ORN US Equity☆

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of our financial condition and results of operations is based on and should be read in conjunction with our consolidated financial statements and the accompanying notes beginning on page F-1 of this Annual Report on Form 10-K. Certain statements made in our discussion may be forward-looking. Forward-looking statements involve risks and uncertainties and a number of other factors that could cause actual results or outcomes to differ materially from our expectations. See “Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K for additional discussion of some of these risks and uncertainties. Unless the context requires otherwise, when we refer to “we”, “us” and “our”, we are describing Orion Group Holdings, Inc. and its consolidated subsidiaries.

Overview

Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the “Company”), provides a broad range of specialty construction services in the infrastructure, industrial and building sectors of the continental United States, Alaska, and the Caribbean Basin. The Company’s marine segment services the infrastructure sector through marine transportation facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services. Its concrete segment services the building sector by providing turnkey concrete construction services including pour and finish, dirt work, layout, forming, rebar, and mesh across the light commercial structural and other associated business areas. The Company is headquartered in Houston, Texas with offices throughout its operating areas.

Our contracts are obtained primarily through competitive bidding in response to “requests for proposals” by federal, state and local agencies and through negotiation and competitive bidding with private parties and general contractors. Our bidding activity and strategies are affected by such factors as our backlog, current utilization of equipment and other resources, job location, our ability to obtain necessary surety bonds and competitive considerations. The timing and location of awarded contracts may result in unpredictable fluctuations in the results of our operations.

Most of our revenue is derived from fixed-price contracts. We generally record revenue on construction contracts over time, measured by the percentage of actual contract costs incurred to date to total estimated costs for each contract. There are a number of factors that can create variability in contract performance and therefore impact the results of our operations. The most significant of these include the following:

● completeness and accuracy of the original bid;

● increases in commodity prices such as concrete, steel and fuel;

● availability and skill level of workers; and

● a change in availability and proximity of equipment and materials.

All of these factors can have a negative impact on our contract performance, which can adversely affect the timing of revenue recognition and ultimate contract profitability. We plan our operations and bidding activity with these factors in mind and they generally have not had a material adverse impact on the results of our operations in the past.

2020 Recap and 2021 Outlook

In 2020, we recorded revenues of $709.9 million, of which $388.2 million was attributable to our marine segment and the remaining $321.7 million to our concrete segment. In addition, we ended 2020 with a consolidated backlog of $439.5 million. Our revenues in 2020 increased by 0.2% as compared with 2019 and we recorded net income of $20.2 million, as compared with a net loss of $5.4 million in the prior year.

Looking toward 2021, the Company continues to focus on developing opportunities across the infrastructure, industrial, and building sectors through organic growth, greenfield expansion, and strategic acquisition opportunities.

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The spread of COVID-19 has impacted the global economy, leaving supply chains disrupted. As the world uses tactics like “social distancing” and “stay at home orders” to slow and stop the spread of COVID-19, demand destruction has led to increased unemployment and to the weakening of consumer confidence. Although to date the Company hasn’t experienced materially negative impacts from COVID-19, such as widespread project stoppage/cancelations or a slowdown/stoppage of accounts receivables collections, any delays in the timing of future awards could create gaps in the Company’s project delivery schedule across quarterly periods.

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Federal and State governments have increased spending as part of efforts to mitigate the impact of COVID-19 on the economy. The amount and timing of such spending will be directly impacted by the duration of required efforts to contain COVID-19 and the severity of the negative impacts created by the virus and its effect on the economy. Although little progress has been made to date and on a federal infrastructure bill, the Company will continue to track and monitor any developments on a federal infrastructure bill which could potentially create bid opportunities for the Company.

Marine Segment

Demand for our marine construction services continues, given our differentiated capabilities and service offering within the space. We continue to see bid opportunities to help maintain and expand the infrastructure that facilitates the movement of goods and people on or over waterways. However, we have some concerns about the short term outlook for and are closely monitoring the short and long-term cruise line capital expenditures as their current demand has been severely impacted by COVID-19. Further, while we currently see bid opportunities from our private sector energy-related customers as they expand their marine facilities related to the storage, transportation and refining of domestically produced energy, we recognize that the timing of project awards may be impacted as a result of volatility of oil prices due to COIVD-19 related uncertainties. Over the long-term, we expect to see bid opportunities in this sector from petrochemical-related businesses, energy exporters, and liquefied natural gas facilities. Opportunities from local port authorities will also remain over the long-term, many of which are related to the widened Panama Canal. Additionally, bid opportunities related to coastal restoration funded through the Resource and Ecosystems Sustainability, Tourist Opportunities and Revived Economies of the Gulf Coast States Act (the “RESTORE Act”) may arise into 2021. We believe our current equipment fleet will allow us to better meet market demand for projects from both our public and private customers.

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In the long-term, we see positive trends in demand for our services in our end markets, including:

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● Continuing need to repair and improve degrading U. S. marine infrastructure;

● Funding for highways and transportation under successor Acts to the FAST Act;

● Potential opportunities related to the impending federal infrastructure bill.

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Concrete Segment

Demand for our concrete segment’s services continues, although timing of certain new project releases could be delayed as a result of COVID-19 related macroeconomic impacts. We currently see long-term demand for our concrete construction services in the Texas building sector as Texas’ four major metropolitan areas, and expanding suburbs, continuously retain their positions as leading destinations for population and business growth. Population growth throughout our markets continues to drive new distribution centers, education facilities, office expansion, retail and grocery establishments, new multi-family housing units, and structural towers for business, residential or mixed-use purposes. The diversified Texas economy provides us with multiple sources of bid opportunities. Additional demand for concrete services in our markets could be provided by work as part of a federal infrastructure bill.

In the long-term, we see positive trends in demands for our services in our end markets, including:

●Population growth in the state of Texas driven by corporate relocations;

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●Continued investment in warehouse/distribution space in the Dallas-Fort Worth region;

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●COVID-19 driven shift of populous moving from the inner cities to suburban areas;

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●Nearly $7 billion of federal funding provided by the USACE in connection with disaster recovery in Texas; and,

●Potential opportunities related to the impending federal infrastructure bill.

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Consolidated Results of Operations

Backlog Information

Our contract backlog represents our estimate of the revenues we expect to realize under the portion of contracts remaining to be performed. Given the typical duration of our contracts, which is generally less than a year, our backlog at any point in time usually represents only a portion of the revenue that we expect to realize during a twelve-month period. We have not been adversely affected by contract cancellations or modifications in the past, we may be in the future, especially in economically uncertain periods.

Backlog as of the periods ended below are as follows (in millions):

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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Previously reported backlog amounts have been adjusted in the accompanying table to correct for an inadvertent clerical error in the underlying calculation file, as to which steps have been taken to prevent a recurrence. Accordingly, reported backlog has been reduced by $17.6 million and $13.8 million for the periods ended March 31, 2020 and December 31, 2019, respectively. The recent trend of declining backlog is due in significant part to headwinds created by the COVID-19 pandemic in certain end market sectors. We, however, remain optimistic in our end-markets and in the opportunities that are emerging across our various market places as evidenced by the slight increase in backlog during the quarter ended December 31, 2020, and by the $1.6 billion of quoted bids outstanding at year end, of which $96 million we are the apparent low bidder on or have been awarded contracts subsequent to the end of fiscal 2020.

