Orion Group Holdings, Inc. (NYSE:ORN) Q2 2020 Earnings Conference Call July 30, 2020 10:00 AM ET

Company Participants

Mark Stauffer – President & Chief Executive Officer

Robert Tabb – Chief Financial Officer, Vice President & Treasurer

Conference Call Participants

Alex Rygiel – B. Riley FBR

Marco Rodriguez – Stonegate Capital Markets

Poe Fratt – Noble Capital Markets

Gerry Heffernan – Walthausen & Company

Greg Weiss – Boston Partners

Operator

Good morning, everyone, and welcome to Orion Group Holdings’ Second Quarter 2020 Earnings Conference Call and Webcast. Joining me today are Mark Stauffer, Orion Group Holdings’ President and Chief Executive Officer; and Robert Tabb, our Vice President and Chief Financial Officer. Regarding the format of the call, we’ve allocated about 10 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.

For the course of this conference call, we’ll make projections and forward-looking statements regarding, among other things, our end-markets, revenues, gross profits, gross margin, EBITDA, EBITDA margin, backlog, projects, and 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. For providing this information, we undertake no obligation to update or revise any new 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 accompany the 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 Investor Relations section of our website.

And with that, I’d like to turn the call over to Mark Stauffer, President and Chief Executive Officer. Please go ahead, sir.

Mark Stauffer

Thank you, and good morning, everyone. Thanks for joining our call. Today, we will discuss our 2020 second quarter results and provide you with an update on the current state of our business as we continue to navigate through the COVID-19 pandemic. I’ll begin with a few comments on the quarter, then turn the call over to Robert to review our financial results in more detail, and then I’ll make some concluding remarks before we turn to Q&A.

First, I’d like to extend our deepest sympathies to those in our company and others who have been affected by or have had family members or friends affected by the COVID-19 virus. I’d also like to sincerely thank our team members who continue to safely work at our project sites, construction yards, shops and field support offices around the country. It’s through the combined efforts of our entire team that we’ve continued to be able to perform during these unprecedented times. Our focus has been and will remain on ensuring the health and safety of our people. Even with the recent spike of COVID-19 cases in some of our markets, we’ve continued working on projects with only minor disruptions. To ensure the health and safety of our employees, all measures we implemented in response to COVID-19 will be kept in place for the foreseeable future.

In the second quarter, we continued to post year-over-year improvements in both revenue and profitability and generated solid free cash flow, all of which reflects the benefits of the operational improvement initiatives we’ve implemented over the last 18 months. We remain encouraged by our elevated backlog, our continued productivity during this period, and the variety and resiliency of the end-markets that we serve. The wide array of end-markets that we serve enables us to pursue the most attractive bid opportunities in the end-markets that are performing best at any given point in time. This strategy has served us well historically and will serve us well in this environment, and we will continue to focus our efforts on targeting the end-markets and projects we expect to have the best opportunities to be profitable moving forward. We have also taken the necessary steps to ensure that our liquidity position is solid and enables us to continue executing on projects in backlog and pursue new bid opportunities.

We believe we entered this pandemic from a position of strength and have met these challenges head on. I’m confident that we’ll be able to navigate the effects of the pandemic as we move through the year, with the safety and health of our employees as our foremost priority.

Now, I’ll turn the call over to Robert to discuss our Q2 results in more detail. Robert?

Robert Tabb

Thank you, Mark, and thanks, everyone, for joining us. Before I get into the quarterly details, I’d like to point out over the past 12 months, Orion has generated over $50 million of adjusted EBITDA and posted four straight quarters of positive earnings, something that is indicative of the hard work that all of our employees have contributed over this past year. Revenues for the second quarter 2020 were $183.7 million, compared to $166 million in the second quarter of 2019. The growth in revenue was driven by increased production in our concrete segment. Second quarter 2020 reported gross profit was $20.7 million, or 11.3%, as compared to $15 million, or 9%, in the second quarter of last year. The year-over-year increase in margin was driven by a 300-basis-point improvement to indirect project support costs.

Now moving to the segments, excluding the gross-up impacts of accounting for uninstalled materials, the marine segment’s margins increased by 95 basis points year-over-year, of which 245 basis points came from indirect expenses such as labor and equipment utilization, partially offset by a 150-basis-point decrease in project-level margins, which is attributable to changes in the mix of projects executed from period to period. Now, I’ll turn to the concrete segment. The concrete segment’s year-over-year margins improved by 135 basis points, of which 65 basis points came from indirect project support costs, and 70 basis points came from project-level margins. This improvement in our concrete segment’s project-related margins was driven by an increase in labor efficiency.

