Orion Group Holdings, Inc. (ORN) Q4 2011 Earnings Report, Transcript and Summary

Good morning, ladies and gentlemen, and welcome to the Fourth Quarter 2011 Orion Marine Group, Incorporated Earnings Conference Call. [Operator instructions] As a reminder, this conference is being recorded for replay purposes. At this time, I would now like to turn the conference over to your presenter for today, Chris DeAlmeida, Director of Finance.

Good morning, and welcome to the Orion Marine Group Full Year 2011 Earnings Conference Call. Joining me today are Mike Pearson, Orion Marine Group's President and Chief Executive Officer; and Mark Stauffer, our Executive Vice President and Chief Financial Officer. Regarding the format of the call, we have allocated about 15 minutes for prepared remarks in which Mike and Mark will highlight our results for the year and update our outlook for 2012. We will then open up the call for sale side analyst questions for remainder of the time. We would ask that you please limit your questions to one question and one follow-up before getting back in queue. During the course of this conference call, we will make projections and other forward-looking statements regarding among other things, our end markets, revenues, gross profits, gross margin, EBITDA, EBITDA margin, backlog, projects and negotiation of pending awards as well as our estimates and assumptions regarding our future growth, EBITDA, EBITDA margins, gross margins, administrative expenses and capital expenditures. These statements are predictions that are subject to risks and uncertainties, including those describes in our 10-K for 2010, that may cause actual results to differ materially from those statements. Moreover, past performance is not necessarily an indicator of future results. By providing this information, we undertake no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. As a reminder our backlog consist of projects under contract that have either, a, not been started or, b, are in progress and not yet complete and we cannot guarantee that revenue projected in our backlog will be realized or if realized, will result in earnings. Also, please note that EBITDA and EBITDA margin are non-GAAP financial measures under rules of the Securities Exchange Commission, including Regulation G. Please refer to the reconciliation accompanying this earnings call available on our website at www.orionmarinegroup.com for comments on the use of non-GAAP financial measures, as well as applicable reconciliations to the most comparable GAAP measures. Also, please refer to our earnings release issued this morning, March 1, 2012 and our quarterly and annual filings with the SEC, which are available on our website for additional discussions of risk factors that could cause actual results to differ materially from our current expectations. With that, I'll turn the call over to Mike Pearson, President and CEO.