These estimates are subject to fluctuations based upon the scope of services to be provided, as well as factors affecting the time required to complete the project. Backlog is not necessarily indicative of future results. In addition to our backlog under contract, we also have a substantial number of projects in negotiation or pending award at any given time.

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Income Statement Comparisons

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended December 31,

​ Amount Percent Amount Percent Amount Percent

​ ​ (dollar amounts in thousands) ​

Goodwill impairment charges ​ ​ — ​ — ​ ​ — ​ — ​ ​ 69,483 ​ 13.3 %

Other gain from continuing operations ​ — — % — — % (5,448) (1.0) %

Other (expense) income: ​ ​ ​ ​

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Year ended December 31, 2020 compared with year ended December 31, 2019

Contract Revenues. Contract revenues for the year ended December 31, 2020 of $709.9 million increased approximately 0.2% as compared to $708.4 million in the prior year period.

Gross Profit. Gross profit was $84.7 million for the year ended December 31, 2020, compared to $64.0 million in the prior year period, an increase of $20.7 million or 32.3%. Gross profit for the year ended December 31, 2020 was 11.9% of total contract revenues as compared to 9.0% in the prior year period. The increase in gross profit dollars and percentage were primarily driven by margin improvement on projects and efficiencies in labor and equipment utilization.

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Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expenses were $65.1 million for the year ended December 31, 2020 compared to $61.0 million in the prior year period, an increase of $4.1 million, or 6.4%. As a percentage of total contract revenues, SG&A expenses increased from 8.7% to 9.3%. The increase in both dollars and percentage was primarily attributable to the increased accrual of the annual incentive compensation plan during the current year period as compared to the prior year period.

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Gain on Disposal of Assets, net. During the year ended December 31, 2020, we realized $6.2 million of net gains on sales of assets and $2.9 million of net gains on insurance recoveries from involuntary dispositions of assets. This compared to realizing $1.8 million of net gains on the assets we sold during the 2019 comparative period.

Other Income, net of Expense. Other expense primarily reflects interest on our borrowings, partially offset by interest income and non-operating gains or losses.

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Income Tax Expense.We recorded tax expense of $2.0 million for the year ended December 31, 2020, compared to tax expense of $1.9 million in the prior year period. Our effective tax rate for the year ended December 31, 2020 was 8.9%, which differs from the federal statutory rate of 21% primarily due to the movement in the valuation allowance for current year activity, state income taxes and the non-deductibility of other permanent items.

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Year ended December 31, 2019 compared with year ended December 31, 2018

Contract Revenues. Contract revenues for the year ended December 31, 2019 of $708.4 million increased approximately 36.0% as compared to $520.9 million in the prior year period. The increase was primarily attributable to the execution on the larger volume of work in our backlog in the marine segment as well as increased cubic yard production in the concrete segment in the current year period as compared to the prior year period. While overall revenues increased, we did experience a shift in the component mix of our marine segment revenue from the private sector to the public sector when comparing the 2019 period to 2018. In particular, the 2019 period included a large project in the public sector that did not contribute to 2018 results. By contrast, the 2018 period included a large project in our private sector that was not replicated in the 2019 period.

Gross Profit. Gross profit was $64.0 million for the year ended December 31, 2019, compared to $16.8 million in the prior year period, an increase of $47.2 million. Gross margin in 2019 was 9.0% of total contract revenues as compared to 3.2% in the prior year period. The increase in gross profit dollars and percentage were primarily driven by an improvement in labor efficiency resulting from application of activities from the Invest, Scale, Growth or ISG process and improved utilization rates in our marine segment, along with improved man hours per cubic yards placed in our concrete segment. Comparatively, 2018 included unfavorable changes in cost estimates and the unfavorable impact of project disruptions due to unanticipated delays in commencing work caused by customer schedules in the marine segment and unfavorable weather patterns in the concrete segment that impacted the second half of the year.

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Selling, General and Administrative Expense. Selling, general and administrative ("SG&A") expenses were $61.0 million for the year ended December 31, 2019 compared to $53.2 million in the prior year period, an increase of $7.8 million, or 14.7%. As a percentage of total contract revenues, SG&A expenses decreased as compared with the prior year, from 10.1% to 8.7%. The increase in SG&A dollars was primarily attributable to expenses related to the ISG initiative.

Other Income, net of Expense. Other expense primarily reflects interest on our borrowings, partially offset by interest income and non-operating gains or losses. During 2019, we recognized $0.5 million of other income related to previously accrued contingent consideration from the purchase of TBC that was never achieved. Interest expense for 2019 also included a $0.4 million charge related to recognizing unamortized debt issuance costs as a result of the Sixth Amendment to the Credit Facility. During 2018, we recognized $1.6 million of other income on the sale of easement rights for one of our properties in the Houston area. Interest expense for 2018 included a $2.2 million charge related to recognizing unamortized debt issuance costs on early extinguishment of debt.

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Income Tax Expense (Benefit). We recorded tax expense of $1.9 million in 2019, compared to tax benefit of $12.2 million in 2018. Our effective tax rate in 2019 was (53.5)%, which differs from the statutory rate of 21% primarily due to the recording of an additional valuation allowance to offset net operating loss carryforwards and foreign tax credits generated during the period, foreign taxes, state income taxes and the non-deductibility of certain permanent items.

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Segment Results

The following table sets forth, for the periods indicated, statements of operations data by segment, segment revenues as a percentage of consolidated revenues and segment operating (loss) income as a percentage of segment revenues:

Segment Comparison

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ Year ended December 31,

​ Amount Percent Amount Percent Amount Percent

​ ​ ​ (dollar amounts in thousands)

Contract revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Marine segment ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Concrete segment ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

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Operating income ​ ​ ​ ​ ​

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Year ended December 31, 2020 compared with year ended December 31, 2019

Marine Segment

Revenues for our marine segment for the year ended December 31, 2020 were $388.2 million compared to $369.1 million for the year ended December 31, 2019, an increase of $19.1 million, or 5.2%.

Operating income for our marine segment for the year ended December 31, 2020 was $16.9 million, compared to operating income of $1.1 million for the year ended December 31, 2019, an increase of $15.8 million. This increase in operating income included $7.2 million of net gains on disposal of assets. Excluding the increase in net gains on disposal of assets, net operating income for our marine segment for the year ended December 31, 2020 was $8.4 million compared to an operating loss of $0.2 million for the year ended December 31, 2019, an increase of $8.6 million. This increase in operating income was primarily due to project execution related margin improvement and non-direct cost recovery compared to the prior year period.

Concrete Segment

Revenues for our concrete segment for the year ended December 31, 2020 were $321.8 million compared to $339.3 million for the year ended December 31, 2019, a decrease of $17.5 million, or 5.2%.

Operating income for our concrete segment for the year ended December 31, 2020 was $9.7 million, compared to operating income of $1.1 million for the year ended December 31, 2019, an increase of $8.6 million. This increase in operating income was primarily due to the improvement in project margins.

