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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

March 31, 2024

or

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

to

Commission File Number 001-34279

 

 

img21373001_0.jpg 

Gulf Island Fabrication, Inc.

(Exact name of registrant as specified in its charter)

 

 

Louisiana

 

72-1147390

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

2170 Buckthorne Place, Suite 420

The woodlands, Texas

 

77380

 

 

 

(Address of principal executive offices)

 

(Zip Code)

 

(713) 714-6100

(Registrant’s telephone number, including area code)

Securities registered pursuant to 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

GIFI

Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

 

Smaller reporting company

 

 

 

 

 

 

 

 

 

 

 

 

Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes No

The number of shares of the registrant’s common stock, no par value per share, outstanding as of April 30, 2024, was 16,282,521.

 

 

 


 

GULF ISLAND FABRICATION, INC.

I N D E X

 

 

 

 

 

Page

 

 

 

PART I

 

FINANCIAL INFORMATION

 

1

Item 1.

 

Financial Statements

 

1

 

 

Consolidated Balance Sheets at March 31, 2024 (unaudited) and December 31, 2023

 

1

 

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2024 and 2023 (unaudited)

 

2

 

 

Consolidated Statements of Changes in Shareholders’ Equity for the Three Months Ended March 31, 2024 and 2023 (unaudited)

 

3

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2024 and 2023 (unaudited)

 

4

 

 

Notes to Consolidated Financial Statements (unaudited)

 

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

19

Item 4.

 

Controls and Procedures

 

34

 

 

 

 

 

PART II

 

OTHER INFORMATION

 

35

Item 1.

 

Legal Proceedings

 

35

Item 1A.

 

Risk Factors

 

35

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

 

35

Item 6.

 

Exhibits

 

36

Signatures

 

37

 

i

 


 

GLOSSARY OF TERMS

As used in this report filed on Form 10-Q for the quarter ended March 31, 2024 (“this Report”), the following abbreviations and terms have the meanings listed below. In addition, the terms “Gulf Island,” “the Company,” “we,” “us” and “our” refer to Gulf Island Fabrication, Inc. and its consolidated subsidiaries, unless the context clearly indicates otherwise. Certain terms defined below may be redefined separately within this Report when we believe providing a definition upon the first use of the term will assist users of this Report. Unless and as otherwise stated, any references in this Report to any agreement means such agreement and all schedules, exhibits and attachments in each case as amended, restated, supplemented or otherwise modified to the date of filing this Report.

 

2023 Annual Report

 

Our annual report for the year ended December 31, 2023, filed with the SEC on Form 10-K on March 8, 2024.

 

 

 

2023 Financial Statements

 

Our Financial Statements for the year ended December 31, 2023 and related notes, included in our 2023 Annual Report.

 

 

 

ASC

 

Accounting Standards Codification.

 

 

 

ASU

 

Accounting Standards Update.

 

 

 

Balance Sheet

 

Our Consolidated Balance Sheets, as filed in this Report.

 

 

 

Board

 

Board of Directors.

 

 

 

contract assets

 

Costs and estimated earnings recognized to date in excess of cumulative billings.

 

 

contract liabilities

 

Cumulative billings in excess of costs and estimated earnings recognized to date and accrued contract losses.

 

 

 

cost-reimbursable

 

Work is performed and billed to the customer at cost plus a profit margin or other variable fee arrangements which can include a mark-up.

 

 

 

COVID-19

 

The global coronavirus pandemic.

 

 

 

deck

 

The component of a platform on which drilling, production, separating, gathering, piping, compression, well support, crew quartering and other functions related to offshore oil and gas development are conducted.

 

 

 

DTA(s)

 

Deferred Tax Asset(s).

 

 

 

EPC

 

Engineering, Procurement and Construction.

 

 

 

Exchange Act

 

Securities Exchange Act of 1934, as amended.

 

 

 

Fabrication Division

 

Our Fabrication reportable segment.

 

 

 

Facilities

 

Our Houma Facilities and other facilities that support our operations.

 

 

 

FASB

 

Financial Accounting Standards Board.

 

 

 

FDC

 

Fidelity & Deposit Company of Maryland.

 

 

 

Ferry Projects

 

Contracts and related obligations for our seventy-vehicle ferry and two forty-vehicle ferry projects that were under construction as of the date of the Shipyard Transaction, which were excluded from the Shipyard Transaction.

 

 

 

Financial Statements

 

Our Consolidated Financial Statements, including comparative consolidated Balance Sheets, Statements of Operations, Statements of Changes in Shareholders’ Equity and Statements of Cash Flows, as filed in this Report.

 

 

 

GAAP

 

Generally Accepted Accounting Principles in the U.S.

 

 

 

GIS

 

Gulf Island Shipyards, LLC.

 

 

 

GOM

 

Gulf of Mexico.

 

 

 

Gulf Coast

 

Along the coast of the Gulf of Mexico.

 

 

 

Hornbeck

 

Hornbeck Offshore Services, LLC.

 

 

 

ii

 


 

Houma AHFS

 

Certain excess real property (consisting of land and buildings) of our Fabrication Division sold in February 2024 that was part of our Houma Facilities, which was classified as an asset held for sale on our Balance Sheet at December 31, 2023.

 

 

 

Houma Facilities

 

Our owned facilities located in Houma, Louisiana that support our Fabrication Division and Services Division and represent our primary operating facilities.

 

 

 

inland

 

Typically, bays, lakes and marshy areas.

