Welcome to the Second Quarter 2012 Orion Marine Group Incorporated Earnings Conference Call. My name is Monica and I will be your operator for today’s call. I’ll now turn the call over to Chris DeAlmeida. Mr. DeAlmeida, you may begin.

Good morning and welcome to the Orion Marine Group Second Quarter 2012 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’ve allocated about 15 minutes for prepared remarks, in which Mike and Mark will highlight our results for the quarter and update our outlook for the year. We will then open up the call for sell-side analysts questions for the remainder of the time. During the course of the conference call today, we will make projections and other forward-looking statements regarding, among other things, our end markets, revenues, gross profit, gross margin, EBITDA, EBITDA margin, backlog, projects in negotiations of pending award, as well as our estimates and assumptions regarding our future growth, EBITDA, EBITDA margin, gross margins, administrative expenses and capital expenditures. These statements are predictions that are subject to risk and uncertainties, including those described in our 10-K for 2011, that may cause actual results to differ materially from those statements. Moreover, past performance is not necessarily an indicator of future results. By providing this information, we undertake no obligation to update or revise any projections or forward-looking statements, whether as a result of new developments or otherwise. Also, please note that 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 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, August 2, 2012, and our quarterly and annual filings with the SEC, which are available on our website, for additional disclosures 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. Mike?

Thank you, Chris, and thanks for joining us this morning. Before I start, I’d just like to take a moment to thank my over 1,100 co-workers for all of their hard work and dedication through these tough times. Our people are our most valuable asset and it’s because of their efforts that we’re headed in the right direction. Now turning to our results and market outlook, we remain confident in the direction and the long-term strength of our business. As you can see from the results we released this morning, our second quarter showed many signs of improvement over the first quarter, including a sequential increase in revenue, improved gross margins, and improving bottom line results. And we anticipate this improvement will continue into the third quarter as well. However, we remain in uncertain times with continued macroeconomic pressures such as the low GDP growth rate. During the quarter, we tried in many cases to push bid margins higher, but this was met with limited success. As a result, we saw our backlog drop slightly sequentially, but we still have a strong backlog level and we’re well positioned for the future. It’s also important to note that our win rate is improving for the third quarter. Additionally, we’re not seeing an increase in irrational bidders and bid margins seem to be holding steady albeit at lower levels than we saw a couple of years ago. We believe if we continue to drive higher volume of revenue even in today’s bid margins, we can return the company to profitability and that remains our number one focus. Clearly, we’ve been through a rough patch, but we’ve made changes where necessary, we’ve controlled cost and we’re now seeing results move in the right direction. Now, as we look at the market as a…

Thanks, Mike, and thanks for joining us. For the second quarter 2012, we reported a net loss of $5.4 million or $0.20 per diluted share, which compares with the $3.2 million net loss or $0.12 per diluted share in the prior year period. Second quarter contract revenues decreased 5.3% year-over-year to $67.1 million, of which 53% was generated from Federal, state and local government agencies and 47% from the private sector, which compares to 78% from Federal, state and local government agencies and 22% from the private sector in the prior year period. During the second quarter, we bid out approximately $310 million worth of opportunities and were successful on approximately $52 million. The 17% win rate achieved during the second quarter is slightly below our recent quarterly averages, as we strategically pushed up bid margins on certain projects which met with limited success. This contributed to a book-to-bill ratio of 0.68 times. As we look at the next 12 to 18 months, we expect to continue to see strong market opportunities for marine construction projects, however, with continued bid margin pressure. On projects involving dredging services, we’re hopeful that lettings will pick up as we near the end of the Corps’ fiscal year. While the House of Representatives has passed the fiscal year 2013 Corps budget, there remains to be seen if the Senate will take action to pass the full year budget before the end of the fiscal year 2012 year on September 30. Recent developments in Washington suggest the federal government will operate under a continuing resolution rather than a budget for the first half of fiscal year 2013. Turning to backlog, as of June 30, 2012, we had a backlog of work under contract of $193.7 million, of which 26% is for federal government projects, 22%…

Thank you, Mark and Mike. We would now like to open up the call for questions. Monica, would you please review the procedures for placing a question?

[Operator Instructions] Our first question comes from Rich Wesolowski of Sidoti & Company.

What percentage of the Corps’ fiscal 2012 O&M budget would you guess has been allocated so far?

Probably the majority of it. I mean, partially, it’s an issue of where they get -- where they -- which projects they fund. They are a little behind in our market areas in terms of what they’ve let so far. We do expect that we’ll kind of see what we saw last year with sort of an uptick in bid lettings in the August and September timeframe, and we saw that last year.