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Year ended December 31, 2019 compared with year ended December 31, 2018

Marine Segment

Revenues for our marine segment for the year ended December 31, 2019 were $369.1 million compared to $243.9 million for the year ended December 31, 2018, an increase of $125.2 million, or 51.4%. This increase is primarily attributable to the execution on the larger volume of work in our backlog in 2019 as compared to 2018 where we experienced $22.8 million of unfavorable changes in cost estimates on certain projects as well as unanticipated delays in commencing certain work due to customer schedules in the second half of 2018.

Operating income for our marine segment for the year ended December 31, 2019 was $1.1 million, compared to an operating loss of $61.0 million for the year ended December 31, 2018, an increase of $62.1 million. This increase in operating income was primarily due to the prior year full impairment of goodwill in the marine segment of $33.8 million, certain projects in the prior year where we experienced unfavorable changes in cost estimates and unanticipated delays in commencing certain work due to customer schedules in the second half of 2018. As a percentage of total contract revenues, operating income for our marine segment was 0.3% for the year ended December 31, 2019, compared to operating loss of 25.0% for the year ended December 31, 2018. The prior year period included $33.8 million of goodwill impairment charges, $22.8 million of unfavorable changes in cost estimates and a $4.3 million reserve on disputed accounts receivable, partially offset by the recognition of a $5.4 million gain on the settlement of a legal matter which did not repeat in the current period. The current year included $3.0 million of ISG expenses compared to none in the prior year. After allowing for the comparative $52.4 million of non-recurring items between the periods, marine segment operating income (loss) improved by $9.7 million.

Concrete Segment

Revenues for our concrete segment for the year ended December 31, 2019 were $339.3 million compared to $277.0 million for the year ended December 31, 2018, an increase of $62.3 million, or 22.5%. This increase in revenue was primarily due to an overall increase in cubic yard production on our projects.

Operating income for our concrete segment for the year ended December 31, 2019 was $1.1 million, compared to operating loss of $39.5 million for the year ended December 31, 2018, an increase of $40.6 million. This increase in operating income was primarily due to the prior year full impairment of goodwill in the concrete segment of $35.7 million and production delays resulting from unfavorable weather patterns experienced during the first and third quarters of 2018. As a percentage of revenues, operating income for our concrete segment was 0.3% for the year ended December 31, 2019, compared to operating loss of 14.3% for the year ended December 31, 2018. The prior year period included $35.7 million of goodwill impairment charges. The current year included $2.3 million of ISG expenses compared to none in the prior period. After allowing for the comparative $33.4 million of non-recurring items between the periods, concrete segment operating income improved by $7.2 million. The increase was primarily driven by production efficiencies in man hours per cubic yard in our markets.

Critical Accounting Estimates

The consolidated financial statements contained in this report were prepared in accordance with U.S. GAAP. The preparation of these financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect both the Company’s carrying values of its assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Although our significant accounting policies are described in more detail in Note 2 of the Notes to Consolidated Financial Statements; we believe the following accounting policies to be critical to the judgments and estimates used in the preparation of our financial statements:

● Revenue Recognition from Construction Contracts;

● Long Lived Assets;

● Income Taxes;

● Insurance Coverage, Litigation, Claims and Contingencies.

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Revenue Recognition

We adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018, using the modified retrospective method. We recognized the cumulative effect of initially adopting Topic 606 guidance as an adjustment to the beginning balance of retained earnings. Contracts with customers that were not substantially complete in both our marine and concrete segments were evaluated in order to determine the impact as of the date of adoption. The comparative information has not been restated and continues to be reported under the accounting standards in effect for those periods.

Our revenue is derived from contracts to provide marine construction, dredging, turnkey concrete services, and other specialty services. Our projects are typically short in duration and usually span a period of less than one year. We determine the appropriate accounting treatment for each contract before work begins and generally record revenue on contracts over time.

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

Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and reported revenue and are recognized in the period in which the revisions are determined. The effect of changes in estimates of contract revenue or contract costs is recognized as an adjustment to recognized revenue on a cumulative catch-up basis. When losses on uncompleted contracts are anticipated, the entire loss is recognized in the period in which such losses are determined. Revenue is recorded net of any sales taxes collected and paid on behalf of the customer, if applicable.

Long-Lived Assets

Our long-lived assets consist primarily of equipment used in our operations. Fixed assets are carried at cost and are depreciated over their estimated useful lives, ranging from one to 30 years, using the straight-line method for financial reporting purposes and accelerated methods for tax reporting purposes. The carrying value of our long-lived assets is evaluated periodically based on utilization of the asset and physical condition of the asset, as well as the useful life of the asset to determine if adjustment to the depreciation period or the carrying value is warranted. If events and circumstances such as poor utilization or deteriorated physical condition indicate that the asset(s) should be reviewed for possible impairment, we use projections to assess whether future cash flows, including disposition, on a non-discounted basis related to the tested assets are likely to exceed the recorded carrying amount of those assets to determine if an impairment exists. If we identify a potential impairment, we will estimate the fair value of the asset through known market transactions of similar equipment and other valuation techniques, which could include the use of similar projections on a discounted cash flow basis. We will report a loss to the extent that the carrying value of the impaired assets exceeds their fair values.

Income Taxes

We determine our consolidated income tax provision using the asset and liability method prescribed by U.S. GAAP, which requires the recognition of income tax expense for the amount of taxes payable or refundable for the current period and for deferred tax liabilities and assets for the future tax consequences of events that have been recognized in an entity’s financial statements or tax returns. We must make significant assumptions, judgments and estimates to determine our current provision for income taxes, our deferred tax assets and liabilities, and any valuation allowance to be recorded against any deferred tax asset. The current provision for income tax is based upon the current tax laws and our interpretation of these laws, as well as the probable outcomes of any tax audits. The value of any net deferred tax asset depends upon estimates of the amount and category of future taxable income reduced by the amount of any tax benefits that we do not expect to realize. The factors used to assess the likelihood of realization include our forecast of future taxable income

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exclusive of reversing temporary differences and carryforwards, future reversals of existing taxable temporary differences and available tax planning strategies that could be implemented to realize the net deferred tax assets.

We consider both positive and negative evidence when evaluating the need for a valuation allowance on our deferred tax assets in accordance with ASC 740. Available evidence includes historical financial information supplemented by currently available information about future years. Generally, historical financial information is more objectively verifiable than projections of future income and is therefore given more weight in our assessment. We consider cumulative losses in the most recent twelve quarters to be significant negative evidence that is difficult to overcome in considering whether a valuation allowance is required. Conversely, we consider a cumulative income position over the most resent twelve quarters, to be significant positive evidence that a valuation allowance may not be required.

Actual operating results and the underlying amount and category of income in future years could render current assumptions, judgments and estimates of recoverable net deferred taxes inaccurate, thus impacting our financial position and results of operations. We compute deferred income taxes using the liability method. Under the liability method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under the liability method, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

We account for uncertain tax positions in accordance with the provisions of the FASB’s ASC 740-10, which prescribes a recognition threshold and measurement attribute for financial statement disclosure of tax positions taken, or expected to be taken, on our consolidated tax return. We evaluate and record any uncertain tax positions based on the amount that management deems is more likely than not to be sustained upon ultimate settlement with the tax authorities in the tax jurisdictions in which we operate.