 

 

 

Insurance Finance Arrangements

 

Short-term finance arrangements for insurance premiums associated with our property and equipment and general liability insurance coverages.

 

 

 

jacket

 

A component of a fixed platform consisting of a tubular steel braced structure extending from the mudline of the seabed to a point above the water surface. The jacket is anchored with tubular steel piles driven into the seabed. The jacket supports the deck structure located above the water.

 

 

 

labor hours

 

Hours worked by employees directly involved in the fabrication of our products or delivery of our services.

 

 

 

LC Facility

 

Our $10.0 million letter of credit facility with Whitney Bank maturing on June 30, 2026, as amended.

 

 

 

LNG

 

Liquefied Natural Gas.

 

 

 

Mortgage Agreement

 

Multiple indebtedness mortgage arrangement with Zurich, to secure our obligations and liabilities under our Note Agreement and general indemnity agreement with Zurich associated with an outstanding surety bond for our forty-vehicle ferry projects. The mortgage arrangement encumbers the real estate associated with our Houma Facilities and includes certain covenants and events of default.

 

 

 

modules

 

Fabricated structures that include structural steel, piping, valves, fittings, storage vessels and other equipment that are incorporated into a refining, petrochemical, LNG or industrial system.

 

 

 

MPSV(s)

 

Multi-Purpose Supply Vessel(s).

 

 

 

MPSV Litigation

 

The lawsuit filed in the Twenty-Second Judicial District Court for the Parish of St. Tammany, State of Louisiana and was styled Gulf Island Shipyards, LLC v. Hornbeck Offshore Services, LLC, bearing docket number 2018-14861, which was resolved on October 4, 2023.

 

 

 

Note Agreement

 

Promissory note entered into with Zurich on November 6, 2023, in connection with the resolution of our MPSV Litigation, pursuant to which we will pay Zurich $20.0 million, plus interest at a fixed rate of 3.0% per annum, payable in 15 equal annual installments beginning on December 31, 2024.

 

 

 

offshore

 

In unprotected waters outside coastlines.

 

 

 

onshore

 

Inside the coastline on land.

 

 

 

Performance Bonds

 

The performance bonds issued by Zurich in connection with the construction of two MPSVs that were subject to our previous MPSV Litigation, for which the face amount of the bonds totaled $50.0 million, and for which the obligations under the performance bonds were terminated on November 6, 2023, in connection with the Settlement Agreement and Note Agreement.

 

 

 

performance obligation

 

A contractual obligation to construct and transfer a distinct good or service to a customer. It is the unit of account in Topic 606. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

 

 

 

piles

 

Rigid tubular pipes that are driven into the seabed to anchor a jacket.

 

 

 

platform

 

A structure from which offshore oil and gas development drilling and production are conducted.

 

 

 

POC

 

Percentage-of-completion.

 

 

 

SEC

 

U.S. Securities and Exchange Commission.

 

 

 

Services Division

 

Our Services reportable segment.

 

 

 

Settlement Agreement

 

Agreement entered into with Zurich on November 6, 2023, in connection with the resolution of our MPSV Litigation, pursuant to which, among other things, Zurich released GIS and the Company from all of their obligations under the Performance Bonds and the associated general indemnity agreements relating to the Performance Bonds, and we agreed to release possession of the MPSVs to Zurich.

iii

 


 

 

 

 

Share Repurchase Program

 

Share repurchase program authorizing the repurchase of up to $5.0 million of our outstanding common stock, effective from December 15, 2023 through December 15, 2024.

 

 

 

Shipyard Division

 

Our Shipyard reportable segment.

 

 

 

Shipyard Transaction

 

The sale of our Shipyard Division’s operating assets and certain construction contracts during 2021, which excluded the contracts and related obligations for our Ferry Projects and the contracts and related obligations for the projects that were subject to our previous MPSV Litigation.

 

 

 

Statement of Cash Flows

 

Our Consolidated Statements of Cash Flows, as filed in this Report.

 

 

 

Statement of Operations

 

Our Consolidated Statements of Operations, as filed in this Report.

 

 

 

Statement of Shareholders’ Equity

 

Our Consolidated Statements of Changes in Shareholders’ Equity, as filed in this Report.

 

 

 

Surety or Sureties

 

A financial institution that issues bonds to customers on behalf of the Company for the purpose of providing third-party financial assurance related to the performance of our contracts. Payments by the Surety pursuant to a bond in the event of non-performance are subject to reimbursement to the Surety by us under a general indemnity agreement.

 

 

 

T&M

 

Time and Materials. Work is performed and billed to the customer at contracted time and material rates.

 

 

 

Topic 606

 

The revenue recognition criteria prescribed under ASU 2014-09, “Revenue from Contracts with Customers”.

 

 

 

U.S.

 

The United States of America.

 

 

 

USL&H

 

United States Longshoreman and Harbor Workers Act.

 

 

 

VA(s)

 

Valuation Allowance(s).

 

 

 

Whitney Bank

 

Hancock Whitney Bank.

 

 

 

Zurich

 

FDC and Zurich American Insurance Company.