Moving to SG&A, for the second quarter 2020, SG&A expenses were $16.5 million, up from $15.1 million in the second quarter of 2019. The increase is driven primarily by the full ratable accrual of the annual incentive compensation plan during the current year period. As a percentage of revenues, second quarter 2020 SG&A was 9%, down slightly from 9.1% in the prior year quarter. We remain focused on SG&A being at or below 8.5% of revenues for the full year, recognizing that we may see quarterly fluctuation. Second quarter 2020 operating income was $4.1 million, compared to an operating loss of $0.4 million in the second quarter last year.

Now to the bottom-line results. For the second quarter 2020, reported net income was $2 million, or earnings of $0.07 per share. These results compared to a net loss of $1.6 million, or a loss of $0.06 per share, for the same period a year ago. After adjusting for approximately $350,000 of pre-tax nonrecurring costs and $1 million of benefit associated with the reduction of certain tax valuation allowances, net income for the second quarter of 2020 would have been $1.3 million, or earnings of $0.04 per share. Second quarter 2020 adjusted EBITDA was $12.6 million, representing an adjusted EBITDA margin of 6.9%, compared to adjusted EBITDA of $10 million, or a margin of 6.1%, in the second quarter of last year.

In the second quarter of 2020, we’ve bid on approximately $1.2 billion worth of opportunities and were successful on $120 million. This resulted in a win rate of 10% and a book-to-bill of 0.65x. As of June 30, 2020, backlog was $528 million, of which $312 million was associated with the marine segment and $212 million with the concrete segment. Currently, the company has $1.3 billion worth of bids outstanding, including $73 million worth of which is the apparent low bidder or has been awarded contracts subsequent to the end of the second quarter 2020, something that we view is indicative of the strength of our end-markets. In total, we currently have over $600 million of projects between backlog and low bid.

Moving into further COVID discussions, I’ll provide an update on the proactive measures we continue to take. As always, we continue to monitor our CapEx needs and operating costs. As a result, we continue to be selective with certain capital and operational expenditures. Also, we continue to operate the heightened controls around cash management, broader risk management, and mitigation we announced on the Q1 earnings call. To that end, during the quarter, we entered into a new 360-day, $20 million revolver that adds to our existing credit facility. This increase provides us with more than sufficient financial flexibility to continue to pursue new awards and execute projects and backlog. Our current liquidity position is solid, which was further enhanced in the second quarter as we generated $16 million in free cash flow.

We are pleased with our free cash flow generation over the last six months. In the first two quarters of 2020, Orion has generated more free cash flow than in any full year in company history. At the end of Q2, we had $10.3 million of cash on hand and access to almost $50 million under our revolving line of credit, which includes $20 million from the new revolver. We ended the quarter with $54 million in total debt, of which $18 million was related to the revolver and $36 million related to the terminal. This translated into a 1.13x leverage ratio and a fixed charge ratio of 3.66x. We are comfortable with our current leverage profile. However, we will continue to evaluate opportunities to enhance our liquidity position, including continuing with the process of selling noncore assets.

I want to reiterate my comfort level with the current liquidity situation, which will enable us to execute on our strategy, pursue new awards, and perform work in backlog.

Now, I’ll turn the call back over to Mark to wrap up.

Mark Stauffer

Thanks, Robert. Turning to our markets, we continue to see bidding activity in both our segments. While some bid opportunities in impacted end-markets have shifted to the right, bid opportunities in other end-markets continue to move forward due to our diversified customer base and end-markets. Our focus is on profitably bidding these opportunities. We have a strong track record of adjusting between end-market bid opportunities, and we will also continue our pursuit of select larger and longer-duration projects. We continue to interface with our customers and monitor their spending plans, and we continue to target government bid opportunities across federal, state and local agencies.

In the marine segment, we recently announced $32 million of dredging awards in both the public and private sectors, which will contribute to maintaining utilization of our dredge fleets during the back half of 2020 and into the first part of 2021. One of these announced projects is as a result of Hurricane Harvey relief funding, and we expect additional significant bid opportunities related to Harvey relief funding in the coming quarters. We also continue to track any movement on a federal infrastructure bill either as a replacement for the FAST Act or that may be part of future stimulus spending plans in response to COVID-19. Any action on the infrastructure funding will provide significant bid opportunities that we are well positioned to capitalize on.