Thank you, Chris. And thanks for joining us this morning. As you can see from our results for 2011, this is a very frustrating year and we're very disappointed with our results. And while we're not out of the woods yet, we are seeing some positive signs for the future. During 2011, our end-markets experienced substantial uncertainty as a result for the inability of the federal government to adequately fund important infrastructure programs, such as the new highway bill, which increased competition in some of our end-markets and also put pressure on pricing. Additionally, the federal government's dysfunctional budgeting process has significantly impacted the pace of lettings from the Army Corps of Engineers. This resulted in some of our equipment being significantly unutilized during 2011. In response to these developments we made tough decisions to right-size the business by reducing our workforce as well as undertaking cost containment programs to better manage non-direct job costs, moving forward. We also decided to strategically lower our margins to build backlog. In this competitive environment, our ability to obtain higher margin levels is just not practical. Therefore, we need to perform a larger volume of business to cover our fixed cost and ultimately return to profitability. Over the last few months we've enhanced many of our performance metrics, we honed our business practices and we are making strides to react proactively to the changes that we see in our markets. However, we're not out of the woods yet. And we do believe we've entered into the trough or the downturn as our market outlook continues to grow and we begin to rebuild our backlog. This is not a short-term process, but is going to require some time for full execution. Therefore, we still anticipate a few rough quarters ahead, but we're moving in the right direction. Still, we believe we're well-positioned to compete in the market in which pent-up demand to our services exist. We're encouraged by the opportunities ahead and the level of market activity. Specifically, our market tracking database continues to grow as we expand geographically, expand our capabilities and go after larger work, and the overall need for marine construction services increases. Today we're tracking over $6 billion worth of bid opportunities for the next few years. Of which, 14% are federal projects, 28% are state, 19% is local and 39% are in the private sector. This remains a highest level of tracking database we've ever seen, which gives us optimism about the overall market demand. For example, the overall use of our nation's aging marine infrastructure continues to grow and is evidenced by increasing imports and exports. The vast majority of which are ship via waterways. According to the U.S. Census Bureau, U.S. imports of goods have increased 15% in 2011 over 2010 and exports have rose 16% over 2010 levels. So continued increases in imports and exports will only accelerated the need for improvements to marine infrastructure. The maintenance for the nation's waterways is chronically underfunded. In fact, it was estimated that among the nation's 59 busiest ports, full channel dimensions are available less than 35% of the time according to the 2011 study by the Congressional Research Service. Restoring full channel dimensions will not only provide a business opportunity for us, but it will ensure the safe and efficient passage of ships around the nation's ports. So we expect to see these funding issues eventually resolve. We also expect the expansion of the Panama Canal to be a long-term driver, but port expansion on the Gulf and East Coast over the next decade [ph] . Recently, Alberto Zubieta, the CEO of Panama Canal Authority, expressed his concern that ports in the United States were not adequately preferred for the larger ships that are going to be able to transit the canal, once the expansion is completed in 2014. We concur with Mr. Zubieta, the United States must expand its port infrastructure in order to remain globally competitive in the future. And we believe these expansion projects will happen throughout the next decade and we're excited to be working on this type of work right now on a major project in the Corpus Christi, Texas area. Additionally, opportunities in coastal restoration along the Gulf Coast are also expanding. But more attention is given to a role the coastline plays, both as a source of economic growth and a natural storm barrier. The first round of restoration projects has been approved, which total approximately $60 million and are funded through the $1 billion commitment that BP announced in early 2011. A portion of these funds are going to be collected by the federal government from BP under the Clean Water Act could also fund expanded coastal restoration efforts in the future. And we're well-positioned to participate in this market and we're excited about the future opportunities that it presents. We're also encouraged by the return of the private sector opportunities. Work in this sector failed dramatically in the first 3 quarters of 2011, but it’s since shown signs of improvement especially in the fourth quarter where product revenues accounted for 50% of our revenues versus 15% of our revenues in the third quarter of 2011. So we expect to continue seeing good demand from the private sector throughout 2012. With regard to federal standing, Congress did manage to pass a budget for the Corps 2012 fiscal year in late December. As you will remember one of the key events that impacted 2011 for us were delays in the Army Corps of Engineers’ lettings due to short term continue from resolutions from Congress for the majority of the 2011 fiscal year. This impacted the utilization of our driving assets. And have made significant negative impacts on our results for the year. The good news is that Congress has passed the budget for this year. However, we're still concerned about the pace of lettings from the Corps. At this point, we really haven't seen an uptick in the pace of Corps lettings. So this will once again result in some idle dredges and increase cost during at least the first half of 2012 due to gaps in projects. And we would expect the benefit from the Corps’ budget in the latter half of 2012 if the lettings and awards return to their historic norms. So we're cautious with regards to the Corps lettings this year and we urge you to monitor Corps letting activities and any potential impacts on our full year results. Finally, with regard to state DOT projects we do not expect a new highway bill in the short term. We've seen some action in the both the House and Senate on the issue but we believe a new highway bill will not be passed until after the 2012 elections are over. That said, we are bidding and we are winning and we're working on bridge projects and expect this activity to continue. Let me just take a moment to clear one thing about this point, we don't really expect that the passage of a highway bill is going to significantly add to our project tracking database. However, we do expect it's going to be a factor in the easing of pricing pressure as some of the non-traditional marine construction players will be able to return to their normal market areas and visibility to large long term infrastructure projects improved. In summary, we're disappointed with our results in 2011 but we are optimistic about the long term road here. We believe our Orion Marine Group has a strong and bright future and we're working hard on our strategy to build our backlog, maintain a strong balance sheet, increase our margins and explore complementary but diversified service offerings. We will return to profitability as quickly as possible and we are working hard to increase shareholder value and build an even stronger company. And with that I'll turn the call over to Mark Stauffer to discuss our financial results in more detail.