 

 

 

iv

 


 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

GULF ISLAND FABRICATION, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

March 31,
2024

 

 

December 31,
2023

 

 

 

(Unaudited)

 

 

 

 

ASSETS

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

32,469

 

 

$

38,176

 

Restricted cash

 

 

1,475

 

 

 

1,475

 

Short-term investments

 

 

27,352

 

 

 

8,233

 

Contract receivables and retainage, net

 

 

26,892

 

 

 

36,298

 

Contract assets

 

 

4,905

 

 

 

2,739

 

Prepaid expenses and other assets

 

 

4,634

 

 

 

6,994

 

Inventory

 

 

2,004

 

 

 

2,072

 

Assets held for sale

 

 

 

 

 

5,640

 

Total current assets

 

 

99,731

 

 

 

101,627

 

Property, plant and equipment, net

 

 

24,501

 

 

 

23,145

 

Goodwill

 

 

2,217

 

 

 

2,217

 

Other intangibles, net

 

 

664

 

 

 

700

 

Other noncurrent assets

 

 

645

 

 

 

739

 

Total assets

 

$

127,758

 

 

$

128,428

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

6,625

 

 

$

8,466

 

Contract liabilities

 

 

1,740

 

 

 

5,470

 

Accrued expenses and other liabilities

 

 

13,390

 

 

 

14,836

 

Long-term debt, current

 

 

1,075

 

 

 

1,075

 

Total current liabilities

 

 

22,830

 

 

 

29,847

 

Long-term debt, noncurrent

 

 

18,925

 

 

 

18,925

 

Other noncurrent liabilities

 

 

559

 

 

 

685

 

Total liabilities

 

 

42,314

 

 

 

49,457

 

Shareholders’ equity:

 

 

 

 

 

 

Preferred stock, no par value, 5,000 shares authorized, no shares issued
   and outstanding

 

 

 

 

 

 

Common stock, no par value, 30,000 shares authorized, 16,197 shares issued
   and outstanding at March 31, 2024 and
16,258 at December 31, 2023

 

 

11,752

 

 

 

11,729

 

Additional paid-in capital

 

 

108,825

 

 

 

108,615

 

Accumulated deficit

 

 

(35,133

)

 

 

(41,373

)

Total shareholders’ equity

 

 

85,444

 

 

 

78,971

 

Total liabilities and shareholders’ equity

 

$

127,758

 

 

$

128,428

 

 

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

- 1 -


 

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Revenue

 

$

42,881

 

 

$

62,168

 

Cost of revenue

 

 

36,757

 

 

 

57,134

 

Gross profit

 

 

6,124

 

 

 

5,034

 

General and administrative expense

 

 

3,484

 

 

 

5,067

 

Other (income) expense, net

 

 

(3,068

)

 

 

(361

)

Operating income

 

 

5,708

 

 

 

328

 

Interest (expense) income, net

 

 

542

 

 

 

320

 

Income before income taxes

 

 

6,250

 

 

 

648

 

Income tax (expense) benefit

 

 

(10

)

 

 

(7

)

Net income

 

$

6,240

 

 

$

641

 

 

 

 

 

 

 

 

Per share data:

 

 

 

 

 

 

Basic income per share

 

$

0.38

 

 

$

0.04

 

Diluted income per share

 

$

0.37

 

 

$

0.04

 

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

- 2 -


 

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2022

 

 

15,973

 

 

$

11,591

 

 

$

107,372

 

 

$

(16,339

)

 

$

102,624

 

Adoption of ASU 2016-13

 

 

 

 

 

 

 

 

 

 

 

(632

)

 

 

(632

)

Balance at January 1, 2023

 

 

15,973

 

 

 

11,591

 

 

 

107,372

 

 

 

(16,971

)

 

 

101,992

 

Net income

 

 

 

 

 

 

 

 

 

 

 

641

 

 

 

641

 

Vesting of restricted stock

 

 

82

 

 

 

(18

)

 

 

(163

)

 

 

 

 

 

(181

)

Stock-based compensation expense

 

 

 

 

 

51

 

 

 

458

 

 

 

 

 

 

509

 

Balance at March 31, 2023

 

 

16,055

 

 

$

11,624

 

 

$

107,667

 

 

$

(16,330

)

 

$

102,961

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common Stock

 

 

Additional
Paid-In

 

 

Accumulated

 

 

Total
Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Equity

 

Balance at December 31, 2023

 

 

16,258

 

 

$

11,729

 

 

$

108,615

 

 

$

(41,373

)

 

$

78,971

 

Net income

 

 

 

 

 

 

 

 

 

 

 

6,240

 

 

 

6,240

 

Stock-based compensation expense

 

 

 

 

 

50

 

 

 

456

 

 

 

 

 

 

506

 

Repurchases of common stock

 

 

(61

)

 

 

(27

)

 

 

(246

)

 

 

 

 

 

(273

)

Balance at March 31, 2024

 

 

16,197

 

 

$

11,752

 

 

$

108,825

 

 

$

(35,133

)

 

$

85,444

 

 

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

- 3 -


 

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Cash flows from operating activities:

 

 

 

 

 

 

Net income

 

$

6,240

 

 

$

641

 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

1,193

 

 

 

1,333

 

Change in allowance for doubtful accounts and credit losses

 

 

(28

)

 

 

 

Gain on sale or disposal of assets held for sale and fixed assets, net

 

 

(3,241

)

 

 

(64

)

Gain on insurance recoveries

 

 

 

 

 

(245

)

Stock-based compensation expense

 

 

506

 

 

 

509

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Contract receivables and retainage, net

 

 

9,434

 

 

 

(14,540

)

Contract assets

 

 

(2,166

)

 

 

(699

)

Prepaid expenses, inventory and other current assets

 

 