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In the concrete segment, we continue to execute on our strategy of expanding our structural business, as evidenced by the $30 million structural concrete project we recently announced. The competitive dynamics of structural projects have led to an increase in awards for this type of work, and our performance on these projects has significantly contributed to the improved operating performance of our concrete business. We continue to monitor the distribution and technology center growth in Texas, which continues to provide bid opportunities for our light commercial projects in addition to general business and industry relocations into the Texas market.

We completed the first half of 2020 with solid and much improved operating performance, and we enter the second half of the year with combined backlog and low bid at strong levels despite COVID-19 impacts. We currently have $1.3 billion of bids outstanding, slightly higher than we had in the prior year period. I’m confident that we have the team in place to continue to perform despite the challenges in the current environment. We are and we will always be focused on safely meeting our customers’ needs, and we remain confident in the long-term drivers and sustainability of our markets. We will get through this pandemic, and we will be well positioned to take advantage of post-pandemic market conditions.

Once again, our deepest sympathies go out to those who have been affected by the virus, and I’d like to again thank our team members for all their efforts.

With that, I’ll turn the call back to the operator for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from the line of Alex Rygiel with B. Riley FBR. Please proceed with your question.

Alex Rygiel

Very nice quarter, gentlemen. Can you give us a little bit of an update on some of your real estate sales or listings and how that’s proceeding? And then any other update on any other dispute resolutions or claims that could be settled sort of in the next six months?

Robert Tabb

I’ll take the real estate update, and Mark will talk a little bit about the claims. The real estate update is pretty much where it was before. We continue to push to move those properties. With COVID going on, the timing could be a little shaky, but I’m confident that we will be able to move on from the pieces that we’ve deemed as noncore assets.

Mark Stauffer

On the other piece, remind me, Alex. I’m sorry, what was the other part of that question?

Alex Rygiel

Just the claims dispute and resolutions.

Mark Stauffer

I apologize. On the claims side, we continue to focus on that. We’re making progress on some of these. I think it’s probable that we’ll have some of these resolved this year. I think on others, probably a little bit longer duration. So I’m not prepared to quantify what we think the impact of that might be, but I think, again, part of that will get resolved this year, and depending on how the other one goes, it could push off into next year.

Alex Rygiel

And secondly, the commercial concrete margins were fantastic. Congratulations on that. How sustainable is that, and how has this business kind of changed over the last year or two as you pursue this structural business?

Mark Stauffer

Well, I think, again, a lot of the things that we did, that we’ve kind of focused on in operational improvements over the last year, are bearing fruit for us. Our focus is on keeping that sustainable. The team in the concrete group has done a fantastic job. Again, we think we have the right people in place, in the right spot. And, again, part of the strategy there too has been to expand our structural business. We’re seeing that and seeing that pay-off. And we continue to be focused on improving from where we are today. We’re very pleased. I’m very pleased with the progress we’ve made in the last year. But we think there’s more progress that we can make, and, again, we’re focused on bringing our projects in at or above what we bid them at and controlling our indirects, and we’ve done a good job in that division making that — making progress on that, and we think we’ve got more progress that we can make going forward.

Alex Rygiel

And then, just circling back to your comments about SG&A and the incentive comp accrual, SG&A in the second quarter was a little bit higher than where I was looking at. I suspect that was due to the insurance comp accrual — excuse me, the bonus comp accrual. Did you recognize sort of 6-months’ worth of that bonus accrual in the second quarter? Is that why it looks a little high?

Robert Tabb

No. So the bonus is being accrued equally every quarter. SG&A was up a little bit just by the nature of the timing of different expenses and where they fall, but as I mentioned in my notes, we do expect it to taper off and be closer to 8.5% or below by year-end.

Operator

Our next question comes from the line of Marco Rodriguez with Stonegate Capital Markets. Please proceed with your question.

Marco Rodriguez

I was wanting to see if you guys could spend a little bit more time on the gross margins in the segments. You did push out — or, rather, you called out the improvements from a basis point standpoint that you saw from the indirect costs and then the project level margins. I was wondering if maybe you could talk a little bit more about those indirect costs; what you’re kind of doing that per group to make those improvements go forward.