Thanks Mike. And thanks again for joining us. For the full year 2011, we reported a net loss of $13.1 million or $0.49 per diluted share which compares with a $21.9 million net income or $0.81 per diluted share in the prior year period. Full year contract revenues decreased 26% year-over-year to $260 million, of which 76% was generated from federal, state and local government agencies and 24% from private industry. This compares to a 64% from federal, state and local government agencies and 36% from private industry in the prior period. During the full year 2011, our book-to-bill ratio which measures the replenishments of our backlog was 0.9x which is up from our full year 2010 book-to-bill ratio of 0.8x. More specifically, our fourth quarter book-to-bill ratio was 1.3x making the second half 2011 book-to-bill ratio 1.4x versus a first half of 2011 book-to-bill ratio of 0.5x. As Mike mentioned, we made the decision to strategically lower margins to replenish backlog and we believe we have a good hand along where pricing should be in order to win work. To give you some more color behind our fourth quarter, we bid on $352 million worth of opportunities and were successful at $80 million. This represents a 22% win rate which is slightly lower than our historical norm but much improved from the first 9 months of 2011. As we look at the next 12 to 18 months we expect to continuously get over lettings of marine construction projects, however, with continued margin pressure. On projects involving dredging services, we still have not seen lettings return to more normal levels, despite the U.S. Army Corps of Engineers receiving an improved budget in late December. As Mike mentioned, we are hopeful to begin to see opportunities from the Corps on a more normal level as the year progresses. Turning to backlog, as of December 31, 2011, we had backlog of work under contract of $164.5 million of which 37% is for federal projects, 32% is for state projects, 16% is for local projects and 15% is in the private sector. Subsequent to the end of the year, we have been successful in continuing to obtain additional awards for new work although at pressured margins. Since the end of the year, we have announced approximately $70 million worth of new large awards including the projects in Alaska and Florida we announced this morning. Additionally, we currently have over $200 million worth of bids outstanding which includes approximately $64 million on which we are apparent low bidder. We've undertaken significant cost containment measures throughout 2011 in order to control cost in right-size of the company to the current market conditions. During the year, we developed and implemented programs to focus on controlling cost associated with idle crews, non-essential repairs and overhead costs. The programs we have developed should help limit the impact of idle crews and equipment. Keep in mind, job margins have been pressured. So we would still expect to see pressure on gross margins as compared to historical norms. Our goal is to offset that pressure as much as possible through continued cost containment measures. In closing, 2011 was a difficult and frustrating year far beyond our initial expectations. As a company, we have implemented programs to help us better project trends and more quickly respond to changes in our operating environment. We are executing our plan to build backlog, contain cost, manage through this downturn and position ourselves to take advantage of a returned to more normal market conditions. As we look ahead, we remain excited about future bid prospects and the strength of our end markets. We believe the market is there to support growth and are optimistic about the road ahead. Much of the waterways infrastructure in the U.S. needs repair improvement or replacement and we believe this work will be accomplished over time. We have solid long-term end market drivers to give us confidence in the future ahead. With that, I'll turn the call back over to Chris to begin the Q&A portion of the call.

Thank you, Mike and Mark. We would now like to open up the call for questions.

[Operator instructions] And our first question comes from the line of Matt Tucker with KeyBanc Capital.

First question on the pace of Army Corps lettings. I know that you guys have been kind of surprised that it hasn't improved now that the budget is in place. Do you have any better ideas as to why you haven't seen the pace pickup more and do you have any expectation on when it might?

Well, it's certainly not very clear at this point. They have an excellent budget. One, that’s been topped up pretty nicely in terms with additional funding for coastal restoration projects in Mississippi river remediation from the flooding. My impression is that is probably going to be the second quarter before we see some real activity and the budget kept [ph] by end of September. So I think we're looking to Q2, Q3 activity.

And then looking at the gross margin for the fourth quarter, are you rebounded nicely from the third quarter when you're at a gross profit loss, despite the total revenues being pretty flat, sequentially. Was curious what contributed to that improvement in a particular did it not reflect better utilization on the dredging side in the fourth quarter?

Yes, we did. Matt, we did have better utilization with the dredges on in Q4. That certainly contributed to that. As Mike said, in his comments, though, as we are moving into this year and with the pace of those lettings we do expect to see some continued impacts with gaps as we move through the first part of the year here. So we would expect to see some of that pressure continue at least through the first half. Again, as Mike said with the pace, the assumption is that the Corps is going to spend its budget. We think that's the fair assumption. So as we move through the year, we do expect the pace to pick up in the lettings but just haven't seen it occur just yet.

I guess, the last question on the same topic and based on what you have in your backlog right now, do you see the dredge utilization being in line with the fourth quarter without a near-term pickup in the pace of the Army Corps lettings or could there be another gap similar to third quarter if you don't see that pickup near-term?

There could be a gap similar to third quarter, if we don't see that pickup near-term. I mean at this point, that's a fair assumption, because we're 2/3 of the way through the quarter.

We would hope that activity in the second half would pick up significantly. I mean, last year we never have been in a position where we've had so many dredges, not just in our company, just throughout the United States, idle during the best weather windows that are present. And normally Q3 is very active and that just been occurred last year. So we don't expect to see a repeat of that, but it could if they don't get going.