Insurance Coverage, Litigation, Claims and Contingencies

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

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

Separately, our marine segment employee health care is provided through a trust administered by a third party. Funding of the trust is based on current claims. The administrator has purchased appropriate stop-loss coverage. Losses on these policies up to the deductible amounts are accrued based upon known claims incurred and an estimate of claims incurred but not reported. The accruals are derived from known facts, historical trends and industry averages to determine the best estimate of the ultimate expected loss. Actual claims may vary from estimates. Any adjustments to such reserves are included in the consolidated results of operations in the period in which they become known. Our concrete segment employee health care is provided through two policies. A fully funded policy is offered primarily to salaried employees and their dependents while a partially self-funded plan with an appropriate stop-loss is offered primarily to hourly employees and their dependents. The self-funded plan is funded to the maximum exposure and, as a result, expects to receive a partial refund after the policy expiration.

Liquidity and Capital Resources

Our primary liquidity needs are to finance our working capital, fund capital expenditures, and pursue strategic acquisitions. Historically, our source of liquidity has been cash provided by our operating activities and borrowings under our credit facilities.

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Changes in working capital are normal within our business given the varying mix in size, scope and timing of delivery of our projects. At December 31, 2020, our working capital was $54.8 million, as compared with $62.2 million at December 31, 2019. As of December 31, 2020, we had unrestricted cash on hand of $1.6 million. Our borrowing capacity at December 31, 2020 was approximately $63.3 million.

We expect to meet our future internal liquidity and working capital needs and maintain or replace our equipment fleet through capital expenditure purchases, leases and major repairs, from funds generated by our operating activities for at least the next 12 months. We believe our cash position is adequate for our general business requirements discussed above and to service our debt.

The following table provides information regarding our cash flows and our capital expenditures for the years ending December 31, 2020, 2019 and 2018:

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​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Cash flows used in investing activities ​ $ (3,129) ​ $ (13,331) ​ $ (13,300)

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Operating Activities. During 2020, we generated approximately $46.0 million in cash from our operating activities. The net cash inflow is comprised of $46.5 million of cash inflows from net income, after adjusting for non-cash items, partially offset by $0.5 million of cash outflows related to changes in net working capital. The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Consolidated Statements of Cash Flows, were primarily driven by a $6.5 million outflow pursuant to the relative timing and significance of project progression and billings during the period, a $5.4 million decrease in operating lease liabilities during the period and $1.3 million of other outflows , partially offset by a $12.7 million inflow related to a decrease in our net position of accounts receivable and accounts payable plus accrued liabilities during the period.

During 2019, we used approximately $0.7 million in cash from our operating activities. The net cash outflow is comprised of $30.1 million of cash inflows from net income, after adjusting for non-cash items and $30.8 million of cash outflows related to changes in net working capital. The changes in net working capital, which are reflected as changes in operating assets and liabilities in our Consolidated Statements of Cash Flows, were primarily driven by a $22.9 million increase in our net position of accounts receivable and accounts payable. The increases in accounts receivable and accounts payable were consistent with our increased project activity year over year. The year over year increase in accounts receivable is more pronounced than accounts payable due to the longer cycle times on the accounts receivable, which also include retainage whereas accounts payable typically turn in 30 days. The changes in net working capital also included a net outflow of $5.2 million from the net change in costs and estimated earnings in excess of billings on uncompleted contracts, offset by the change in billings in excess of costs and estimated earnings on uncompleted contracts. These changes were driven by the timing and execution of the underlying projects.

During 2018, our operations provided approximately $21.9 million in net cash inflows. The net cash inflow is comprised of inflows of $27.6 million related to changes in working capital, partially offset by $5.7 million of net loss after adjusting for non-cash items. The changes in net working capital were primarily driven by a net inflow of $24.6 million of cash from the net change in costs and estimated earnings in excess of billings on uncompleted contracts, offset by the change in billings in excess of costs and estimated earnings on uncompleted contracts. These changes were driven by the timing and execution of the underlying projects.

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Investing Activities. Capital asset additions and betterments to our fleet were $14.7 million in 2020, as compared with $17.2 million and $17.7 million in 2019 and 2018, respectively. The changes are primarily a result of the timing of purchase of capital assets.

Financing Activities. During 2020, we drew down $10.0 million from our revolving line of credit. Additionally, we repaid $41.0 million on our revolving line of credit, as well as made the regularly scheduled debt payment on the term loan of $3.8 million and an additional principal paydown of $3.4 million with proceeds from the sale of equipment.

During 2019, we drew down $63.0 million from our revolving line of credit. Additionally, we repaid $49.0 million on this draw, as well as made regularly scheduled debt payments on the term loan of $3.0 million and an additional principal paydown of $18.2 million with proceeds from a sale-leaseback arrangement.

During 2018, we drew down $39.9 million from our revolving line of credit. Additionally, we repaid $27.9 million on this draw, as well as made debt payments on the term loan of $20.2 for a total of $48.1 million in debt payments.

Sources of Capital

We entered into an amended syndicated credit agreement (the “Credit Agreement” also known as the “Fourth Amendment”) on July 31, 2018, with Regions Bank, as administrative agent and collateral agent, and the following co-syndication agents: Bank of America, N.A., BOKF, NA dba Bank of Texas, KeyBank National Association, NBH Bank, IBERIABANK, Trustmark National Bank, First Tennessee Bank NA, and Branch Baking and Trust Company. The primary purpose of the Credit Agreement was to provide the Company with greater flexibility as it provides for the calculation of Adjusted EBITDA that adds back various project specific costs. Additionally, we executed the Fifth Amendment during March 2019, which was made effective as of December 31, 2018, executed the Sixth Amendment during May 2019, executed the Seventh Amendment during June 2020 and executed the Eighth Amendment during October 2020.

The Credit Agreement, which may be amended from time to time, provides for borrowings under a revolving line of credit and a term loan (together, the “Credit Facility”). The Credit Facility is guaranteed by the subsidiaries of the Company, secured by the assets of the Company, including stock held in its subsidiaries, and may be used to finance general corporate and working capital purposes, to finance capital expenditures, to refinance existing indebtedness, to finance permitted acquisitions and associated fees, and to pay for all related expenses to the Credit Facility. Interest is computed based on the designation of the loan, with the option of a Base Rate Loan (the base rate plus the Applicable Margin), or an Adjusted LIBOR Rate Loan (the adjusted LIBOR rate plus the Applicable Margin). Interest is due on the last day of each quarter end for Base Rate Loans and at the end of the LIBOR rate period for Adjusted LIBOR Rate Loans. Principal balances drawn under the Credit Facility may be prepaid at any time, in whole or in part, without premium or penalty. Amounts repaid under the revolving line of credit may be re-borrowed. The Credit Facility matures on July 31, 2023.

We entered into a new syndicated credit agreement (the “364-Day Revolving Credit Facility”) on June 8, 2020 with Regions Bank, as administrative agent and collateral agent, and the following co-syndication agents: Bank of America, N.A. and BOKF, NA dba Bank of Texas. Concurrent with this the Company executed an amendment to the Credit Agreement with its existing lenders (“also known as the “Seventh Amendment”) for the sole intent and outcome of executing the 364-Day Revolving Credit Facility.

The Company has a maximum borrowing availability under the 364-Day Revolving Credit Facility of $20.0 million. Borrowings may be designated as Base Rate Loan or Adjusted LIBOR Rate Loans, at the Company’s request, and must be drawn in an aggregate minimum amount of $1.0 million and integral multiples of $250,000 in excess of that amount. The Company may convert, change, or modify rate designations from time to time.