Mark Stauffer

Well, again, it kind of goes back to what I said a minute ago. Again, as we — the process improvements that we addressed over the last 18 months, a lot of those, if you’ll recall, were directed around labor efficiency and equipment efficiency, so that’s been a big focus of our effort, of our teams. And again, just as kind of a reminder about that, one of the things we did last year when we did our review was just improve or enhance some of the tools that we’re providing information back to our managers so that they can try to make better decisions and faster and quicker decisions.

So, again, I think that’s been a huge focus of ours, is going to continue to be a focus of ours, and we’re seeing the benefits of that reflected in the margins.

Marco Rodriguez

Got it. And I believe you mentioned — I mean, you had some pretty good improvements year-over-year on the marine side and the margin side, but I thought that I read in your prepared remarks that the dredging equipment was offline for a little while due to some maintenance. Can you may be kind of quantify the drag you saw there in the utilization levels on the marine dredging equipment?

Mark Stauffer

Yes. I mean, we don’t get too specific on dredge utilization just for competitive reasons, but, again, if we kind of think about the first quarter, we were sort of in the zone above that 80%, 85% utilization that we like to see. We did dip below that in Q2 and again around scheduled maintenance. And just on that point of scheduled maintenance, we schedule maintenance, but sometimes, again, that can fluctuate and flow depending on what our project schedules are, so that’s very — we’re very adaptable to that. So, we saw during the quarter based off the schedule of work that we either were anticipating getting or that we were getting and took some time in the second quarter to go ahead and address some of the scheduled maintenance on some dredges, and that’s really what pulled that back.

Again, as we talked about in my remarks earlier, we’ve recently announced several projects that are going to contribute to that utilization, and so that’s why we wanted to go ahead and get some of the maintenance knocked out during the second quarter.

Marco Rodriguez

Got it. And then, looking at the concrete segment — just kind of echoing the prior comment, very impressive margins versus the historical run rate, if you will. I’m just trying to kind of understand a little bit more here. Your shift and your emphasis on trying to do structural work, is that a little bit of a higher margin that kind of helps the situation, or is this sort of more of the indirect cost focus that’s kind of helping that margin come back up versus its recent historical trend?

Mark Stauffer

Yes, I think it’s a combination of several things. I think, one, as we said, it’s our focus on our indirects and controlling those, and I’ve spoken to that. Two, structural work I think we’re good at what — we were good at all of what we do, but our structural group performs well. We have different competitive dynamics in that business — I mean, in those types of projects, meaning we’re usually going up against different types of competitors, less of the smaller competitors, so the bidding dynamics are a little bit better in that work for us. But in our light commercial group, again, our guys are performing well, and really kind of a big change there is we’re performing better on projects across all of our markets, and we had — in the quarter, we had good weather as well, so we had good production, and that’s really been true for the first half of the year.

I think, again, some of the changes we’ve made and the focus we’ve made in that business around performing better on our light commercial work is starting to pay off, so we’re getting a little bit more of a consistency on that and not having projects that we’re not performing on pull down that margin. So I think it’s a combination of all three of those things.

Marco Rodriguez

Very helpful. And then a last question, just again on the concrete segment. I know in the past we’ve discussed pricing pressures in the bid markets that you’ve seen down in the Houston area specifically, so it kind of sounds like your movement towards the structural work is kind of alleviating that somewhat, but I was wondering if you could maybe comment a little bit more on the pricing environment for bidding contracts in Houston, Dallas and Austin, where your concrete works are now.

Mark Stauffer

Well, of course, it is a competitive business that remains competitive, and I want to be careful to say that we are still focused on pursuing light commercial work. It makes up a significant part of the business and the business opportunities in concrete. It’s still competitive. Again, like I said earlier, we do like the favorability of the competition dynamics in the structural business, but also on the light commercial side, again, depending on the projects, it can be more or less competitive. As I kind of talked about in my comments earlier, our overall strategy in both businesses, including concrete, is target the work that’s coming out, target those sectors that are moving forward with things, obviously, and focus on those opportunities that we think give us the best opportunity to perform — to win the work and then perform it.

So, we’re trying — we’re being very disciplined in our approach as we bid this work, and so, again, it’s always going to be competitive out there, but, again, we’re trying to be very strategic about what we go after so that we can achieve our objectives.

Operator

Our next question comes from the line of Poe Fratt with Noble Capital Markets. Please proceed with your question.