2,102

 

 

 

147

 

Accounts payable

 

 

(1,712

)

 

 

18,135

 

Contract liabilities

 

 

(3,730

)

 

 

(3,808

)

Accrued expenses and other current liabilities

 

 

(1,422

)

 

 

62

 

Noncurrent assets and liabilities, net

 

 

(157

)

 

 

(175

)

Net cash provided by operating activities

 

 

7,019

 

 

 

1,296

 

Cash flows from investing activities:

 

 

 

 

 

 

Capital expenditures

 

 

(2,553

)

 

 

(487

)

Proceeds from sale of property and equipment

 

 

8,894

 

 

 

106

 

Recoveries from insurance claims

 

 

326

 

 

 

245

 

Purchases of short-term investments

 

 

(22,170

)

 

 

(15,083

)

Maturities of short-term investments

 

 

3,050

 

 

 

10,000

 

Net cash used in investing activities

 

 

(12,453

)

 

 

(5,219

)

Cash flows from financing activities:

 

 

 

 

 

 

Payments on Insurance Finance Arrangements

 

 

 

 

 

(1,003

)

Tax payments for vested stock withholdings

 

 

 

 

 

(181

)

Repurchases of common stock

 

 

(273

)

 

 

 

Net cash used in financing activities

 

 

(273

)

 

 

(1,184

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(5,707

)

 

 

(5,107

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

39,651

 

 

 

34,824

 

Cash, cash equivalents and restricted cash, end of period

 

$

33,944

 

 

$

29,717

 

 

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

- 4 -


 

GULF ISLAND FABRICATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2024

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Gulf Island Fabrication, Inc. (together with its subsidiaries, “Gulf Island,” “the Company,” “we,” “us” and “our”) is a leading fabricator of complex steel structures and modules and a provider of specialty services, including project management, hookup, commissioning, repair, maintenance, scaffolding, coatings, welding enclosures, civil construction and staffing services to the industrial and energy sectors. Our customers include U.S. and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial and power operators; and EPC companies. We currently operate and manage our business through three operating divisions (“Services”, “Fabrication” and “Shipyard”) and one non-operating division (“Corporate”), which represent our reportable segments. Our corporate headquarters is located in The Woodlands, Texas and our primary operating facilities are located in Houma, Louisiana (“Houma Facilities”). See Note 6 for further discussion of our reportable segments.

During 2021, we sold our Shipyard Division operating assets and certain construction contracts (“Shipyard Transaction”). The Shipyard Transaction excluded the contracts and related obligations for our seventy-vehicle ferry and two forty-vehicle ferry projects (collectively, “Ferry Projects”) that were under construction as of the transaction date, and excluded the contracts and related obligations for the projects that were subject to our previous MPSV Litigation, which was resolved on October 4, 2023. The wind down of our remaining Shipyard Division operations was substantially completed in the fourth quarter 2023. See Note 2 for further discussion of our Ferry Projects, Note 4 for further discussion of the resolution of our MPSV Litigation and Note 6 for further discussion of the wind down of our Shipyard Division operations.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements (“Financial Statements”) reflect all wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial statements, the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, the Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation of the Financial Statements have been included. Operating results for the three months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024. Our Consolidated Balance Sheet (“Balance Sheet”) at December 31, 2023, has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to our 2023 Financial Statements.

Operating Cycle

The duration of our contracts vary, but may extend beyond twelve months from the date of contract award. Consistent with industry practice, assets and liabilities have been classified as current under the operating cycle concept whereby all contract-related items are classified as current regardless of whether cash will be received or paid within a twelve-month period. Assets and liabilities classified as current, which may not be received or paid within the next twelve months, include contract retainage, contract assets and contract liabilities. Variations from normal contract terms may result in the classification of assets and liabilities as long-term.

- 5 -


 

Use of Estimates

General The preparation of our Financial Statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We believe our most significant estimates and judgments are associated with:

revenue recognition for our long-term contracts, including application of the percentage-of-completion (“POC”) method, estimating costs to complete each contract and the recognition of incentives, unapproved change orders, claims (including amounts arising from disputes with customers) and liquidated damages;
fair value and recoverability assessments that must be periodically performed with respect to long-lived tangible assets, goodwill and other intangible assets;
determination of deferred income tax assets, liabilities and related valuation allowances;
reserves for bad debts and credit losses;
liabilities related to self-insurance programs;
determination of the fair-value of our long-term debt; and
the impacts of volatile oil and gas prices and macroeconomic conditions on our business, estimates and judgments as discussed further below.

If the underlying estimates and assumptions upon which our Financial Statements are based change in the future, actual amounts may differ materially from those included in the Financial Statements.

Oil and Gas Price Volatility and Macroeconomic Conditions – For over a decade, prices of oil and gas have experienced significant volatility, including depressed prices over extended periods, which negatively impacted our end markets and operating results. Beginning in 2020, the global coronavirus pandemic (“COVID-19”) added another layer of pressure and uncertainty on oil and gas prices (with oil prices reaching a twenty-year low and gas prices reaching a four-year low in 2020), which further negatively impacted certain of our end markets through the first quarter 2022. This volatility in oil and gas prices was compounded by Russia’s invasion of Ukraine in February 2022 (and the related European energy crisis), and the U.S. and other countries actions in response, as well as continued inflationary pressures, resulting in elevated energy prices (with oil prices reaching an eight-year high and gas prices reaching a fourteen-year high in 2022), which positively impacted certain of our end markets. While oil and gas prices declined in 2023, prices have somewhat stabilized, but the duration of such stability is uncertain and difficult to predict, particularly in light of geopolitical turmoil and uncertainty.