The Company is subject to a commitment fee for the unused portion of the maximum borrowing availability under the 364-Day Revolving Credit Facility. The commitment fee, which is due quarterly in arrears, is equal to the Applicable Margin of the actual daily amount by which the Aggregate Revolving Commitments exceeds the Total Revolving Outstanding. We have not made any borrowings under 364-Day Revolving Credit Facility.

Effective, October 9, 2020, the Company entered into an amendment (the "Eighth Amendment") to its syndicated credit agreement (the "Credit Agreement" , with Regions Bank, as Administrative Agent and Collateral Agent and Bank of

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America, N.A., BOKF, NA dba Bank of Texas, Iberiabank, NBH Bank, Truist Bank, and Trustmark National Bank, as Lenders. The Eighth Amendment provides for administrative revisions to the Credit Agreement, including changes to repayment requirements for involuntary asset dispositions and changes to the timing of repayment for voluntary asset dispositions.

See Note 11 in the Notes to the Financial Statements (Part IV, Item 15 of this Form 10-K) for further discussion on the Company’s Debt.

Financial covenants

Restrictive financial covenants under the Credit Facility include:

-Fiscal Quarter Ending December 31, 2019 and each Fiscal Quarter thereafter, to not be less than 1.25 to 1.00.

-Fiscal Quarter Ending March 31, 2020 and each Fiscal Quarter thereafter, to not exceed 3.00 to 1.00.

​

In addition, the Credit Facility contains events of default that are usual and customary for similar arrangements, including non-payment of principal, interest or fees; breaches of representations and warranties that are not timely cured; violation of covenants; bankruptcy and insolvency events; and events constituting a change of control.

​

The Company expects to meet its future internal liquidity and working capital needs and maintain or replace its equipment fleet through capital expenditure purchases, leases and major repairs, from funds generated by its operating activities for at least the next 12 months. The Company believes that its cash position and available borrowings together with cash flow from its operations is adequate for general business requirements and to service its debt. The Company was in compliance with all financial covenants as of December 31, 2020.

Derivative Financial Instruments

On September 16, 2015, the Company entered into a series of receive-variable, pay-fixed interest rate swaps to hedge the variability in the interest payments on 50% of the aggregate principal amount of the Regions Term Loan outstanding, beginning with a notional amount of $67.5 million. There was a total of five sequential interest rate swaps to achieve the hedged position and each year on August 31, with the exception of the final swap, the existing interest rate swap was scheduled to expire and be immediately replaced with a new interest rate swap until the expiration of the final swap on July 31, 2020. On December 6, 2018, the Company entered into a sixth receive-variable, pay-fixed interest rate swap to hedge the variability of interest payments. The sixth swap began with a notional amount of $27.0 million on July 31, 2020 and hedges the variability in the interest payments on the aggregate scheduled principal amount of the Regions Term Loan outstanding. The sixth swap is scheduled to expire on July 31, 2023. At inception, these interest rate swaps were designated as cash flow hedges for hedge accounting, and as such, the effective portion of unrealized changes in market value are recorded in other comprehensive income (loss) and reclassified into earnings during the period in which the hedged forecasted transaction affects earnings. Gains and losses from hedge ineffectiveness are recognized in current earnings. The change in fair market value of the swaps for the comparative periods ended December 31, 2020, December 31, 2019, and December 31, 2018, as reflected in accumulated other comprehensive loss in the Consolidated Statements of Stockholders’ Equity, is approximately $0.6 million, $1.0 million and less than $0.1 million. The fair market value of the swaps as of December 31, 2020 is reflected as a liability of $1.6 million on the Consolidated Balance Sheets. See Note 8 for more information regarding the fair value of the Company’s derivative instruments.

​

Sale-Leaseback Arrangement

On September 27, 2019, the Company entered into a purchase and sale agreement (the “Purchase and Sale Agreement”). Pursuant to the terms of the Purchase and Sale Agreement, the Company sold its 17300 & 17140 Market Street location in Channelview, Texas (the “Property”) for a purchase price of $19.1 million. Concurrent with the sale of the Property, the Company entered into a fifteen-year lease agreement (the “Lease Agreement”), whereby the Company will lease back the Property at an annual rental rate of approximately $1.5 million, subject to annual rent increases of 2.0%. Under the Lease Agreement, the Company has two consecutive options to extend the term of the Lease by ten years for each such

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option. This transaction was recorded as a failed sale-leaseback. The Company recorded a liability for the amounts received, will continue to depreciate the non-land portion of the asset, and has imputed an interest rate so that the net carrying amount of the financial liability and remaining assets will be zero at the end of the initial lease term. Concurrently with the sale, the Company paid $18.2 million as an additional principal payment towards the Term loan portion of the Company’s Credit Facility, consistent with terms of the Sixth Amendment.

​

​

Bonding Capacity

We are often required to provide various types of surety bonds that provide additional security to our customers for our performance under certain government and private sector contracts. Our ability to obtain surety bonds depends on our capitalization, working capital, past performance and external factors, including the capacity of the overall surety market. At December 31, 2020, the capacity under our current bonding arrangement was at least $500 million, with approximately $150 million of projects being bonded. We believe our strong balance sheet and working capital position will allow us to continue to access our bonding capacity.

Effect of Inflation

We are subject to the effects of inflation through increases in the cost of raw materials, and other items such as fuel, concrete and steel. Due to the relative short-term duration of our projects, we are generally able to include anticipated price increases in the cost of our bids.

Off Balance Sheet Arrangements

Currently our only off balance sheet arrangements are those discussed above under “Bonding Capacity” and those which arise in the normal course of business. These arrangements are not reasonably likely to have an effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources that is material to investors. See Note 17 – Commitments and Contingencies of Notes to Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.

Contractual Obligations

The following table sets forth information about our contractual obligations and commercial commitments as of December 31, 2020:

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ ​ ​ ​ Payment Due by Period

​ Total < 1 year 1-3 years 3-5 years > 5 years

​ ​ (in thousands)

Purchase obligations (2) ​ — ​ — ​ — ​ — ​ —

To manage risks of changes in the material prices and subcontracting costs used in tendering bids for construction contracts, we routinely obtain firm quotations from our suppliers and subcontractors before submitting a bid. These quotations do not include any quantity guarantees, and we have no obligation for materials or subcontract services beyond those required to complete the contracts that we are awarded for which quotations have been provided.

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A summary of debt and other contractual obligations as of December 31, 2020 and December 31, 2019 is as follows:

​

​ ​ ​ ​ ​ ​ ​

Credit facility, non-current maturities ​ $ 30,586 ​ $ 69,540

Credit facility, current maturities ​ 4,500 ​ 3,750

Outstanding letters of credits ​ $ 1,719 ​ $ 1,378

​

The maturity date for amounts drawn under the revolving line of credit is the earlier of the Facility termination date of July 31, 2023, or the date the outstanding balance is permanently reduced to zero. Prior to the fourth quarter of 2018, the Company classified amounts drawn as current liabilities based on an intent and ability to repay the amounts using current assets within the next twelve months. During the fourth quarter of 2018, the Company determined it no longer has the intent to repay amounts drawn within the next twelve months. Therefore, the Company has classified the entire outstanding balance of the revolving line of credit as non-current.