Poe Fratt

May I follow-up on the claims? Can you just quantify just — I know you didn’t want to quantify the potential impact, but could you quantify the amount of claims outstanding that you have?

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Mark Stauffer

I think we won’t quantify the total amount. I do think that you’ll see in the Q that we have booked about — in the quarter, we booked some claims about $1 million — $1.7 million in claims outstanding that are actually booked. And again, that’s a fraction of the overall claims, but I don’t want to get into the total amount of our claims just for reasons of not negotiating in public.

Poe Fratt

Okay, great. But they’ll be detailed in the Q?

Mark Stauffer

Yes.

Poe Fratt

Great, thanks. And then can we focus on your free cash flow generation? The operating level has been pretty consistent over the first two quarters of the year, but then part of that is because your CapEx has been running below average, below $3 million a quarter. Can you give us an idea how CapEx looks over the second half of the year? And then, also, on the working capital front, when you look at the net cash flow — or net free cash flow, that’s been positive because of positive working capital changes. Can you just highlight sort of expectations for the second half of the year there?

Robert Tabb

Yes, I’ll take these. Yes, CapEx for the first half of the year was roughly $5 million. I do expect for the rest of the year somewhere between $5 million to $7 million, so bringing us to $10 million to $12 million full year. But we’ll continue to monitor that and watch it, and we’ll see what we need to get done this year. Obviously, we want to do what’s right for the business and continue to keep our assets in good working condition. You’re absolutely right, working capital liquidation has been good in the first half of the year. I know last year, at the back end of the year, we saw it really build up. So when I think about the second half of the year, I do expect a little bit of a buildup in Q3 and then see that liquidate into Q4 and Q1 of next year. But we talked about some of the heightened controls that we put in place around cash management and working capital management, so we’re going to really, really try to minimize that uptick, but it’s just the time of year where we see more cost burn and we see more AP runs, so you tend to see working capital buildup.

Poe Fratt

That’s helpful. And then it looks like marine, while backlog was down in the quarter, you do have $60 million of low bids pending awards. And that $32 million I assume is — that already has been awarded is part of that number?

Robert Tabb

I believe it is. Yes, it is.

Poe Fratt

Okay. In the context of second quarter maintenance, do you have any maintenance that’s scheduled for the second half of the year, Mark?

Mark Stauffer

We do, kind of less in duration today. That could change, but right now it’s kind of the normal quick hit stuff. The stuff we did in the second quarter was kind of a little bit more involved just to get ready for some of the upcoming work.

Poe Fratt

Okay, great. And I’m not sure if you’ve done this in the past, but do you quantify — would you be able to quantify how much of Terminal 5 is left in your backlog?

Mark Stauffer

We might have to get back to you on it. I think we’re probably about 40% complete on that project right now, plus or minus.

Poe Fratt

So, maybe $100 million left.

Mark Stauffer

Yes, we still have a ways to go on that.

Poe Fratt

Okay, great. And then, going back to the concrete business; really strong quarter, as it’s been pointed out previously, but your low bids right now look like $13 million low bids pending award, and it looked like the win rate was a little bit below average. Can you just comment on those two metrics?

Mark Stauffer

Yes. I think that the — yes, the $13 million is correct there. We have a lot of bids outstanding, a lot of work that we’re pursuing in both divisions, and as we said, we’re still seeing opportunities in those divisions. I think when we look at the win rate, obviously, as a book-to-bill, we’re impacted during the quarter. Some of that is just kind of normal timing on win rate and timing of bids. Obviously, some of it has been COVID impacted, especially when we look at Q2 and the win rate and the flow of work, particularly like in marine. At the beginning of the quarter, we were — some of our efforts were focused on areas that wound up being impacted by COVID and, therefore, projects sliding to the right. And so we had a lower win rate and book-to-bill, if you will, at the beginning of the quarter, and as we pivoted to other areas, other end-markets where projects were coming out, we saw that improve as the quarter went on.

So again, it’s kind of a little bit of that is normal ebb and flow, a little bit of that is seeing the market reset in terms of who was impacted by COVID and maybe sliding projects to the right, and then us pivoting to where we see the opportunities and focusing our attention on that. So that’s kind of what happened in Q2. As we move forward, again, I can’t predict what’s going to happen in the second half with our win and win rates and all that, but what I can say is we have work out there to bid on. We’re focused on it. We’re focused on those things that are moving forward, and we’re targeting work to win, and we’re also potentially — you could see us bidding more work in order to win the work that we want to get to refill our backlog. And again, the key is we want to do that, refill it with profitable work, so we could see win rates fluctuate. We might see volumes go up, but we’re focused on getting after the work that is out there and performing on it.