Our next question comes from the line of Steve Dyer with Craig-Hallum.

I’m wondering, so the Corps budget has to be -- all the projects have to be let or awarded by the end of September?

At the end of their fiscal year.

Yes, generally they would be awarded. So the fund doesn't necessarily get spent, but they would get awarded before then.

And any sense just I think in general how much of that would be relatively quick-turn business versus long multiyear awards?

Well, a lot of it is short-term duration, 6 to 9 months.

Most of the work that we would be participating in out of that budget that we would typically go after with the dredging fleet would be relatively quick-turn and the shorter durations, as Mike said. I mean there could be some in there that might be of interest to us when we start talking about coastal restoration projects and things like that that we've worked on before. The big project down in Corpus that Mike talked about in his remarks, that's a Corps project, but that's a longer-term item. So there certainly is opportunities for us that could be longer term, but also we would anticipate a lot of opportunities that are fairly quick-turn. And the second thing I would say there is that in general, and this is a generalization, a lot of the work that the Corps would award, at least historically, has fairly quick start times for us. So there is a relatively short duration between time of award and beginning to work on the project. So unlike when you get into some design build type projects and stuff like that where there can be a longer gap between award and when we actually start churning revenue out of the project.

Can you remind me what the number is on the O&M portion of that budget and maybe how that compares to years past?

It's somewhere around about $2.5 billion, somewhere in that range, and it's generally put in flat. I think that's about the same number they get in there for 2013. So the O&M activity for us, it needs to be done consistently year-after-year or you get siltation problems. And that's one of the issues right now is that the Corps Commander is saying he can no longer meet his mandate of maintaining the waterways at the right width and depth because of this staggered funding and lack of funding. But the point is the O&M can be liquidated. It can be awarded quickly, liquidated within a one-year period and the additional funding that the Corps gets for – like to prepare damage on the Mississippi River or coastal restoration and things like that, you have to go through this permitting process and get all the EPA agencies involved. That type work may get awarded this year, but not liquidated fully in the year. So that one is a little harder to figure out, but the O&M portion is pretty steady at the maintenance work.

But there wasn't much of that at all last year just given the fact that it was a series of continuing resolutions?

Yes, that's the problem. Last year, the dysfunction in the budgeting process, that significantly impacts the ability of the local Corps districts to carry out their programs.

And that's what I was trying and point out about Q3 equipment tied up to the dock during Q3 was just extraordinary. That's right after the budget debate got into a logjam and things were just kind of frozen. But we get an approved budget. It just needs to get spent. We're ready to go.

Great, okay. With all things then considered, can you keep gross margin positive? I mean is it waiting for all these jobs to get let here, more mid-year? Or is it the chance that that swings negative again?

I'll start off by saying we're not giving guidance so I just wanted to point that out. But I do think it's all going to depend certainly as we talk about not only this call, but last call. We've implemented programs to contain our costs. And certainly with the respect to the dredging fleet, there is a certain amount of that cost that we can flex down during idle periods; there is certain amount of that that we can't and that includes our labor, key positions and key folks that operate that equipment we think is prudent to retain, even during gap periods. So it's all going to depend on the timing and the severity of any gaps that we encounter here in this upcoming period here.

And then a couple of housekeeping questions. You guys haven't done anything with the buyback authorization, have you?

Not in Q4, we did not. We did certainly in 2011. Since we implemented the program, in the first 3 quarters we did purchased $3 million worth of stock. And again that's just we didn't do any activity in Q4. But that's something that we just continue to evaluate along with the rest of our strategy in that we are implementing right now.

Yes. Board is authorized about that plan for up to $40 million through May of this year.

So given the fact that you actually had a pretty decent year last year from a free cash flow perspective, considering everything else that went on and the fact that you feel like you're sort of entering a trough period here, wouldn't that suggest that that's a better option here in the near-term?

I think it is something we'll continually evaluate discussed with our board. But I can't comment on the timing of purchases.

Last thing, Mark, what was the amount of the property tax trough that hit the SG&A in the quarter?

It was about $600,000. So ex- that, we would have been flat on G&A and one thing I would want to point out there is we also did make an impact with our cost containment efforts on G&A. The one thing, though, that partially offset that was our Group Health expenditures which just as a reminder we're largely self-insured on Group Health. And so that's a little more difficult to control on a near-term basis and particularly with some of the changes going on in the healthcare laws in this country. But we would have been flat year-over-year ex- that true-up.