Recently Issued Accounting Pronouncements

See Note 2 - Summary of Significant Accounting Policies of the Notes to the Financial Statements (Part IV, Item 15 of this Form 10-K) for further discussion.

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, our results of operations are subject to risks related to fluctuations in commodity prices and fluctuations in interest rates. Historically, our exposure to foreign currency fluctuations has not been material and has been limited to temporary field accounts located in foreign countries where we perform work. Foreign currency fluctuations were immaterial in this reporting period.

Commodity price risk

We are subject to fluctuations in commodity prices for concrete, steel products and fuel. Although we routinely attempt to secure firm quotes from our suppliers, we generally do not hedge against increases in prices for commodity products. Commodity price risks may have an impact on our results of operations due to the fixed-price nature of many of our contracts, although the short-term duration of our projects may allow us to include price increases in the costs of our bids.

Interest rate risk

At December 31, 2020, we had $35.1 million in outstanding borrowings under our credit facility, with a weighted average ending interest rate of 2.73%. Also, we have entered into a series of receive-variable, pay-fixed interest rate swaps to hedge the variability in the interest payments on the aggregate principal amount of the term loan component of the credit facility outstanding. At inception, these interest rate swaps were designated as cash flow hedges for hedge accounting. Our objectives in managing interest rate risk are to lower our overall borrowing costs and limit interest rate changes on our earnings and cash flows. To achieve this, we closely monitor changes in interest rates and we utilize cash from operations to reduce our debt position, if warranted.

Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The information required by this Item 8 is submitted as a separate section beginning on page F-1 of this Annual Report on Form 10-K and is incorporated herein by reference.

Additionally, a two-year Summary of Selected Quarterly Financial Data (unaudited) is included in “Selected Quarterly Financial Data”. See Note 20-Selected Quarterly Financial Data of the Notes to the Financial Statements (Part IV, Item 15 of this Form 10-K.

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Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

Item 9A. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) are designed to provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Based on management’s evaluation (with the participation of our principal executive officer and principal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were effective as of December 31, 2020.

Our management, including our principal executive officer and principal financial officer, believes that the audited consolidated financial statements contained in this Annual Report on Form 10-K fairly present, in all material respects, our financial condition, results of operations and cash flows for the years presented in conformity with U.S. generally accepted accounting principles.

Changes in Internal Control over Financial Reporting

There were no changes to our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the year ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act). Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States. Our system of internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles and that receipts and expenditures are being made only in accordance with authorizations of our management; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our consolidated financial statements.

Management, under the oversight of our principal executive officer and principal financial officer, and Audit Committee, assessed the effectiveness of our internal control over financial reporting as of December 31, 2020 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal control - An Integrated Framework (“2013 Framework”). Based on its assessment, management has concluded that our internal control over financial reporting was effective as of December 31, 2020 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external reporting purposes in accordance U.S. generally accepted accounting principles.

Our independent registered public accounting firm, KPMG LLP, who audited the consolidated financial statements included in this annual report, has audited the effectiveness of our internal control over financial reporting as of December 31, 2020. KPMG LLP’s report appears on page F-4 of this annual report on Form 10-K.

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Inherent Limitations on Effectiveness of Controls

Our management, including the principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well-designed and implemented, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Further, because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been detected.

Item 9B. OTHER INFORMATION

None

PART III

Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Directors, Executive Officers, Promoters and Control Persons

The information required by Paragraph (a), and Paragraphs (c) through (g) of Item 401 of Regulation S-K (except for information required by Paragraph (e) of that Item to the extent the required information pertains to our executive officers) and Item 405 of Regulation S-K is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A no later than April 30, 2021.

The following table presents the information required by Paragraph (b) of Item 401 of Regulation S-K.

​

​ ​ ​ ​ ​ ​ ​

Name Age Position with the Company Year Joined the Registrant

Austin J. Shanfelter 63 Chairman of the Board 2007

Richard L. Daerr, Jr. 76 Director 2007

Thomas N. Amonett 77 Director 2007

Margaret M. Foran 66 Director 2019

Mary E. Sullivan 64 Director 2019

Michael J. Caliel 61 Director 2019

Mark R. Stauffer 58 President, Chief Executive Officer and Director 1999

Robert L. Tabb 36 Vice President, Chief Financial Officer and Treasurer 2014

​

Code of Ethics

We have adopted a code of ethics for our chief executive, chief financial and principal accounting officers; a code of business conduct and ethics for members of our Board of Directors; and corporate governance guidelines. The full texts of the codes of ethics and corporate governance guidelines are available at our website www.oriongroupholdingsinc.com. Although we have never done so, in the event we make any amendment to, or grant any waiver from, a provision of the code of ethics that applies to the principal executive officer, principal financial officer or principal accounting officer that requires disclosure under applicable SEC rules, we will disclose such amendment or waiver and the reasons therefore on our website. We will provide any person without charge a copy of any of the aforementioned codes of ethics upon receipt of a written request. Requests should be addressed to: Orion Group Holdings, Inc. 12000 Aerospace Avenue, Suite 300, Houston, Texas 77034, Attention: Corporate Secretary.

Corporate Governance

The information required by Items 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A no later than April 30, 2021.

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Item 11. EXECUTIVE COMPENSATION

The information required by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A no later than April 30, 2021.

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 403 of Regulation S-K is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A no later than April 30, 2021.

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A no later than April 30, 2021.

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is hereby incorporated by reference from our definitive proxy statement to be filed with the SEC pursuant to Regulation 14A no later than April 30, 2021.

​

PART IV

Item 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following documents are filed as part of this Report:

1.Financial Statements

The Company’s Consolidated Financial Statements at December 31, 2020 and 2019 and for each of the three years in the period ended December 31, 2020 and the notes thereto, together with the Report of the Independent Registered Public Accounting Firm on those Consolidated Financial Statements are hereby filed as part of this Report, beginning on page F-1.

2.Financial Statement Schedule

The following financial statement schedule of the Company for each of the three years in the period ended December 31, 2020 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements of the Company.

Schedule II – Schedule of Valuation and Qualifying Accounts

3. Exhibits

​ ​ ​

ExhibitNumber Description

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​ ​ ​

ExhibitNumber Description

45

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​

ExhibitNumber Description

​

​

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ExhibitNumber Description

* 21 .1 ​ List of Subsidiaries.

* 23 .1 ​ Consent of Independent Registered Public Accounting Firm -KPMG, LLP.

24 .1 ​ Power of Attorney (included on signature page of this filing).

* 31 .1 ​ Certification of CEO pursuant to Section 302.

* 31 .2 ​ Certification of CFO pursuant to Section 302.

* 32 .1 ​ Certification of CEO and CFO pursuant to Section 906.

*101.INS ​ XBRL Instance Document.

*101.SCH ​ XBRL Taxonomy Extension Schema Document.

*101.CAL ​ XBRL Extension Calculation Linkbase Document.

*101.DEF ​ XBRL Taxonomy Extension Definition Linkbase Document.

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ExhibitNumber Description

*101.LAB ​ XBRL Taxonomy Extension Label Linkbase Document.

*101.PRE ​ XBRL Taxonomy Extension Presentation Linkbase Document.