So is the Gulf Coast and the Pacific Northwest getting less money as a share of the budget than it had in previous years?

No, I don’t think there’s any significant change on the apportionment, it’s just been kind of hit and miss on the lettings coming out quickly. I think we went and compared remaining lettings that we see for the balance of the year, particularly Galveston and New Orleans, and compared it to the prior year, and it’s about the same in Galveston. I think we got about 5 lettings to go and that’s about the same that was left in the last half of last year. And I think in New Orleans, it’s a little bit higher because they got some marsh creation projects, but very similar to last year, with just big gaps between bids.

And the other thing I’d point out, Rich, is it depends on what type of projects come out as well. So in other words, if the Corps in the districts we operate in are putting out work that’s suited for hopper dredges versus our equipment, even though they are liquidating their budgets and it’s similar to what they had, that’s not necessarily going to help us.

Right. So the heart of my question is does the Corps’ fiscal 2012 lettings, did that offer and will it offer by the time September is done, Orion the same opportunity as it did a year ago?

Yes.

We think so.

Okay. So considering that there has been, by your reports, very little to bid on to date, you would expect a real flurry of activity in August and September and is that what your RFP tracking system is telling you?

Yes.

That’s correct. This month, we expect about 3 lettings and another 2 the following month and well, like for Galveston. And so it’s pretty much on track and I think we’ve got indications of the continuing resolution in Congress for 6 months, so that should open the door to go ahead and release balance of that money.

Great. And secondly, I appreciate the low win rate for 2Q relative to the last couple of quarters as a function of your pricing, testing the waters, but the volume of bids was a good deal lower than what we’ve seen over the past year. And I’m curious if you have any comment on that. Thank you.

Rich, I think that’s mostly a function of seasonality. I don’t think there’s any cause for concern there. It’s actually up over what it was in the same quarter a year ago. And that’s just attributable basically to the seasonality. We do expect in Q3 we’ll see an increase in the bid volume. And again, that’s more a function of seasonality than anything. Our tracking database is up over where it was. And so, we’re still confident that there’ll be work to bid on in significant volumes.

I’m sorry, Mark, I might be talking about something different. I have the $310 million in bids in June this year versus $557 million in June of the year ago. Is that incorrect?

We’ll have to get back. I think that’s -- we show that we were actually up in the volume a year ago. But we’ll double check that and get back to you.

Our next question comes from Jon Tanwanteng of CJS Securities.

It looks like your incremental margins were pretty impressive given your previous commentary around project margin and dredging utilization. Can you go into a little bit more detail on how that improvement was achieved? Was it purely a function of increased utilization and was dredging a component of that?

Well, part of it is we’ve had excellent performance in the field. Our productivity has been good. We’ve been hitting our numbers and our estimates. And so hats off to the guys in the field for delivering.

And then you said you expect margins to continue to improve. How much of this do you expect from better bidder project margins on the backlog and how much from better utilization?

Well, I think it’s -- as we said, bid margins are going to continue to be pressured. And as Mike said, we’re pleased with the execution that the guys in the field have done. We expect we’re going to continue on with that. Bid margins are going to continue to be pressured. And of course, as we talked about in the remarks, we just want to run the volume as much volume as we need to while at the same time controlling our cost and executing in order to get back to profitability.

Well, I think the other thing too, the seasonality, Q3 is always a strong quarter for us with the exception of last year where we had dredging gap, but we’ve got a substantial backlog now and we believe we’re low bidder on quite a few projects that will be awarded in the third quarter. And Q3 being long daylight hours, summer, our utilization should improve and those are kind of the drivers.

Got it. So just to be clear your dredging utilization didn’t changed that much?

In Q2, it didn’t change that much. We may see, again, a pickup of that in Q3 both through the Corps lettings that we just talked about, although that could potentially be more in Q4, but also private sector opportunities for the dredge fleet.

Okay. And then just lastly, what gives you the confidence that after the budget fuss that the Army Corps lettings would normalize compared to the last 2 years even with the continuing resolution?

Well, partially, our preference would be to have an actual Corps budget in place for the full-year. I think though that if we have to have a continuing resolution situation, having a 6-month resolution is better than what we’ve seen in the last couple of years where they just sort of kicked it a little bit down the road in the tail end of the calendar year before they got something put it in place. So, I guess the fact that we’ll have a -- potentially have a CR that runs through the first quarter of 2013 -- first calendar quarter of 2013 could provide some stability within the Corps letting process. And so we would anticipate that that might provide better atmosphere than we saw in the last couple of years.

Our next question comes from Trey Grooms of Stephens Incorporated.