So again, kind of understanding you guys are providing guidance, as we think about SG&A for the full year '12, I would assume that should actually be lower, year-on-year?

It probably, I guess, fair assumption would be that it flat or down, but again, we only when we don't get too specific there as we are not giving guidance.

And next question comes from the line of Trey Grooms with Stephens Incorporated.

So kind of back on the margins here, you guys were definitely accepting lower margins to rebuild backlog and it's obviously this is generating more contract wins for you guys but how do we think about kind of the mix of lower margin bidding with higher fleet utilization and the impact that that could have to overall margins this year?

Utilization is important. We are not bidding work below our cost. We are not trying to buy work. And we are bidding with margins that are lower than our historical norms, but we realize in order to get work you have to match what the current market is. There is still a lot of pressure out there amongst our competitors. We've seen some companies that have gotten into a jam, had bonding issues and their livelihood of being viable is in question. And we're trying to maintain a strong balance sheet. And in order to do that and keep our cash flows intact as we have done we've got to keep our equipment utilized as best we can. So I think the margins that we've got in here are reasonable. The issue is not having continuity between projects, can cost deterioration to your gross margins that you bid. So by increasing our volume, we believe that we'll mitigate that downturn for utilization.

And just follow on the Trey, certainly some of the work that we've announced recently. And again, not all projects are going to be similar. Some are going to use less equipment than others. But part of what our effort is to impact the utilization of equipment, because that does have a positive impact on margins. And certainly, the other aspect of that is in getting backlog up and again, this is a general statement because again, there are certain issues with the dredge fleet that are unique to that versus some of the other issues. But in getting backlog up, getting equipment utilized then what that allows us to do is to begin the process of testing margins upward, testing, pushing margins up or down that next bid that comes out. So that's a key part of trying to get where we want to be.

So is it, I guess kind of looking out into the industry and the competitors that you have out there, I would assume that most folks are kind of taking a similar approach to -- lowering their threshold for margins or their margin discipline, I guess. I mean, what you guys are doing, is that similar to what you're seeing out in the industry?

I think what we can say is, we know what it takes to get a job at a reasonable margin and it may be below what we had liked to get. But we have seen several cases of companies that are obviously bidding below their cost and we don't intend to fall into that trap. Time’s not worth buying a job.

And I guess, Trey, though that the other, I guess, color I would hang on that is it does seem -- and I think by definition the fact that our win rates ticked up, our book-to-bill has ticked up and we're very pleased with that. The fact that, as Mike said, we're not going to bid below our cost to try to buy work. That the fact that we're building backlog or winning some work here at better percentages, I think it's a general statement we're seeing a little bit less of that irrational pricing out there that was really intense last year and impacted us significant last year. So I guess, I think again, pricing pressure is still tough out there but it seems like that irrational bidder on any given job, is it happening a little bit less frequently than we saw it 12 months ago.

Well another aspect too, about some of these bigger jobs we've been announcing award on is it's utilizing all of our services so some of these projects involve construction, dredging, diving, demolition, the whole kit and caboodle. So those are the types of projects that we like to see where all of services are required and we'll get opportunities to pick up following work in the area there.

And my last question, when we look at historical margins for the company, is that a level that you think you can get back to has there been any kind of fundamental change in the industry or in your business at Orion that would create kind of a longer term margin expectation to be different than what we've seen historically?

No, our goal and our belief is that we think that the end markets are there. The strength in the end markets over the long term are there, we think that ultimately some of the funding issues that are impacting a various of the end markets eventually get resolved. So our belief is and our goal is to get back to our historical norms. And we do think we'll get there. I mean certainly, this is kind of been a tough recession, a tough economic environment but we think ultimately this changes and like I said, we think some of these things that have impacted the short term results eventually get resolved. I mean, again, we think we're in for some few more rough quarters. We think we're going to see some of this pricing pressure over the near term but we do think over the long term that we get back to the environment that historically we've been at.

And when you say environment, I mean is it that with that environment; kind of a historical normal environment, is that an environment that would allow you guys to get back to historic margins or has there been anything change that would...

That's certainly our goal and objective. So I guess your question is that do we think there has been a paradigm shift in the long term in terms of our ability to generate margins. I think the answer is, in the long term, no. We do not think that; we do think we will be able to get back to that. It's a matter of time. We can't nail it down on exactly when we think that that occurs but certainly we think that does occur and certainly that's our objective to drive back to that.