Poe Fratt

Backlogs are still north of $200 million, so less concerned about the near-term win rate. I’m just looking at sort of the second half of the year. That’s helpful. Thank you, Mark. Robert, could you just — I think you mentioned that you had revolver availability of about $50 million, and then you have about $10 million in cash, so potentially total liquidity of about $60 million. Can you just sort of expand on why you looked at adding the $20 million of revolver capacity in the context of you paid down a healthy amount of debt in the quarter?

Robert Tabb

Yes. So when COVID kind of first broke out, there was a lot of uncertainty around would we see widespread shutdowns that would stop us from working on projects, would customers hoard cash as things slowed down. Those two things didn’t happen, but out of abundance of caution, we wanted to get ahead of anything like that. And it hasn’t happened, and as you’ve seen, we’ve been able to continue to generate solid free cash flow, which in turn we paid down debt on the revolver, so we have that availability in that capacity available to us still. So it was out of an abundance of caution. At this point, we feel good about our position and where we are, and we have some room to be able to weather any storm that might come. But as we sit here today, I don’t think the country has the stomach for widespread shutdowns again, so I think the likelihood of that is lessened, but we do have some reserves, cash reserves, to be able to weather any storm that comes.

Poe Fratt

Okay, great. That’s helpful. And then if you could follow up on the real estate question. Has the Tampa yard actually been listed, or have you engaged a broker on that potential sale?

Robert Tabb

I actually have a PSA in place, but I think it’s too early in the process to get into the weeds of that. I am pushing to get that deal closed as soon as possible, but there are re-zonings and things like that, due diligence that needs to be completed. So we could see that late this year, or we could see that early next year. It’s just really going to depend on COVID, the City of Tampa, and how quickly they can move. People are working from home in the government, so it’s not as efficient as it usually is. So I don’t want to lock myself into guiding to a timetable, but we’re hopeful and confident that we can get that deal completed. It’s just a matter of timing.

Mark Stauffer

Yes. And Poe, I wanted just to reiterate too the real estate that we view as surplus, all of it has been listed. So it’s listed, and we’ve had various levels of activity on all three. The Tampa property, as Robert said, is a little bit further along than the other ones, and, again, we’re confident that that one is ready to move. It’s just a question of timing, as Robert said, due to some of the inefficiencies we’re seeing right now with COVID.

Poe Fratt

Great. I really appreciate the amount of detail in the Q&A. Thank you so much. One last one, if you wouldn’t mind. You did suspend guidance at the — when you reported the first quarter, just given all the COVID uncertainty. Any thoughts on why you didn’t reaffirm or reestablish guidance for this quarter given the performance in the quarter and what looks like a solid second half backlog and outlook? Why not reestablish guidance?

Mark Stauffer

Well, I think, again, we’re confident in our ability to perform. Again, as I said in the remarks, I think we’ve got the right team. We’re focused on executing and performing the work in our backlog. We’re focused on securing new work. I think right now we just, again, sort of as a — we’re continuing to look at that. We’ll put guidance back up when we think it’s appropriate. That said, we are focused on performing. We see a pathway to good performance in the second half of the year and to perform well and at the levels that we were previously talking about, but, again, we know what we know today, and again it’s kind of unusual times.

So again, we think at this point, at this junction, it’s just prudent not to put that back up. But I want to emphasize that doesn’t mean that we’re not trying to execute, execute well and execute according to the plan that we previously laid out.

Operator

Our next question comes from the line of Gerry Heffernan with Walthausen & Company. Please proceed with your question.

Gerry Heffernan

Lots of good discussion going on here. Perhaps a couple things here that we’ll look at it from a different way. In the last quarter, our concerns and our lack of knowledge of COVID were very high. I believe we spoke at that time of putting a stop to the new ERP system project out of an abundance of caution. I noticed in the adjusted EBITDA schedule in the press release that there was expenses for ERP implementation. So are we back on with the implementation? I know it’s a very important system that you’re looking forward to the improvements of management’s abilities with it.

