Orion (ORN)

Marine infrastructure company Orion (NYSE:ORN) reported Q1 CY2025 results beating Wall Street’s revenue expectations, with sales up 17.4% year on year to $188.7 million. The company’s full-year revenue guidance of $825 million at the midpoint came in 1.5% above analysts’ estimates. Its non-GAAP profit of $0.01 per share was significantly above analysts’ consensus estimates.

Company Overview

Established in 1994, Orion (NYSE:ORN) provides construction services for marine infrastructure and industrial projects.

Construction and maintenance services companies not only boast technical know-how in specialized areas but also may hold special licenses and permits. Those who work in more regulated areas can enjoy more predictable revenue streams - for example, fire escapes need to be inspected every five years. More recently, services to address energy efficiency and labor availability are also creating incremental demand. But like the broader industrials sector, construction and maintenance services companies are at the whim of economic cycles as external factors like interest rates can greatly impact the new construction that drives incremental demand for these companies’ offerings.

Competitors in the marine construction and engineering sector include Great Lakes Dredge & Dock (NASDAQ:GLDD), Sterling Construction (NASDAQ:STRL), while a prominent private competitor is Weeks Marine

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Orion’s 2.4% annualized revenue growth over the last five years was sluggish. This fell short of our benchmarks and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Orion’s annualized revenue growth of 6.1% over the last two years is above its five-year trend, but we were still disappointed by the results.

This quarter, Orion reported year-on-year revenue growth of 17.4%, and its $188.7 million of revenue exceeded Wall Street’s estimates by 8.8%.

Looking ahead, sell-side analysts expect revenue to grow 1.1% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and implies its products and services will see some demand headwinds.

Orion has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 9.3% gross margin over the last five years. Said differently, Orion had to pay a chunky $90.74 to its suppliers for every $100 in revenue.

In Q1, Orion produced a 12.2% gross profit margin, marking a 2.5 percentage point increase from 9.7% in the same quarter last year. Orion’s full-year margin has also been trending up over the past 12 months, increasing by 2 percentage points. If this move continues, it could suggest better unit economics due to more leverage from its growing sales on the fixed portion of its cost of goods sold (such as manufacturing expenses).

Operating margin is one of the best measures of profitability because it tells us how much money a company takes home after procuring and manufacturing its products, marketing and selling those products, and most importantly, keeping them relevant through research and development.

Orion was roughly breakeven when averaging the last five years of quarterly operating profits, one of the worst outcomes in the industrials sector. This result isn’t too surprising given its low gross margin as a starting point.

Analyzing the trend in its profitability, Orion’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

This quarter, Orion’s breakeven margin was up 2.6 percentage points year on year. The increase was encouraging, and because its operating margin rose more than its gross margin, we can infer it was more efficient with expenses such as marketing, R&D, and administrative overhead.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Sadly for Orion, its EPS declined by 10.1% annually over the last five years while its revenue grew by 2.4%. However, its operating margin didn’t change during this time, telling us that non-fundamental factors such as interest and taxes affected its ultimate earnings.

We can take a deeper look into Orion’s earnings to better understand the drivers of its performance. A five-year view shows Orion has diluted its shareholders, growing its share count by 31.7%. This has led to lower per share earnings. Taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Orion, its two-year annual EPS growth of 54.2% was higher than its five-year trend. This acceleration made it one of the faster-growing industrials companies in recent history.

In Q1, Orion reported EPS at $0.01, up from negative $0.12 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Orion to perform poorly. Analysts forecast its full-year EPS of $0.17 will hit $0.16.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Orion broke even from a free cash flow perspective over the last five years, giving the company limited opportunities to return capital to shareholders.

Taking a step back, we can see that Orion’s margin dropped by 2.4 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the longer-term trend returns, it could signal it’s becoming a more capital-intensive business.

Orion burned through $12.48 million of cash in Q1, equivalent to a negative 6.6% margin. The company’s cash burn was similar to its $24.68 million of lost cash in the same quarter last year.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Orion’s five-year average ROIC was negative 3.2%, meaning management lost money while trying to expand the business. Its returns were among the worst in the industrials sector.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Orion’s has increased over the last few years. This is a good sign, and we hope the company can continue improving.

Orion reported $12.96 million of cash and $70.23 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $45.96 million of EBITDA over the last 12 months, we view Orion’s 1.2× net-debt-to-EBITDA ratio as safe. We also see its $7.68 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Orion blew past analysts’ revenue, EPS, and EBITDA expectations this quarter. We were also excited its full-year EBITDA guidance topped Wall Street’s estimates. Zooming out, we think this was a good quarter with some key areas of upside. The stock traded up 10.6% to $7 immediately following the results.

Updated: May 22, 2025 at 11:36 PM EDT

Before deciding whether to buy Orion or pass, we urge investors to consider business quality, valuation, and the latest quarterly results.

Orion falls short of our quality standards. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its rising returns show management's prior bets are at least better than before, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its projected EPS for the next year is lacking.

Orion’s P/E ratio based on the next 12 months is 49.2x. This multiple tells us a lot of good news is priced in - we think there are better investment opportunities out there.

Wall Street analysts have a consensus one-year price target of $10.50 on the company (compared to the current share price of $8.01).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.

Want to invest in a High Quality big tech company? We’d point you in the direction of Microsoft and Google, which have durable competitive moats and strong fundamentals, factors that are large determinants of long-term market outperformance.

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