So when you’re talking about bid margins continuing to be pressured, how do we think about margins as we kind of go forward with -- if you’ve got steady bid margins, but you’re going to have better utilization of course and you kind of pointed to having better or some margin improvement in the third quarter, but how do we kind of think about the impact of higher utilization on margins?

Well, if we don’t change our bid margins at all and improve our utilization, our gross margin will go up.

And essentially, exactly, because what we’re having and what we saw a little bit of this in Q2 is, is that the absorption of sort of the indirect component of COGS gets absorbed in the jobs by that higher utilization. So, therefore we have improvement in gross margin.

Yes, I understand that. I’m just wondering if you could give us any color on how to think about or maybe quantify that a little bit more, as utilization rates improve, what -- how does that translate into gross margins at the current kind of bid margins?

Well, I think the only thing we can say, Trey, because as you know we don’t give guidance, so I think what we can say is sort of what we’ve said in the remarks and the release is we do expect to continue to see that improvement as we go into Q3. I think the function of driving a higher volume of revenue, which again as we talked about in previous calls and releases as we get into the second half of the year, a lot of this work that we’ve picked up in backlog in the first half of the year and late last year gets going in earnest. So we would expect to see volume increases and that would therefore translate to utilization increases and then continue the trend of improvement in gross margin.

Okay, well, thanks for that. And so with BP money hopefully coming into the industry at some point, what kind of impact do you think this could have? Will it be enough to kind of tighten the market in the Gulf? I mean do you think that that could lead to a decent amount of increase in demand for you guys?

Well, that’s certainly what we hope. And I can tell you this, there’s a lot of projects being planned out there. Now, the BP money that has not been fined and allocated yet and the projects are in the process of being identified and prioritized and it may be a year away before we see actual implementation of some of those projects, because they got to go through the permitting process and so forth. But already we’ve seen a few packages come out prior to the BP fines that are associated with marsh creation and that’s a positive to us. We think the stage is getting set to where there could be quite a few marsh creation projects take place a year out from now.

And we do think it’ll definitely have a positive effect on the marketplace because it’ll have a positive effect on the capacity -- using the capacity in the marketplace.

Yes, I think another thing to point out is we’ve seen pretty flat poor budgets for year after year, and we’ve looked at the 2013 budget that was part of the FY2013 Energy and Water Appropriations package, and the O&M part of that was actually up about 4% from 2012, so that’s a slight uptick in O&M funds. But the thing I’m encouraged about is this is the first year we’ve seen Congress request the Corps to give them direction on what needs to be done to address the widening of the Panama Canal, what is our nation need to do. And they commissioned a study to be carried out by this institute of water resources with the Corps. It’s very enlightening and just demonstrates that they’re going to have to relook at the Corps’ budgeting allocations, the appropriations that have been given to the Corps. It’s inadequate. We’re not going to be able to get these big ships in without huge resources from the federal government to make that happen and they’ve given a number of options in here on how to address this, because we’ve always said the Harbor Maintenance Trust Fund is the quickest solution, they just free up the balance, but there’s a lot of other options being considered and one is just let the port authorities administer this themselves. So it’s finally getting some attention and as we know there’s not going to be anything done this year with Congress, but the fact that it’s on the table and it’s there to be addressed next year when we get some clear direction on -- the political direction on how Congress is going to proceed. Kind of a long-winded, but it’s really an important issue there.

Right. So I mean at the end of the day, over and above the Corps budget, I mean it seems like, if you look out, you guys got several things kind of moving in your direction on -- at least in the demand environment with all these port expansions, BP funding, all of these things, what would it take to get bid margins back up in the industry? I mean is the -- how quickly could that happen and can the industry get back to its historical margins because last time you had things kind of moving in your direction, you guys put up outstanding margins. And I’m just wondering what it would -- how quickly can we get back there?

Well, the short answer is we wanted to get there as quickly as we can. The longer answer is you’re absolutely right that there’s -- it seems like we’ve got some positive drivers out there and some momentum on some things and we talked about that on our remarks. I guess it could turn fairly quickly. When that happens is the open question, I mean, that’s the question both you and I want answered, but I guess partially too there’s -- as we talked about in the remarks, with these macroeconomic factors out there and GDP growth at 1.5% in the second quarter, that’s one of the -- that’s kind of the big domino we’d like to see fall because I think partially it’s a matter of what the business confidence is out there. And I think that definitely impacts how -- what the bidding environment is. And again, short term, we still think as we talked about we’re going to continue to see some bid margin pressure. But I think as we start seeing more confidence out there in the overall economy that can change. And in particular to your point about how quickly it can change, it can change very quickly with respect to the projects that involve our dredging assets, because that -- there’s different dynamics there. And as we talked about particularly at some of those BP funding gets injected sooner rather than later, and the effects of that, we start feeling out there, that bid market environment for projects that use the dredging assets can change much, much quicker than some of our other equipment. So again, we like the things that have happened here recently with the passes of the Transportation Bill, the RESTORE Act language being included in that, but we’re going to be realistic, we’ve still -- we’re not out of the woods yet, we’re moving in the right direction, we’re pleased with our process of building backlog. But one of the next things we’d like to see to drive us back to where we were a few years ago with respect to margins is the pickup in GDP growth.