Robert Tabb

Yes. So the way I would answer that question is, yes, it’s back on. The kind of way that we are approaching this is kind of a toll gate system. So we reengaged the project, and we’re going through a detailed planning phase over the last month or so, and we’re reevaluating our schedule, our timetables, our costs. And once we kind of get through that phase, we’ll put together a new plan under the new world order, and then we’ll make a decision on what the scope looks like, how far do we go, what’s in, what’s out, what will we do next year, what will we do this year, and we’ll have a solid plan. So you’re correct, we did start that process back up in Q2, and we’ll have a lot more to talk about this on the next call.

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Gerry Heffernan

Okay, thanks. You indicated that there is $1.3 billion of backlog bidding outstanding. Could you frame that number in regards to is that a normal level for bids outstanding? I’m wondering if the — in speaking with a lot of other construction companies, they have indicated that bids for work are still out there, however the process of completing the bids has been greatly extended. So is that $1.3 billion just saying, wow, there’s a whole lot more business, or is it saying, you know what, one of the reasons why our backlog number moved the way it did is that these bids just are not completing, they’re extending out before we get the answers?

Mark Stauffer

Well, it’s a little bit of both. So to answer the first part of your question, is it normal? Yes, it’s — we’ve had over $1 billion worth of work outstanding, that’s been quoted outstanding, in previous quarters. And as I mentioned in my remarks, the $1.3 billion is slightly up from the $1.3 billion that was outstanding in the same period a year ago. It is safe to say, though, that some of that is driven by, again, some work that we quoted during the quarter, particularly at the beginning of the quarter, in areas that are — in end-markets that have been more impacted. That is a good way of looking at it, that there are some decisions that are being deferred or slow walked or whatever. But other end-markets and other projects are moving ahead. So there is a piece of that that probably fits into that category, but I think the majority of the work that we have in that number is work that is in markets that are moving forward.

So, again, it’s not untypical to have that amount of work outstanding — or work quoted outstanding.

Gerry Heffernan

Okay, great. In regards to the maintenance on the dredges, Mark and Robert, you guys have been very good, particularly over the last year when I think about it, of really kind of preparing us for what is going on in the upcoming three to six months with your business. I don’t recall you talking about a step up in maintenance expense for the dredges for the main business last quarter, so I’m wondering in these bigger maintenance projects, yes, they may occur every so often, but the actual implementation of the maintenance can vary between a couple of months, depending on how you see windows. Did something change as far as the way you saw work lining up that said, hey, you know what, we better get this done now so we can really be hitting these upcoming projects with all cylinders sparking?

Mark Stauffer

Yes. So, again, you are correct that we did call that out on the last call on that, but scheduling of our — the scheduled capital repairs and repairs can be very dynamic in terms of when we do that work. Also, it can be dependent on the type of work that we get. So we may have work in hand that we know of that we’re planning for, and we may have other work that’s coming up that we win in a given period, that given the type of that work, there is additional things that we need to do to the dredges. Particularly, if we’re going for deeper type dredging projects, sometimes that can alter the setup of the dredge. And sometimes, again, we know when we get that work, and we don’t — sometimes that work comes along and it changes our thought on either, A, the timing of when we’re going to schedule that work or, B, the actual work that we’re going to do physically on the dredges. So a little bit of a combination of both of that is — that was a case of being very dynamic.

When we spoke at the end of April, we had a little bit different thought about what that schedule was going to look like, and did not comment on it, but circumstances changed in terms of what we saw and then what work we had won and were going to be executing on in the back half of the year, so that altered our thought process on getting some maintenance done in the second quarter.

Gerry Heffernan

It sounds like you have some pretty positive thoughts regarding the margins in the marine business in the second half here. Robert in his remarks made a comment that the adjusted EBITDA was over $50 million in the last 12 months. I came to $50.2 million, and for that matter, even just the non-adjusted EBITDA being around $45.6 million. Poe asked a question about guidance being established, and I kind of chuckled because, unless my memory is really awful, you’re already ahead of your guidance on where you were six months ago, which does beg the question of why not go out there and say, hey, you know what, the previous guidance we got, we’re comfortable with that or some other statement? I mean, you guys are — you’re doing better than I think most have expected, and you’re even doing better than the rate you were originally able to put a flag in the ground.

