3Q26 Conference Call - ORION GROUP HOLDINGS INC

Financial Performance:

• Q3 2026 consolidated revenue reached $256 million, marking a 14% year-over-year growth.
• Adjusted EBITDA rose 37% year-over-year to $18 million, with an adjusted EBITDA margin expansion of 120 basis points.
• Gross profit was $33 million with flat margins year-over-year; adjusted EPS was $0.12 per share.
• Net leverage stands at approximately 2.2x, maintaining a healthy balance sheet despite higher borrowing costs related to the McCamus acquisition.
• Operating cash flow faced headwinds in the first three quarters due to working capital buildup (contract assets) and CapEx for the Derrick Barge modernization, though management expects strong Q4 cash conversion.

Guidance and Future Outlook:

• Management reiterated full-year 2026 guidance: Revenue of $900M–$950M, Adjusted EBITDA of $50M–$54M, and Adjusted EPS of $0.23–$0.30.
• Full-year guidance is tracking toward the upper end of the ranges for all metrics.
• Projected to enter a multi-year infrastructure investment cycle driven by national defense, energy security, port modernization, and industrial reshoring.
• Management anticipates a positive free cash flow generation trend starting in 2027, following heavy capital deployment in 2026.
• Pipeline visibility remains strong, with submitted bids growing from ~$1 billion at the start of the year to $2 billion at quarter-end, split evenly between concrete and marine.

Business Segments and Product Lines:

• Marine: Revenue grew 13% to $161 million; Adjusted EBITDA was $19 million (11.6% margin), slightly lower YoY due to project starts and acquisition integration.
  • Secured a fully funded federal design-to-budget contract in the Pacific Northwest (~$200M expected value), with backlog recognition expected in mid-to-late 2027.
  • Won prime contractor positions on two NAVFAC Northwest MAC vehicles: the $9B Venti MAC and the $700M Waterfront MAC.
  • Pacific Rock and Dredge (MCAMIS) integration is complete with full workforce retention and accretive margins.
• Concrete: Revenue grew 16% to $95 million; Adjusted EBITDA was $10 million (11% margin).
  • Margins benefited from favorable project upsides (~2% uplift) and strong operational execution.
  • Geographic expansion into Florida and Arizona is gaining traction, diversifying exposure away from weather risks in Texas.
  • Site civil capabilities are emerging as a high-margin growth driver, particularly for mission-critical projects.
  • Post-quarter awards included ~$100M in new contracts across data centers, cold storage, hospitals, and commercial buildings.

Market and Competitive Landscape:

• Demand remains robust across end markets, with customers remaining disciplined on award timing, leading to a slower award cycle despite high bid volume.
• Strong win rates sustained across both segments; Orion is increasingly securing larger, complex projects via alternative delivery methods.
• The company is well-positioned for a bullish outlook supported by diversified client bases and a growing portfolio of MAC vehicles.
• Recognition as a top contractor in marine/port facilities (#3) and specialty concrete (#12) by E&R Magazine underscores competitive standing.

Risks and Challenges:

• Delayed project awards and slow conversion from bid to backlog are impacting current revenue recognition, particularly for alternative delivery contracts.
• Working capital management remains a challenge, with elevated contract assets (retainage and unbilled work) requiring active monitoring for conversion to cash.
• Interest rates and commodity prices have not yet impacted margins or bid volume, but remain potential future variables.
• Integration of the McCamus acquisition and Derrick Barge modernization contributed to higher borrowing costs and CapEx in the current period.

Management Commentary and Tone:

• Management expressed high confidence and a bullish outlook, citing disciplined execution, strong safety culture, and a robust pipeline.
• Tone was positive regarding the strategic value of new NAVFAC MAC vehicles and the early stages of the infrastructure investment cycle.
• CEO emphasized the company's evolution into a prime contractor for major federal programs and the successful integration of the MCAMIS acquisition.
• CFO highlighted the "phenomenal" concrete margin performance while managing expectations for a normalization to mid-single digits over the long term.

Analyst Questions and Answers:

• Bid Pipeline & Margins: Confirmed that interest rates and commodity prices have not yet impacted margins; the $2B bid pipeline includes task orders under existing MACs (PDI) and is expected to grow as new MAC task orders focus.
• Backlog & Booking Timing: Clarified that the $200M Pacific Northwest contract will not book into backlog until mid-2027 due to alternative delivery commercial structures.
• Concrete Margins: Explained that the 11% margin was driven by a mix of structural improvements, pricing mix, favorable weather, and ~2% favorable project upsides not typically counted on.
• Free Cash Flow: Noted that FY2026 free cash flow will likely be negative due to fleet modernization CapEx, but operating cash flow is expected to improve in Q4 as projects mature and billing accelerates.
• Geographic Expansion: Confirmed successful organic growth in Florida and Arizona, reducing concentration risk in Texas.
• Geopolitics: Reaffirmed that U.S. defense strategy in the Pacific remains bullish despite other global geopolitical focuses.

Other Key Points:

• Orion was named one of the Houston Business Journal's Best Places to Work.
• The company has successfully integrated the MCAMIS workforce and is leveraging early engagement in project lifecycles to improve risk management.
• The pipeline of submitted bids ($2B) is double the year-to-date average, reflecting owner caution on award timing rather than a lack of opportunity.
• Concrete revenue diversification continues, with mission-critical projects still comprising roughly half of the segment's revenue.