Our next question comes from Jack Kasprzak of BB&T Capital Markets.

You mentioned the RESTORE Act language in the Highway Bill and also and of course RAMP Act language, and I was wondering if you could just give us your impressions there while it fell short of requiring spending all the money that the ports collected certainly recognizes that that’s been a shortfall and something that needs to be addressed. Should we be hopeful at all that we’ll see more of that money that the ports collect to actually spend for its intended purpose?

I still think the RAMP Act has an opportunity to be meaningful. It’s not going to have an impact obviously this year with this Congress. But the language that was included was a sense of Congress in them that is what they referred to it as and it’s just is encouraging that they’ve even got it into the legislation. But it’s a non-binding agreement. It urges all the congressional members to remedy the Harbor Maintenance Trust Fund issue once and for all. We had hoped that they would put language in there that would say that they would fully utilize the entire Harbor Maintenance Trust Fund collected towards dredging, as the law was intended. That language did not come out that specific. It’s all part of the budget battle and I think this will sort itself out. I think both sides of Congress, Democrat and Republican, both agree that this is the simplest solution to -- going towards getting a quick solution for the dredging shortfall that we have in the nation. But it’s politics. It’s still up for play, but I’m encouraged at least it’s on the table now.

And I guess just following on that, I mean again we’re encouraged it’s on the -- it’s getting the attention it should get and I guess our other thought on that would be is that our view is that as the Panama Canal, as we get closer and closer to the completion of the widening of the Panama Canal, I think that’s just going to put highlighted pressure on this issue and that maybe the final catalyst that pushes us over the finish line.

Great. Fair enough. And Mark, I just didn’t catch your, you mentioned balance sheet comments I believe in your prepared remarks, could you just please repeat what you said? I just didn’t catch them, sorry.

I believe we were talking about the credit facility.

Yes.

We’ve amended our credit facility. We’ve addressed the covenant compliance issues that we previously had in the first quarter. As part of that process, it released the restrictions we had on cash. If you noticed on the balance sheet that’s included in the earnings statement, there’s no restricted cash on the balance sheet at this point. And we believe we’ve got adequate availability under the facility at this point to carry us through the next period here.

[Operator Instructions] Our next question comes from Matt Tucker of KeyBanc Capital Markets.

The first question is on the bidding strategy. You mentioned that you had gotten a little more aggressive on your bid margins last quarter with limited success. Wondering what approach you’re taking, this -- during the third quarter, you mentioned the win rate is going up, is that because you’ve kind of backed off on pricing here?

Well, we have backed off a little bit, but no more than what has secured the backlog to date. We feel like we’re headed in the right direction. We’re continuing to build up the good backlog and we’re building up a good backlog for 2013. I mean, if you look at where we’re at now compared to a year ago, we’re about 3 times greater backlog than we were a year ago. So we think we have the right target and we’re going to stick with that and continue to try to push upwards where we have the opportunities. And there are some cases where we’ve been able to do that.

And sort of follow-up to that, have you kind of backed off, come back to the levels that you were bidding at second half of last year or are you now kind of somewhere in between what you were trying to do in the second quarter and where you were before that?

Well, it’s on a case by case basis. But I think, I guess in general, I’d just reiterate what Mike said a minute ago. I mean, as we went through the fourth quarter last year, first quarter this year with a higher win rate, where -- no -- bid margins are no lower than that. So I guess that’s the good news in the discussion as we don’t think things have deteriorated. They have not gone any worse. We’re not seeing an increase in irrational bidding. So that’s a positive. But as Mike said, we’re going to continue to test where we can, but we’re also going to or have pivoted to make sure that we maintain an adequate backlog. So we’re going to continue to do what we need to do to maintain a good positive backlog, while at the same time looking for opportunities where we can start pushing it.

And then you guys have mentioned several times in the past that the lack of a long-term Transportation Bill was contributing to some of the competitive -- was contributing to some of the competitive headwinds you’ve been seeing in your marine construction business. I’m wondering now with the passage of a longer term Bill, are you seeing or expecting in the near term some of those competitive headwinds to abate?