Next question comes from the line of Jack Kasprzak with BB&T.

I think you guys mentioned with regard to the BP work where they set aside $1 billion that you've seen. $60 million of projects approved. Are you guys disappointed with that? Is that in line and when or over what span of time because it just seems like a small number so what's span of time would you expect to see the bulk of that work hit?

They've just committed to that money earlier this year and have put it into specific projects. A lot of the BP money is going to be spread over 5 different states. Some of it that came out was from immediate dredging, coastal restoration work that we bid on. We were not successful in it. But we're still continuing to see those type packages come out quickly but the bulk of that money is going to be spent on restoration projects that will require an evaluation, comment phase, permitting phase and it may not really kick in really until next year. So that's why only $60 million trickled out there.

We kind of I think said this last year this is our belief on that whole spill situation is it's not unlike hurricane activity. When we see a big hurricane event, we typically expect to see opportunities for us, anywhere from 1 to 2 years out to 5 years plus. I mean it certainly with respect to the massive hurricane that hit the Central Gulf, Louisiana and stuff about 6, 7 years ago, we're still seeing opportunities as a result of that activity. So we've always viewed this as creating long-term opportunities for us. So I don't think we're necessarily surprised, as Mike said, some of the stuff take some time to get teed up. We've got this $1 billion that they've committed to and then behind that we'll have to see how this plays out. But there's the possibility that a significant portion of the funds [ph] under the Clean Water Act could also wind up funding opportunities along the Gulf Coast and so we'll keep monitoring that. But I think the news for us there is that that may provide a longer-term funding source over the next several years to execute work.

The 22% Q4 win rate you mentioned was higher than what you saw in the first 9 months. Can you remind us what was in the first 9 months?

In the first 9 months, it was in the low, like 10%, 11% in the first few quarters of last year.

Q3 was just over 11%.

So it was kind of in that 6%, 7% to 11% per each quarter in the first 3 quarters last year.

Why do you think-- do you have a sense why the private sector seems to kick up, improve in fourth quarter?

Well, there's a lot of activity in the oil and gas sector, and refined products and terminals associated with transport of oil and gas products. And you even see on the southern route of the Keystone pipeline, looks like it's going to get constructed in spite of all the debate that's been going on about that. And we just see a lot of our private clients going forward with some of their development plans. And we're even seeing projects like coal export taking place and LNG. And we're just pretty excited that we have been meeting the private sector to get building [ph] again. And that's where a lot of our bid activity has been focused on here in the last 3 months.

And lastly, can you tell us your expectation, Mark, for CapEx and D&A in 2012?

D&A should be at similar levels kind of the $20 million, $22 million range, similar to what it was this year. CapEx we would anticipate low-to-mid teens. And just as a reminder, I think for 2011 we were at about $14 million. So we would be at or below that in the mid-to-low teens for 2012.

Our next question comes from the line of John Rogers of Davidson.

Just a couple of points for clarification. In terms of the work that you were low bid on in the first quarter, the $64 million, I mean, that should book in the first quarter?

The bulk of it, yes. In other words, in terms of we would expect backlog and book-to-bill to be up in Q1 based on those getting into booked work.

I mean with what you've announced and that I mean your bookings are going to be very, very substantial. ..

I think that's a story that our strategy is really working. That's exactly what we need to have happened. And we're pleased in that regard.

And, John, just to clarify, in case I wasn't clear. The projects that we have announced including the ones today, they are in booked work. So they are under contract for Q1. They're not in $164.5 million that we reported as of 12/31.

But I mean it looks like you've got about $135 million in bookings in the first quarter or you do, potentially?

It all depends to that $64 million, the one that was low bid, if all those do come in this month and if we could contract underneath them, then it's an absolutely, yes.

Sometimes we can't control the exact date of the signing the contract. But we feel confident that those projects are...

Right. The ones we have announced, are in the first quarter, will be in backlog by the end of the quarter or are in backlog; the $70 million. The ones we're low bidder on that we talked about out of the $200 million that we have outstanding, those may or may not be, that timing is somewhat out of our hand.

Sure, fair enough. But I guess, my question comes down and I realize it depends on whether it's construction or diving or dredging. But at what point do you have enough that you kind of back off in terms of pricing?