In addition, global economic factors that are beyond our control, have and could continue to impact our operations, including, but are not limited to, labor constraints, supply chain disruptions, inflationary pressures, economic slowdowns and recessions, natural disasters, public health crises, and geopolitical conflicts.

The ultimate business and financial impacts of oil and gas price volatility and macroeconomic conditions on our business and results of operations continues to be uncertain, but the impacts have included, or may continue to include, among other things, reduced bidding activity; suspension or termination of backlog; deterioration of customer financial condition; and unanticipated project costs and schedule delays due to supply chain disruptions, labor and material price increases, lower labor productivity, increased employee and contractor absenteeism and turnover, craft labor hiring challenges, increased safety incidents, lack of performance by subcontractors and suppliers, and contract disputes. We continue to monitor the impacts of oil and gas price volatility and macroeconomic conditions on our operations, and our estimates in future periods will be revised for any events and changes in circumstances arising after the date of this Report.

Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share reflects the assumed conversion of dilutive securities in periods in which income is reported. See Note 5 for calculations of our basic and diluted income (loss) per share.

Cash Equivalents and Short-term Investments

Cash Equivalents We consider investments with original maturities of three months or less when purchased to be cash equivalents. We hold substantially all of our cash deposits with Hancock Whitney Bank (“Whitney Bank”).

- 6 -


 

Restricted Cash – At March 31, 2024 and December 31, 2023, we had $1.5 million and $1.5 million, respectively, of restricted cash as security for letters of credit issued under our letter of credit facility (“LC Facility”) with Whitney Bank. Our restricted cash is held in an interest-bearing money market account with Whitney Bank. The classification of the restricted cash as current and noncurrent is determined by the contractual maturity dates of the letters of credit being secured, with letters of credit having maturity dates of twelve months or less from the balance sheet date classified as current, and letters of credit having maturity dates of longer than twelve months from the balance sheet date classified as noncurrent. See Note 3 for further discussion of our letters of credit and associated security requirements.

Short-term Investments – We consider investments with original maturities of more than three months but less than twelve months to be short-term investments. At March 31, 2024 and December 31, 2023, our short-term investments included U.S. Treasuries with original maturities of approximately four to six months. We intend to hold these investments until maturity and it is not more likely than not that we will be required to sell the investments prior to their maturity. The investments are stated at amortized costs, which approximates fair value due to their near-term maturities. All short-term investments are traded on active markets with quoted prices and represent Level 1 fair value measurements.

Inventory

Inventory is recorded at the lower of cost or net realizable value determined using the first-in-first-out basis. The cost of inventory includes acquisition costs, production or conversion costs, and other costs incurred to bring the inventory to a current location and condition. Net realizable value is our estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation. An allowance for excess or inactive inventory is recorded based on an analysis that considers current inventory levels, historical usage patterns, estimates of future sales and salvage value.

Allowance for Doubtful Accounts and Credit Losses

In the normal course of business, we extend credit to our customers on a short-term basis and contract receivables are generally not collateralized; however, we typically have the right to place liens on our projects in the event of nonpayment by our customers. We provide an allowance for credit losses and routinely review individual contract receivable balances and other financial assets for collectability and make provisions for probable uncollectible amounts as necessary. Among the factors considered in our review are the financial condition of our customer and its access to financing, underlying disputes with the customer, the age and value of the receivable balance, company-specific credit ratings, historical company-specific uncollectable amounts and economic conditions in general. See “New Accounting Standards” below and Note 2 for further discussion of our allowance for doubtful accounts and credit losses.

Stock-Based Compensation

Awards under our stock-based compensation plans are calculated using a fair value-based measurement method. Depending on the terms of the award, we use the straight-line and graded vesting methods to recognize share-based compensation expense over the requisite service period of the award. We recognize the excess tax benefit or tax deficiency resulting from the difference between the deduction we receive for tax purposes and the stock-based compensation expense we recognize for financial reporting purposes created when common stock vests, as an income tax benefit or expense on our Consolidated Statements of Operations (“Statement of Operations”). Tax payments made on behalf of employees to taxing authorities in order to satisfy employee income tax withholding obligations from the vesting of shares under our stock-based compensation plans are classified as a financing activity on our Consolidated Statements of Cash Flows (“Statement of Cash Flows”).

Assets Held for Sale

Assets held for sale are measured at the lower of their carrying amount or fair value less cost to sell. In February 2024, we sold certain excess real property (consisting of land and buildings) of our Fabrication Division that was part of our Houma Facilities for cash proceeds of $8.5 million (net of transaction and other costs), resulting in a net gain of $2.9 million for the three months ended March 31, 2024, which is reflected within other income (expense), net on our Statement of Operations. The property sold was classified as an asset held for sale (“Houma AHFS”) on our Balance Sheet at December 31, 2023 and the proceeds received are reflected within proceeds from sale of property and equipment on our Statement of Cash Flows.

Depreciation and Amortization Expense

Property, plant and equipment are depreciated on a straight-line basis over estimated useful lives ranging from three to 25 years. Ordinary maintenance and repairs, which do not extend the physical or economic lives of the plant or equipment, are charged to expense as incurred. Intangible assets are amortized on a straight-line basis over seven years and amortization expense is reflected within general and administrative expense on our Statement of Operations.