Robert Tabb

Yes, I hear you, and I agree with you, things are progressing well. There are still some uncertainties out there, but the way Mark characterized it is the way that I would characterize it too, is that, yes, we see a pathway back into that range that we talked about, but at this particular point in time, we don’t think it’s prudent to bring back guidance. But our level of confidence that we have the right people in place, we have the right team in place, we have the marketplace in place, we have the right assets in place to be able to deliver in that range, we — our confidence level is increasing, is rising, and we feel good where we are. But there’s still work to be done, there are challenges to overcome; but we feel good about where we are, and we think the future is bright for the company in both segments.

Gerry Heffernan

That’s great. And one last thing, on the bonus accrual that you spoke of in SG&A. Did you accrue for bonuses in the first quarter?

Robert Tabb

Yes. So the bonus expense, we accrue for our quarterly amount, so we’re turning to it. The reason I call that out is when you look at it year-over-year, our bonus expense is — SG&A is up, primarily driven by the bonus expense. So if you looked at the performance of the past few years, you haven’t seen a full accrual of bonus expense, and, obviously, where we’ve performed, we’ve been able to be in that range to meet our incentive plan halfway through the year. So we need to call out the year-over-year increase, because we are in that range to be able to potentially pay out bonuses this year.

Gerry Heffernan

Sounds good. I just wanted to make sure I understood whether that was a year-over-year comparison or sequential comparison.

Robert Tabb

Yes, it’s a year-over-year comparison.

Gerry Heffernan

Business is coming along well, much as we expected. We just need the market to recognize it. Thank you for keeping up the good work, and hopefully we continue and everybody stay healthy.

Operator

Our next question comes from the line of Greg Weiss with Boston Partners. Please proceed with your question.

Greg Weiss

Congratulations on the continued improved performance. It’s been nice to see, and you can see it in the income statement, cash flow and balance sheet. So hopefully there’s more to come. Most of my questions were answered by — or asked by the last two callers, but just for a little more granularity, can you give any more insights of how much — whether it’s the real estate sales or noncore asset sales, how much more cash we might be able to harvest from those kinds of measures?

Robert Tabb

Well, I mean, the real estate sales could be significant, upward — one property could be upwards of $20 million, another one $5 million to $6 million, and then the big property that’s much further behind in the process from a stage standpoint could be bigger than those. But that’s way earlier in the process. So I think the ones that are closer, call it $20 million to $25 million of potential cash from those sales. But Greg, I don’t want to get into exactly when that’s going to happen, because it is real estate, it is COVID, and the timing is just really, really unknown.

Greg Weiss

Right. No, I understand completely. And look, I mean, as the last caller stated, at some point the market will notice, but just a year ago, or over the past year, you’ve brought debt down by $30 million, and cash is up by $8 million or $10 million. You’ve improved the results. You’re not that levered anymore. I understand we are in COVID, but given how the stock has been north despite your heavy lifting, at what point do you guys reevaluate your capital allocation thought process?

Robert Tabb

Well, we’re thinking about that all the time. As you’ve pointed out, we’re a little bit over 1x from a leverage ratio standpoint. So, yes, we’re always evaluating and thinking about capital allocations and where should we apply that free cash flow, whether the debt. But as we go forward, everything is on the table, and we’re going to make sure that we put the cash to the best and highest usage. I will point out, though, as a part of our 365-day deal that we entered into, there is restrictions on stock buybacks. So that deal ends in May of next year, but we’re going to continue to monitor that. We’re going to continue to watch it, and we’ll have more to say on that if the strategy changes around where we’re going to put capital.

Greg Weiss

But not only are you just over 1x levered, now the company has been, knock on wood, profitable, increasingly profitable, and you also just highlighted that at some point in the future, you might be able to sell real estate that essentially equates to your current debt balance.

Robert Tabb

Correct. That’s correct.

Greg Weiss

Got it. It’s pretty staggering, but thanks. Keep it up. Hopefully, the weather stays good, as well as everybody’s health.

Operator

Ladies and gentlemen, that concludes our time allowed for questions. I’ll turn the floor back to Mr. Tabb for any final comments.

Robert Tabb

Thanks for joining us today. As a note, I want to let everybody know that management is planning on attending the Jefferies virtual conference next week. We have a few available slots left open for one-to-one’s with management; so if anybody wants to pick those up, reach out to our IR people and we’ll get those scheduled.

Stay safe, stay healthy, and we look forward to talking to everybody in late October as we report Q3 earnings.

Operator

Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.



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