* Filed herewith

† Management contract or compensatory plan or arrangement

​

​

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

​

​ ​ ​

​ ​ ORION GROUP HOLDINGS, INC.

​ ​ ​

March 2, 2021 By: /s/ Mark R. Stauffer

​ ​ Mark R. StaufferPresident, Chief Executive Officer and Director

​

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated:

​ ​ ​ ​ ​

Signature Title Date

​ ​ ​ ​ ​

​ ​ ​ ​ ​

/s/ Mark R. Stauffer ​ President, Chief Executive Officer and ​ March 2, 2021

Mark R. Stauffer ​ Director ​ ​

​ ​ ​ ​ ​

/s/ Robert L. Tabb ​ Vice President and Chief ​ March 2, 2021

Robert L. Tabb ​ Financial Officer ​ ​

​ ​ ​ ​ ​

/s/ Austin J. Shanfelter ​ Chairman of the Board ​ March 2, 2021

Austin J. Shanfelter ​ ​ ​ ​

​ ​ ​ ​ ​

/s/ Thomas N. Amonett ​ Director ​ March 2, 2021

Thomas N. Amonett ​ ​ ​ ​

​ ​ ​ ​ ​

/s/ Margaret M. Foran ​ Director ​ March 2, 2021

Margaret M. Foran ​ ​ ​ ​

​ ​ ​ ​ ​

/s/ Richard L. Daerr, Jr. ​ Director ​ March 2, 2021

Richard L. Daerr, Jr. ​ ​ ​ ​

​ ​ ​ ​ ​

/s/ Mary E. Sullivan ​ Director ​ March 2, 2021

Mary E. Sullivan ​ ​ ​ ​

​ ​ ​ ​ ​

/s/ Michael J. Caliel ​ Director ​ March 2, 2021

Michael J. Caliel ​ ​ ​ ​

​

​

​

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ORION GROUP HOLDINGS, INC. AND SUBSIDIARIES

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2020

Reports of Independent Registered Public Accounting Firm F-2

Consolidated Balance Sheets at December 31, 2020 and 2019 F-5

Notes to Consolidated Financial Statements F-10

​

​

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

Orion Group Holdings, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Orion Group Holdings, Inc. and subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule II (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 2020, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 2, 2021 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of January 1, 2019 due to the adoption of Accounting Standards Update No. 2016-02, Leases (Topic 842).

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Evaluation of variable consideration and estimated costs at completion for long-term, fixed-priced construction contracts

As discussed in Note 2 to the consolidated financial statements, revenue is recognized over time because control is continually transferred to the customer. The Company estimates variable consideration related to claims and unapproved change orders based on the most likely amount to which it expects to be entitled. Progress is measured by the percentage of actual costs incurred to date to the total estimated costs at completion. Contract costs include

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all direct costs, such as material and labor, and those indirect costs incurred that are related to contract performance.

We identified the evaluation of variable consideration and estimated costs at completion for long-term, fixed-priced construction contract in the Marine segment as a critical audit matter. Evaluating the Company’s estimates of variable consideration involved auditor judgment given the uncertainty in determining the costs the Company is entitled to recover under the contract. Additionally, evaluating the estimated costs at completion for contracts in progress involved auditor judgment given the variability and uncertainty associated with estimating costs, including costs of material and labor to be incurred over a long-term contract period.

The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls over the Company’s revenue process, including controls over the estimation of variable consideration and costs to complete long-term, fixed-priced construction contracts. We evaluated the Company’s ability to estimate these amounts by comparing the Company’s previous estimates to actual results. We evaluated variable consideration for certain contracts by:

We evaluated estimated costs at completion for certain in-progress contracts by:

● inspecting contractual documents with customers

/s/ KPMG LLP

We have served as the Company’s auditor since 2017.

Houston, Texas

March 2, 2021

​

​

​

​

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

​

To the Stockholders and Board of Directors

Orion Group Holdings, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited Orion Group Holdings, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020 and 2019, the related consolidated statements of operations, comprehensive income (loss), stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2020, and the related notes and financial statement schedule II (collectively, the consolidated financial statements), and our report dated March 2, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

Houston, Texas

March 2, 2021

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​

Orion Group Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

(In Thousands, Except Share and Per Share Information)

​

​ ​ ​ ​ ​ ​ ​

​ December 31, December 31,

ASSETS ​ ​ ​

Current assets: ​ ​

Cash and cash equivalents ​ $ 1,589 ​ $ 128

Restricted cash ​ ​ — ​ ​ 958

Accounts receivable: ​ ​

Income taxes receivable ​ 419 ​ 962

Prepaid expenses and other ​ 7,229 ​ 5,647

Property and equipment, net of depreciation ​ 125,497 ​ 132,348

Operating lease right-of-use assets, net of amortization ​ ​ 18,874 ​ ​ 17,997

Financing lease right-of-use assets, net of amortization ​ ​ 12,858 ​ ​ 7,896

Intangible assets, net of amortization ​ 10,077 ​ 12,147

Deferred income tax asset ​ ​ 70 ​ ​ 85

LIABILITIES AND STOCKHOLDERS’ EQUITY ​ ​

Current liabilities: ​ ​

Current debt, net of debt issuance costs ​ $ 4,344 ​ $ 3,668

Accounts payable: ​ ​ ​

Current portion of operating lease liabilities ​ ​ 4,989 ​ ​ 5,043

Current portion of financing lease liabilities ​ ​ 3,901 ​ ​ 2,788

Long-term debt, net of debt issuance costs ​ 29,523 ​ 68,029

Financing lease liabilities ​ ​ 8,376 ​ ​ 3,760

Deferred income tax liability ​ 207 ​ 205

Interest rate swap liability ​ 1,602 ​ 1,045

Stockholders’ equity: ​ ​

Preferred stock -- $0.01 par value, 10,000,000 authorized, none issued ​ — ​ —

Accumulated other comprehensive loss ​ (1,602) ​ (1,045)

Total liabilities and stockholders’ equity ​ $ 414,189 ​ $ 394,844

​

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

​

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Orion Group Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations

(In Thousands, Except Share and Per Share Information)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended December 31,

Amortization of intangible assets ​ ​ 2,070 ​ ​ 2,640 ​ ​ 3,390

Gain on disposal of assets, net ​ (9,044) ​ (1,804) ​ (3,306)

Goodwill impairment charges ​ ​ — ​ ​ — ​ ​ 69,483

Other gain from continuing operations ​ ​ — ​ ​ — ​ ​ (5,448)

Other (expense) income: ​ ​ ​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Basic earnings (loss) per share ​ $ 0.67 ​ $ (0.18) ​ $ (3.31)

Diluted earnings (loss) per share ​ $ 0.67 ​ $ (0.18) ​ $ (3.31)

Shares used to compute income (loss) per share: ​ ​ ​

​

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

​

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Orion Group Holdings, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income (Loss)

(In Thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended December 31,

​

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

​

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Orion Group Holdings, Inc. and Subsidiaries

Consolidated Statement of Stockholders’ Equity

(In Thousands, Except Share and Per Share Information)

​

​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ Common Treasury Accumulated Other Additional ​ ​ ​ ​