- 7 -


 

Long-Lived Assets

Goodwill Goodwill is not amortized, but instead is reviewed for impairment at least annually at a reporting unit level, absent any indicators of impairment or when other actions require an impairment assessment (such as a change in reporting units). Our Services Division represents our only reporting unit with goodwill. We perform our annual impairment assessment during the fourth quarter of each year based upon balances as of October 1. In evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is greater than its carrying value. If we determine that it is more likely than not that the carrying value of the reporting unit is greater than its fair value, we perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing it to the carrying value of the reporting unit, and we recognize an impairment charge to the extent its carrying value exceeds its fair value. To determine the fair value of our reporting unit and test for impairment, we utilize an income approach (discounted cash flow method) as we believe this is the most direct approach to incorporate the specific economic attributes and risk profile of our reporting unit into our valuation model. We had no indicators of impairment during the three months ended March 31, 2024. If, based on future assessments, our goodwill is deemed to be impaired, the impairment would result in a charge to our operating results in the period of impairment.

Other Long-Lived Assets Our property, plant and equipment, lease assets (included within other noncurrent assets) and finite-lived intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. If a recoverability assessment is required, we compare the estimated future undiscounted cash flow associated with the asset or asset group to its carrying amount to determine if an impairment exists. An asset group constitutes the minimum level for which identifiable cash flows are principally independent of the cash flows of other assets or asset groups. An impairment loss is measured by comparing the fair value of the asset or asset group to its carrying amount and the excess of the carrying amount of the asset or asset group over its fair value is recorded as an impairment charge. Fair value is determined based on discounted cash flows, appraised values or third-party indications of value, as appropriate. We had no indicators of impairment during the three months ended March 31, 2024.

Leases

We record a right-of-use asset and an offsetting lease liability on our Balance Sheet equal to the present value of our lease payments for leases with an original term of longer than twelve months. We do not record an asset or liability for leases with an original term of twelve months or less and we do not separate lease and non-lease components for our leases. Our lease assets are reflected within other noncurrent assets, and the current and noncurrent portions of our lease liabilities are reflected within accrued expenses and other liabilities, and other noncurrent liabilities, respectively, on our Balance Sheet. For leases with escalations over the life of the lease, we recognize expense on a straight-line basis.

Fair Value Measurements

Fair value determinations for financial assets and liabilities are based on the particular facts and circumstances. Financial instruments are required to be categorized within a valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. The three levels of the valuation hierarchy are as follows:

Level 1 – inputs are based upon quoted prices for identical instruments traded in active markets.
Level 2 – inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 – inputs are based upon model-based valuation techniques for which significant assumptions are generally not observable in the market and typically reflect estimates and assumptions that we believe market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques.

The carrying amounts of our financial instruments, including cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate their fair values. Our fair value assessments for determining the impairments of inventory, assets held for sale, goodwill and long-lived assets, are non-recurring fair value measurements that fall within Level 3 of the fair value hierarchy. Our fair value assessments for long-term debt are recurring fair value measurements that fall within Level 2 of the fair value hierarchy, and are determined using various methods, including quoted prices for identical or similar securities in both active and inactive markets. See “Assets Held for Sale” above for further discussion of our assets held for sale and Note 3 for further discussion of our long-term debt.

- 8 -


 

Revenue Recognition

General – Our revenue is derived from customer contracts and agreements that are awarded on a competitively bid and negotiated basis using a range of contracting options, including fixed-price, unit-rate, time and materials (“T&M”) and cost-reimbursable, or a combination thereof. Our contracts primarily relate to the fabrication of steel structures and modules, and certain service arrangements. We recognize revenue from our contracts in accordance with Accounting Standards Update (“ASU”) 2014-09, Topic 606 “Revenue from Contracts with Customers” (“Topic 606”).

Topic 606 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, provisions of Topic 606 specify which goods and services are distinct and represent separate performance obligations (representing the unit of account in Topic 606) within a contract and which goods and services (which could include multiple contracts or agreements) should be aggregated. In general, a performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue for performance obligations satisfied over time are recognized as the work progresses. Revenue for performance obligations that do not meet the criteria for over time recognition are recognized at a point-in-time when a performance obligation is complete and a customer has obtained control of a promised asset.

Long-term Contracts Satisfied Over Time Revenue for our long-term contracts is recognized using the POC method based on contract costs incurred to date compared to total estimated contract costs (an input method). Fixed-price contracts, or contracts with a more significant fixed-price component, generally provide us with greater control over project schedule and the timing of when work is performed and costs are incurred, and accordingly, when revenue is recognized. Unit-rate, T&M and cost-reimbursable contracts generally have more variability in the scope of work and provide our customers with greater influence over the timing of when we perform our work, and accordingly, such contracts often result in less predictability with respect to the timing of when revenue is recognized. Contract costs include direct costs, such as materials and labor, and indirect costs attributable to contract activity. Material costs that are significant to a contract and do not reflect an accurate measure of project completion are excluded from the determination of our contract progress. Revenue for such materials is only recognized to the extent of costs incurred. Revenue and gross profit or loss for contracts accounted for using the POC method can be significantly affected by changes in estimated cost to complete such contracts. Significant estimates impacting the cost to complete a contract include: forecast costs of engineering, materials, equipment and subcontracts; forecast costs of labor and labor productivity; schedule durations, including subcontractor and supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. Although our customers retain the right and ability to change, modify or discontinue further work at any stage of a contract, in the event our customers discontinue work, they are required to compensate us for the work performed to date. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on contracts. Due to the various estimates inherent in our contract accounting, actual results could differ from those estimates, which could result in material changes to our Financial Statements and related disclosures. See Note 2 for further discussion of projects with significant changes in estimated margins during the three months ended March 31, 2024 and 2023.