Well, it's going to vary region-by-region and I will say that I think in some of the regions that we're in we're kind of getting to that point. In other words, we're getting to a point where, as I said earlier, we start getting backlog in utilization up, we can begin to think about testing the market in terms of better pricing. And so I think in a couple of the areas where we're at that point. Again, that’s not to say that it's going to turn on a dime where we're going to see that immediate impact, because there's a longer-term issue there in terms of getting the win and getting in the queue to execute on. But the encouraging point is that we think in a couple of the areas we're to the point where we can begin testing margins.

Okay. And I don’t know if you can answer this but looking at your revenue over the last couple of quarter and your margins in there, is there a reasonable expectation or can you comment on what level of revenue do you need now, given the current market environment, to get to breakeven?

Well, John, it's variable. Because it's not necessarily a revenue thing, it's what the margin that you have in the revenue. So of course clearly the lower the margin on a set of project, the more volume you need to breakeven. You know how that works.

Given the current pricing environment?

It's kind of difficult to answer that question, given the fact that we're not giving guidance. But clearly our objective and our strategy is to get to that point. And as we've said, we do think we've got a few more rough quarters here. But clearly that's what we're driving towards as to get exactly where you're saying to get to that point of first breakeven, but then return to profitability.

But is there a point with the business at its current levels that you have to look at goodwill charges?

Well as you know, we're required to look at that every year, at least annually. I mean it's a fair question. It's something we look at given the environment we're in. We look at just informally. But it's part of the process. Currently we do not have an impairment. But obviously, that's something that we'll have to continue to monitor as we move forward in the current environment and depending on how things play out in the next 12 months or so, obviously, we'll be revisiting that.

And just lastly, Mike, you referred to this as well, but there is some report of the private companies that are just really struggling in this environment. Are you seeing equipment available and are you tempted to look at it?

There is plenty of equipment out there. Right now, I think we're going to stand pat on our CapEx. Not make any substantial CapEx acquisitions of equipment. We could, we know there's equipment out there. But I think we just want to preserve our cash until we get through this trough and get our run rate back up positive. We don't need anything right now. I think we're just looking at more preserving our fleet, refurbishing our fleet, modernizing our existing fleet and we'll just ramp on top of that for the time being. And would like to get in a much stronger position before we look at taking on any more big assets.

Our next question comes from the line of Min Cho with FBR.

Most of them have already been asked and answered. But a couple of things, I'm kind of going back to John's question about the available equipment. At what point do you look to sell some of your idle equipment? I mean, I understand that the outlook right now looks pretty promising. But how much longer are you willing to hold on to it in anticipation of business improving?

Well, I think certainly for the near term, I mean again I think that we've got with the work that we've picked up, we think we'll have a good utilization by the end of the year in a substantial part of our fleet. Certainly, the dredging fleet is one of the areas that's been impacted the most with the utilization issues. And we believe strongly that that's an ongoing recurring need that will be addressed, despite some of the federal government dysfunction that we saw last year and quite frankly into this year. But we think certainly, obviously, we continue to always look at what's the best long-term strategy for us. So we'll continue to do that. But we think that the work gets done. We don't think this is a matter of the work going away, it's just work being deferred in terms of dredging work.

But I got to tell you with the pent-up demand that there is for dredging of ports and all, we don't see the need considering a substantial sale of our assets in that market. I think that's just a market that will turn around eventually. And we want to be position to capitalize on it. We had our entire fleet fully utilized when we started off the year last year. And by summer, half of it was tied up to dock. And that is an extraordinary situation to be in, in this country, not just our company, but in this country to let that happen. And we've watched ships run aground. They're having great difficulty in certain sections of the Mississippi River and Gulf Intracoastal waterways. And that situation will have to be rectified. So when the gates open, we want to have our fleet ready to go. And that's just kind of way I look at that. I mean every year, Min, we look at equipment that is beyond its useful life or we're spending more money on it than what we can justify and we’ll either cannibalize sale or what have you of those assets. But the prime movers in our dredging fleet, Min, we're going to invest money to keep those going and operable. That's where the bulk of our CapEx, maintenance CapEx is spent.

It's obviously good to see the pickup in backlog even at the lower margin. So can you talk to us a little bit about the overall margin within backlog now versus where they were at the beginning of 2011? Are we talking kind of overall margins being down 5% or 50%? Any type of ballpark there?

Well, it's tough to answer that, because we're not giving guidance. But I think it's fair to say that margins have been pressured certainly. I think it's a fair conclusion to make that they're going to be down from historical norms, because again we've had to adjust pricing to build backlog and certainly that's reflected in the win rate and in the book-to-bill ratio. So I think it's a fair assumption to say that they're down from historical norms. Again, it's difficult for us to get very specific there, because we're not giving guidance.