​ ​ Stock ​ Stock Comprehensive Paid-In Retained ​ ​ ​

​ ​ Shares Amount ​ Shares Amount Loss Capital ​ Earnings (Loss) ​ Total

Adoption of ASC 606 (Note 2) ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (286) ​ ​ (286)

Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 2,238 ​ ​ — ​ ​ 2,238

Issuance of restricted stock ​ 333,864 ​ ​ 3 ​ — ​ ​ — ​ ​ — ​ ​ (3) ​ ​ — ​ ​ —

Cash flow hedge ​ — ​ ​ — ​ — ​ ​ — ​ ​ (26) ​ ​ — ​ ​ — ​ ​ (26)

Net loss — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (94,422) ​ ​ (94,422)

Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 2,753 ​ ​ — ​ ​ 2,753

Exercise of stock options ​ 7,021 ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 35 ​ ​ — ​ ​ 35

Issuance of restricted stock ​ 757,012 ​ ​ 8 ​ — ​ ​ — ​ ​ — ​ ​ (8) ​ ​ — ​ ​ —

Cash flow hedge ​ — ​ ​ — ​ — ​ ​ — ​ ​ (993) ​ ​ — ​ ​ — ​ ​ (993)

Net loss — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ (5,359) ​ ​ (5,359)

Stock-based compensation ​ — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ 1,998 ​ ​ — ​ ​ 1,998

Cash flow hedge ​ — ​ ​ — ​ — ​ ​ — ​ ​ (557) ​ ​ — ​ ​ — ​ ​ (557)

Net income — ​ ​ — ​ — ​ ​ — ​ ​ — ​ ​ — ​ ​ 20,220 ​ ​ 20,220

​

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

​

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Orion Group Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

​ ​ Year ended December 31,

Cash flows from operating activities: ​ ​ ​

Operating activities: ​ ​ ​ ​

Amortization of ROU operating leases ​ ​ 5,874 ​ ​ 5,177 ​ ​ —

Amortization of ROU finance leases ​ ​ 3,324 ​ ​ 2,312 ​ ​ —

Write-off of debt issuance costs upon debt modification ​ — ​ 399 ​ 2,164

Amortization of deferred debt issuance costs ​ ​ 763 ​ ​ 453 ​ ​ 725

Gain on disposal of assets, net ​ (6,185) ​ (1,804) ​ (3,306)

Gain on involuntary disposition of assets, net ​ ​ (2,859) ​ ​ — ​ ​ —

Goodwill impairment charges ​ — ​ — ​ 69,483

Allowance for credit losses ​ (487) ​ — ​ 4,280

Other gain from continuing operations ​ — ​ — ​ (5,448)

Change in operating assets and liabilities: ​ ​ ​ ​ ​

Operating lease liabilities ​ ​ (5,399) ​ ​ (5,843) ​ ​ —

Net cash provided by (used in) operating activities ​ 46,032 ​ (716) ​ 21,931

Cash flows from investing activities: ​ ​ ​

Proceeds from sale of property and equipment ​ 5,944 ​ 2,015 ​ 3,234

Contributions to CSV life insurance ​ (99) ​ (721) ​ (260)

Proceeds from return of investment ​ ​ — ​ ​ — ​ ​ 94

Net cash used in investing activities ​ (3,129) ​ (13,331) ​ ​ (13,300)

Cash flows from financing activities: ​ ​ ​ ​ ​ ​

Proceeds from sale-leaseback arrangement ​ ​ — ​ ​ 18,210 ​ ​ —

Loan costs from Credit Facility ​ (389) ​ (1,680) ​ (861)

Capital lease liability ​ — ​ — ​ (2,737)

Payments of finance lease liabilities ​ ​ (3,619) ​ ​ (2,906) ​ —

Purchase of vested stock-based awards ​ ​ (188) ​ ​ — ​ ​ —

Exercise of stock options ​ — ​ 35 ​ ​ 2,815

Net cash (used in) provided by financing activities ​ (42,400) ​ 6,449 ​ (9,033)

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Restricted cash ​ ​ — ​ ​ 958 ​ ​ —

​ ​ ​ ​ ​ ​ ​ ​ ​ ​

Supplemental disclosures of cash flow information: ​ ​ ​ ​ ​

Cash paid during the period for: ​ ​ ​

Non-cash investing activity: ​ ​ ​ ​ ​ ​ ​ ​ ​

Capital lease expenditures included in accrued expenses ​ $ — ​ $ — ​ ​ 13,103

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

​

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Orion Group Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

Years Ended December 31, 2020, 2019 and 2018

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

1.Description of Business and Basis of Presentation

Description of Business

Orion Group Holdings, Inc., its subsidiaries and affiliates (hereafter collectively referred to as the "Company"), provide a broad range of specialty construction services in the infrastructure, industrial, and building sectors of the continental United States, Alaska, Canada and the Caribbean Basin. The Company’s marine segment services the infrastructure sector through marine transportation facility construction, marine pipeline construction, marine environmental structures, dredging of waterways, channels and ports, environmental dredging, design, and specialty services. Its concrete segment services the building sector by providing turnkey concrete construction services including pour and finish, dirt work, layout, forming, rebar, and mesh across the light commercial, structural and other associated business areas. The Company is headquartered in Houston, Texas with offices throughout its operating areas.

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

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

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

For the concrete segment, the Company also considered the similar economic characteristics of these operations. The methods used, and the internal processes employed, to deliver concrete construction services are similar throughout the segment, including standardized estimating, project controls and project management. This segment complies with regulatory environments such as OSHA. Additionally, this segment is driven by macro-economic considerations, including movements in population, commercial real estate development, institutional funding and expansion, and recreational development, specifically in metropolitan areas of Texas. These considerations, and others, are key catalysts for future prospects and are similar across the segment.

Basis of Presentation

These consolidated financial statements include the accounts of the parent company, Orion Group Holdings, Inc. and its wholly-owned subsidiaries and have been prepared in accordance with U.S. GAAP. All intercompany balances and transactions have been eliminated in consolidation.

​

2.Summary of Significant Accounting Policies

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

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Table of Contents

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

● Revenue recognition from construction contracts;

● Accounts receivable and allowance for credit losses;

● Property, plant and equipment;

● Leases;

● Stock-based compensation;

● Income taxes; and

● Self-insurance

Revenue Recognition

The Company adopted ASU 2014-09, Revenue from Contracts with Customers (Topic 606), on January 1, 2018, using the modified retrospective method. The Company recognized the cumulative effect of initially adopting Topic 606 guidance as an adjustment to the beginning balance of retained earnings. Contracts with customers that were not substantially complete in both the Company’s marine and concrete segments were evaluated in order to determine the impact as of the date of adoption.

The Company’s revenue is derived from contracts to provide marine construction, dredging, turnkey concrete services, and other specialty services. The Company’s projects are typically short in duration and usually span a period of less than one year. The Company determines the appropriate accounting treatment for each contract before work begins and generally records revenue on contracts over time.

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

Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and reported revenue and are recognized in the period in which the revisions are determined. The effect of changes in estimates of contract revenue or contract costs is recognized as an adjustment to recognized revenue on a cumulative catch-up basis. When losses on uncompleted contracts are anticipated, the entire loss is recognized in the period in which such losses are determined. Revenue is recorded net of any sales taxes collected and paid on behalf of the customer, if applicable.

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