Short-term Contracts and Contracts Satisfied at a Point In Time – Revenue for our short-term contracts (which includes revenue associated with our master services arrangements) and contracts that do not satisfy the criteria for revenue recognition over time is recognized when the work is performed or when control of the asset is transferred, the related costs are incurred and collection is reasonably assured.

Variable Consideration – Revenue and gross profit or loss for contracts can be significantly affected by variable consideration, which can be in the form of unapproved change orders, claims (including amounts arising from disputes with customers), incentives and liquidated damages that may not be resolved until the later stages of the contract or after the contract has been completed. Variable consideration can also include revenue associated with work performed on a unit-rate, T&M or cost-reimbursable basis that is recognized using the POC method. We estimate variable consideration based on the amount we expect to be entitled and include estimated amounts in transaction price to the extent it is probable that a significant future reversal of cumulative revenue recognized will not occur or when we conclude that any significant uncertainty associated with the variable consideration is resolved. See Note 2 for further discussion of our unapproved change orders, claims, incentives and liquidated damages.

Additional Disclosures – Topic 606 also requires disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. See Note 2 for required disclosures under Topic 606.

Pre-Contract Costs

Pre-contract costs are generally charged to cost of revenue as incurred, but in certain cases their recognition may be deferred if specific probability criteria are met. At March 31, 2024 and December 31, 2023, we had no deferred pre-contract costs.

- 9 -


 

Other (Income) Expense, Net

Other (income) expense, net, generally represents recoveries or provisions for bad debts and credit losses, gains or losses associated with the sale or disposition of property and equipment, and income or expense associated with certain nonrecurring items. For the three months ended March 31, 2024, other (income) expense, net included a gain of $2.9 million for our Fabrication Division related to the sale of our Houma AHFS. See “Assets Held for Sale” above for further discussion of our Houma AHFS.

Income Taxes

Income taxes have been provided for using the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted rates expected to be in effect during the year in which the differences are expected to reverse. Due to state income tax laws related to the apportionment of revenue for our projects, judgment is required to estimate the effective tax rate expected to apply to tax differences that are anticipated to reverse in the future.

A valuation allowance is provided to reserve for deferred tax assets (“DTA(s)”) if, based upon the available evidence, it is more likely than not that some or all of the DTAs will not be realized. The realization of our DTAs depends on our ability to generate sufficient taxable income of the appropriate character and in the appropriate jurisdictions. Our effective tax rate differs from our statutory rate for the three months ended March 31, 2024 and 2023, as no federal income tax expense was recorded for our income as it was fully offset by the reversal of valuation allowance on our net deferred tax assets. Income taxes recorded for the three months ended March 31, 2024 and 2023 relate to state income taxes.

Reserves for uncertain tax positions are recognized when we consider it more likely than not that additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not we have received tax assessments. Interest and penalties on uncertain tax positions are recorded within income tax expense.

New Accounting Standards

Financial Instruments – In the first quarter 2023, we adopted ASU 2016-13, “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments,” which changes the way we evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, short-term investments, loans and other instruments, we are required to use a new forward-looking “expected loss” model to evaluate impairment, which includes considering a broader range of information to estimate expected credit losses and may potentially result in earlier recognition of allowances for losses. The new accounting standard was adopted using the cumulative-effect transition method with any cumulative-effect adjustment being recorded to accumulated deficit on January 1, 2023. Upon adoption, we recorded a $0.6 million increase to beginning accumulated deficit, a $0.4 million decrease to contract receivables and retainage, net and contract assets, and a $0.2 million decrease to other noncurrent assets, on our Balance Sheet. Adoption of the new standard did not have a material effect on our results of operations or related disclosures.

Segment Reporting – In the fourth quarter 2023, the Financial Accounting Standards Board (“FASB”) issued ASU 2023-07 “Segment Reporting - Improvements to Reportable Segment Disclosures,” which requires additional information about a public company’s significant segment expenses and more timely and detailed segment information reporting throughout the fiscal period. The new standard will be effective for us in the fourth quarter 2024. Early adoption of the new standard is permitted; however, we have not elected to early adopt the standard. The new standard is required to be applied using the retrospective transition method. We are assessing the effect that the new standard will have on our financial statement disclosures; however, adoption will not impact our Balance Sheet, Statement of Operations or Statement of Cash Flows.

Income Taxes – In the fourth quarter 2023, the FASB issued ASU 2023-09 “Income Taxes - Improvements to Income Tax Disclosures,” which requires enhanced disclosures related to rate reconciliation and income taxes paid information. The new standard will be effective for us in the fourth quarter 2025. Early adoption of the new standard is permitted; however, we have not elected to early adopt the standard. The new standard may be applied using either the prospective or retrospective transition method. We are assessing the effect of the new standard on our financial statement disclosures; however, adoption will not impact our Balance Sheet, Statement of Operations or Statement of Cash Flows.

 

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2. REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS

As discussed in Note 1, we recognize revenue from our contracts in accordance with Topic 606. Summarized below are required disclosures under Topic 606 and other relevant guidance.