I think it’s something we’re going to have to monitor here. My belief is that by the time projects actually kick in, it may be the third quarter next year simply because you got to get these projects designed, get the RFPs out and all that. So the first half of next year, I’m not expecting there to be any real impact. It’s more of a latter part of 2013.

And again, it’s just something we’re going to have to monitor. Hopefully, it does. I mean, again, as we said in our mid-period update, we would prefer to see a longer bill...

Five years.

Five years in minimum like we historically have had. But it’s better than operating the way we’ve been operating the last 3 years with just a series of continuing resolutions. So hopefully, it does provide some visibility in the marketplace and some confidence there with respect to the competitors and provides the visibility that everybody needs to see with these larger project lettings from these DoTs and -- but we’re just going to have to keep monitoring that. It’s definitely a positive development.

That’s helpful. And last question, it seems like the private sector is really been growing in terms of the mix of what you’re bidding on. I’m wondering when you look at the types of projects on the private side that you’re going after, how much opportunity is there to put your dredges to work on the private side and pick up some of the slack from the lack of Army Corps work?

Well, that’s ongoing right now and I think we’ll see that in the third quarter. We’ve picked up a number of private projects that have large dredging components in them. And one of our strengths is being able to pursue turnkey projects that require construction and dredging and the whole bit. And so we’ve been successful in securing some of those opportunities and I think the bulk of investment in all these ports is really going to come from the private industry as opposed to the port authorities.

We have a follow-up question in queue from Richard Wesolowski’s line of Sidoti & Company.

There was recently an article in the LA Times discussing $6 billion in port construction at LA and Long Beach that was progressing at a breakneck pace. I’m curious, your thoughts on the difference between those ports and the ones that you serve in the Gulf Coast and maybe the Pacific Northwest that would explain the night and day view of construction activity?

Well, it’s little bit different environment to develop on the West Coast as opposed to the Gulf and the East Coast. First of all, you’re constrained with acreage available. And a lot of their money has been spent in upgrades, enhancing handling equipment, crainage. One of their challenges has been cargo coming in at the port and staying idle too long before it gets to market. And that’s what they’ve been trying to address. But when you look at the Gulf Coast, there’s plenty of undeveloped acreage that you can go to that won’t get the resistance of local populace. You have a better opportunity to get your permitting, EPA, favorable reviews, and I just think particularly the Gulf Coast, both Texas, Louisiana, Alabama, those ports I think would be very, very actively increasing their acreage.

And the other difference between LA and Long Beach and the Gulf Coast and Southeast Atlantic ports is one of the big issues that needs to be addressed in the ports in the Gulf Coast and Atlantic is deepening of the ship channels and the harbors and that’s not an issue that’s really out there. So this massive dredging component for the future development of these ports in the Gulf Coast and East Coast is something that’s not really an issue in LA, Long Beach. It’s more of the function of the things Mike talked about.

We have a follow-up question in queue from Jon Tanwanteng of CJS Securities.

You did a good job in holding the SG&A line given the magnitude of the revenue improvement. How should we think about that going forward?

We still think that SG&A will for the full year be about flat like we’ve previously said, there’s slight differences between Q1 and Q2, but we still think that for the full year we’ll be about where we were last year.

Okay. And then you highlighted the magnitude of the private opportunities that are in the pipe, any commentary on where you might actually be seeing the strength or the weaknesses, maybe in specific end markets or geographies and maybe where your biggest based opportunity is?

Well, there’s a tremendous amount in kind of the refinery sector and the oil and gas sector. There’s a lot of activity tied to that.

Coal exports.

Coal exports. Of course, we continue to believe that the increase in size and numbers of cruise ships that trade in the Caribbean market will continue to impact both domestic opportunities and opportunities in the Caribbean.

LNG.

So, we’re kind of seeing a cross section. Again, there’s a lot of activity related to the oil and gas sector, but there’s also other opportunities out there that are energy-related, but not oil and gas, and then also the cruise lines and also other types of cargo handling facilities throughout our market areas that we’re seeing in our database.

Yes, I think the ports are going to be focused on container ship traffic in both cargo, and private industry is more towards the products, the oil and gas products, LNG and coal, stuff like that, commodities driven.

You have no further questions in queue at this time. I will now turn the call back over to Chris DeAlmeida for closing remarks.

Thank you. On behalf of Orion Marine Group, we’d like to thank you for taking the time to join us this morning. 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 good day.

Thank you for participating in the Second Quarter 2012 Orion Marine Group Incorporated Earnings Conference Call. This concludes today’s conference. You may now disconnect.