. Control over the use of the identified asset means the lessee has both (a) the right to obtain substantially all of the economic benefits from the use of the asset and (b) the right to direct the use of the asset.

Finance and operating lease right-of-use (“ROU”) assets and liabilities are recognized based on the present value of future minimum lease payments over the expected lease term at commencement date. As the implicit rate is not determinable in most of the Company’s leases, management uses the Company’s incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. The expected lease term includes options to extend or terminate the lease when it is reasonably certain the Company will exercise such option. Lease expense for minimum lease payments is recognized on a straight-line basis over the expected lease term.

The Company’s lease arrangements have lease and non-lease components. Leases with an expected term of 12 months or less are not accounted for on the balance sheet and the related lease expense is recognized on a straight-line basis over the expected lease term.

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The Company’s lease agreements do not contain any material residual value guarantees or material restrictive covenants.

See Note 18 for more information regarding leases.

Intangible Assets

Intangible assets that have finite lives are amortized. In addition, the Company evaluates the remaining useful life of intangible assets in each reporting period to determine whether events and circumstances warrant a revision of the remaining period of amortization. If the estimate of an intangible asset’s remaining life is changed, the remaining carrying value of such asset is amortized prospectively over that revised remaining useful life. Intangible assets that have infinite lives are not amortized, but are subject to impairment testing at least annually or more frequently if events or circumstances indicate that the asset may be impaired.

The Company has one infinite-lived intangible asset, a trade name, which it tests for impairment annually on October 31, or whenever events or circumstances indicate that the carrying amount of the trade name may not be recoverable. Impairment is calculated as the excess of the trade name’s carrying value over its fair value. The fair value of the trade name is determined using the relief from royalty method, a variation of the income approach. This method assumes that if a company owns intellectual property, it does not have to “rent” the asset and is, therefore, “relieved” from paying a royalty. Once a supportable royalty rate is determined, the rate is then applied to the projected revenues over the expected remaining life of the intangible assets to estimate the royalty savings. This approach is dependent on a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables.

See Note 9 for additional discussion of intangible assets.

Stock-Based Compensation

The Company recognizes compensation expense for equity awards over the vesting period based on the fair value of these awards at the date of grant. The computed fair value of these awards is recognized as a non-cash cost over the period the employee provides services, which is typically the vesting period of the award. The fair value of restricted stock grants and restricted stock units is equivalent to the fair value of the stock issued on the date of grant and is measured as the closing price of the stock on the date of grant.

Compensation expense is recognized only for stock-based payments expected to vest. The Company estimates forfeitures at the date of grant based on historical experience and future expectations. This assessment is updated on a periodic basis. See Note 15 for further discussion of the Company’s stock-based compensation plan.

Income Taxes

The Company determines its consolidated income tax provision using the asset and liability method prescribed by U.S. GAAP, which requires the recognition of income tax expense for the amount of taxes payable or refundable for the current period and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. The Company must make significant assumptions, judgments and estimates to determine its current provision for income taxes, its deferred tax assets and liabilities, and any valuation allowance to be recorded against any deferred tax asset. The current provision for income tax is based upon the current tax laws and the Company’s interpretation of these laws, as well as the probable outcomes of any tax audits. The value of any net deferred tax asset depends

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upon estimates of the amount and category of future taxable income reduced by the amount of any tax benefits that the Company does not expect to realize. Actual operating results and the underlying amount and category of income in future years could render current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate, thus impacting the Company’s financial position and results of operations. The Company computes deferred income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the liability method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740, Income Taxes which prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on its consolidated tax return. The Company evaluates and records any uncertain tax positions based on the amount that management deems is more likely than not to be sustained upon examination and ultimate settlement with the tax authorities in the tax jurisdictions in which it operates.

See Note 13 for additional discussion of income taxes.

Insurance Coverage

The Company maintains insurance coverage for its business and operations. Insurance related to property, equipment, automobile, general liability, and a portion of workers’ compensation is provided through traditional policies, subject to a deductible or deductibles. A portion of the Company’s workers’ compensation exposure is covered through a mutual association, which is subject to supplemental calls.

The marine segment maintains five levels of excess loss insurance coverage, totaling $200 million in excess of primary coverage. The marine segment’s excess loss coverage responds to most of its policies when a primary limit of $1 million has been exhausted; provided that the primary limit for Contingent Maritime Employer’s Liability is $10 million and the Watercraft Pollution Policy primary limit is $5 million. The concrete segment maintains five levels of excess loss insurance coverage, totaling $200 million in excess of primary coverage. The concrete segment’s excess loss coverage responds to most of its policies when a primary limit of $1 million has been exhausted.

If a claim arises and a potential insurance recovery is probable, the impending gain is recognized separately from the related loss. The recovery will only be recognized up to the amount of the loss once the recovery of the claim is deemed probable and any excess gain will fall under contingency accounting and will only be recognized once it is realized. The Company does not net insurance recoveries against the related claim liability as the amount of the claim liability is determined without consideration of the anticipated insurance recoveries from third parties.

Separately, the Company’s marine segment employee health care is paid for by general assets of the Company and currently administered by a third party. The administrator has purchased appropriate stop-loss coverage. Losses on these policies up to the deductible amounts are accrued based upon known claims incurred and an estimate of claims incurred but not reported. The accruals are derived from known facts, historical trends and industry averages to determine the best estimate of the ultimate expected loss. Actual claims may vary from estimates. Any adjustments to such reserves are included in the condensed consolidated statements of operations in the period in which they become known. The Company’s concrete segment employee health care

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is provided through two policies. A fully funded policy is offered primarily to salaried employees and their dependents while a partially self-funded plan with an appropriate stop-loss is offered primarily to hourly employees and their dependents. The self-funded plan is funded to the maximum exposure and, as a result, is expected to receive a partial refund after the policy expiration.

The total accrual for insurance claims liabilities was $4.3 million and $5.8 million at September 30, 2023 and December 31, 2022, respectively, reflected as a component of accrued liabilities in the condensed consolidated balance sheets.

3.Revenue

Contract revenues are recognized when control of the promised goods or services is transferred to the customer in an amount that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The following table represents a disaggregation of the Company’s contract revenues by service line for the marine and concrete segments:


	Three months ended September 30,				Nine months ended September 30,
	2023		2022		2023		2022
Marine Segment
Construction	$	58,162	$	56,765	$	189,895	$	169,127
Dredging		9,444		17,408		44,993		63,894
Specialty Services		13,307		1,925		25,866		9,876
Marine segment contract revenues	$	80,913	$	76,098	$	260,754	$	242,897

Concrete Segment
Structural	$	12,268	$	15,070	$	41,849	$	46,610
Light Commercial		75,295		91,453		207,581