And then, finally a question on the private sector. Mike you mentioned the businesses that you're tracking are about 39% is in the private sector. Outside of the oil and gas and some of the coal and kind of transportation terminals, what other private markets are you tracking right now, you see an improvement in?

In the container terminals, bulk cargo, all those type businesses are on the rise. We're seeing a lot of developments all along the Gulf Coast and East Coast associated with cargo transport.

And we're beginning to see some private sector opportunities, just kind of across the Board, in the Caribbean market as well. So we're encouraged about activity picking up in the private sector.

Our last question comes from the line of Rich Wesolowski with Sidoti & Company.

How much of the $200 million in bids outstanding was from the Pacific Northwest?

Rich, we don't break that down. But I do think just as a general comment, we're encouraged about the activity in the Pacific Northwest. As you know one of the announcements we made this morning on projects was up in that division. As we've talked about previously, that was an effect of greenfield expansion for us. And we think we're pleased with the progress, with the market up there. We're starting to see that all come to fruition. And again the announcement we've made this morning was a big win. The biggest award we've gotten up in that region. So we're moving forward with getting to a run rate that we want to see with the current assets that we have out there.

Do you have bids outstanding in the Pacific Northwest that are larger than the award that you booked today?

Absolutely, we've pursued projects from the Seattle/Tacoma area all the way up to Alaska and British Columbia. And we've got bids that are outstanding that we may have an opportunity to get some of those bids. And we're pretty excited about seeing some larger projects in that area coming out to bid that set our equipment good. And I think there will be more to talk about, down the road.

Separately, your Army Corps bids have not been strong as what I would have expected from their O&M budgets and the supplemental fund they've received. I realize they're bidding a seasonal. But I'm wondering at what time of year would you become worried that they're not spending the money that they've been allocated this fiscal year?

Well, we announced that big project down in Corpus Christi. That was a pretty significant dredging job that we got earlier in the year. And I think there will be a few more come out during second quarter. But what we would really like to see the Corps doing is very actively bidding during the first quarter. And this looks like 2 years in a row, where they're just going piecemeal and it probably won't be the second quarter until they really kick in again.

But certainly, as we said earlier their fiscal year ends September 30, so they got to spend it. And the government agencies, they know if they don't spend what they got, they're in danger of not getting -- it impacts their follow-on budgets and stuff like that. So I guess, as we go through the summer, if we don't see a pickup in pace then we'll be probably concerned at that point. But certainly as we saw last year, we saw flurry of activity in late summer into September as they got towards the end of their fiscal year. So you just never know with them. I mean, certainly what we'd like to see is a steady pace of projects. But sometimes that happens and sometimes they dump work all out at all once as they get closer to the end of their fiscal year.

It sounds like you would hope or expected that we would see something at least by early to mid-May when we talk about your first quarter results?

We would have certainly at least like to see them have stuff on the docket. Again, well how much they actually bid and award by then is an open question. But certainly by that time we would hope that we start seeing the calendar stack up for bid dates.

And last one, especially, when the bid margin in the market is as tight as it is today, understand that when you're working on a project in a specific location and you have your equipment there already, it leaves you better positioned to win the next job or ancillary work in that region. Does that potential to follow on work actually, how great an influence is that as to which jobs you bid, and how tight you bid them and which areas do you have anchor projects now that you would think leave you better positioned to get more follow on work?

Quite frankly, we try to get what you do said, an anchoring project in each of major area with our subsidiaries. And build around that during the year. And I think we've been accomplishing that goal with this strategy of lowering our margins like that. And I do believe we'll have some follow on opportunities.

And Rich, that's been long employed strategy of ours even when we had better markets than we have today. So that certainly always factors into our thought process, in terms of positioning ourselves for follow on working to those coming out and so we look at that continually and as we are today. And it's a function of the margin environment we're in today, but it's still a process and a thought process we go through on an ongoing basis.

We have no further questions at this time. I would now like to turn the call back over to, Mr. DeAlmeida, for any closing remarks.

Thank you. On behalf of our Orion Marine Group, we'd like to thank you for taking the time to talk with us this morning. And we look forward to speaking with you in the future. Also if you have any follow-up questions, please feel free to give me a call. Thanks and have a great day.

Ladies and gentlemen, that concludes today's conference. Thank you so much for your participation. You may now disconnect.