Disaggregation of Revenue

The following tables summarize revenue for each of our operating segments, disaggregated by contract type and duration, for the three months ended March 31, 2024 and 2023 (in thousands):

 

 

 

Three Months Ended March 31, 2024

 

 

 

Services

 

 

Fabrication

 

 

Shipyard

 

 

Eliminations

 

 

Total

 

Fixed-price and unit-rate

 

$

249

 

 

$

15,875

 

 

$

409

 

 

$

 

 

$

16,533

 

T&M and cost-reimbursable

 

 

24,727

 

 

 

1,263

 

 

 

 

 

 

 

 

 

25,990

 

Other

 

 

558

 

 

 

 

 

 

 

 

 

(200

)

 

 

358

 

Total

 

$

25,534

 

 

$

17,138

 

 

$

409

 

 

$

(200

)

 

$

42,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term

 

$

249

 

 

$

15,958

 

 

$

409

 

 

$

 

 

$

16,616

 

Short-term

 

 

25,285

 

 

 

1,180

 

 

 

 

 

 

(200

)

 

 

26,265

 

Total

 

$

25,534

 

 

$

17,138

 

 

$

409

 

 

$

(200

)

 

$

42,881

 

 

 

 

Three Months Ended March 31, 2023

 

 

 

Services

 

 

Fabrication

 

 

Shipyard

 

 

Eliminations

 

 

Total

 

Fixed-price and unit-rate

 

$

172

 

 

$

12,189

 

 

$

1,347

 

 

$

(8

)

 

$

13,700

 

T&M and cost-reimbursable

 

 

20,542

 

 

 

27,473

 

 

 

 

 

 

 

 

 

48,015

 

Other

 

 

873

 

 

 

 

 

 

 

 

 

(420

)

 

 

453

 

Total

 

$

21,587

 

 

$

39,662

 

 

$

1,347

 

 

$

(428

)

 

$

62,168

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term

 

$

172

 

 

$

38,708

 

 

$

1,347

 

 

$

(8

)

 

$

40,219

 

Short-term

 

 

21,415

 

 

 

954

 

 

 

 

 

 

(420

)

 

 

21,949

 

Total

 

$

21,587

 

 

$

39,662

 

 

$

1,347

 

 

$

(428

)

 

$

62,168

 

 

Future Performance Obligations

The following table summarizes our remaining performance obligations, disaggregated by operating segment and contract type, at March 31, 2024 (in thousands):

 

 

 

March 31, 2024

 

 

 

Services

 

 

Fabrication

 

 

Shipyard(1)

 

 

Total

 

Fixed-price and unit-rate

 

$

437

 

 

$

12,873

 

 

$

577

 

 

$

13,887

 

T&M and cost-reimbursable

 

 

 

 

 

 

 

 

 

 

 

 

Total(2)

 

$

437

 

 

$

12,873

 

 

$

577

 

 

$

13,887

 

 

(1)
Future performance obligations for our Shipyard Division relate to potential repairs and rework during the warranty periods for the Ferry Projects. See “Changes in Project Estimates” below for further discussion of the warranty periods for the Ferry Projects.
(2)
We expect all of our performance obligations at March 31, 2024, to be recognized as revenue during 2024. Certain factors and circumstances could result in changes in the timing of recognition of our performance obligations as revenue and the amounts ultimately recognized.

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Contracts Assets and Liabilities

The timing of customer invoicing and recognition of revenue using the POC method may occur at different times. Customer invoicing is generally dependent upon contractual billing terms, which could provide for customer payments in advance of performing the work, milestone billings based on the completion of certain phases of the work, or billings when services are provided. Revenue recognized in excess of amounts billed is reflected as contract assets on our Balance Sheet, or to the extent we have an unconditional right to the consideration, is reflected as contract receivables on our Balance Sheet. Amounts billed in excess of revenue recognized, and accrued contract losses, are reflected as contract liabilities on our Balance Sheet. Information with respect to contracts that were incomplete at March 31, 2024 and December 31, 2023, is as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2024

 

 

2023

 

Contract assets(1), (2)

 

$

4,905

 

 

$

2,739

 

Contract liabilities(3), (4), (5)

 

 

(1,740

)

 

 

(5,470

)

Contracts in progress, net

 

$

3,165

 

 

$

(2,731

)

 

(1)
The increase in contract assets from December 31, 2023 to March 31, 2024, was primarily due to increased unbilled positions on various projects for our Fabrication Division.
(2)
Contract assets at March 31, 2024 and December 31, 2023, excluded $5.8 million and $6.0 million, respectively, associated with revenue recognized in excess of amounts billed for which we have an unconditional right to the consideration. Such amounts are reflected within contract receivables. The decrease from December 31, 2023 to March 31, 2024, was primarily due to the net impact of various customers for our Services Division.
(3)
The decrease in contract liabilities from December 31, 2023 to March 31, 2024, was primarily due to a decrease in advance billings on various projects for our Fabrication Division.
(4)
Revenue recognized during the three months ended March 31, 2024 and 2023, related to amounts included in our contract liabilities balance at December 31, 2023 and 2022 was $4.2 million and $6.0 million, respectively.
(5)
Contract liabilities at March 31, 2024 and December 31, 2023, includes accrued contract losses of $0.3 million and $0.4 million, respectively, primarily related to projects for our Shipyard Division. See “Changes in Project Estimates” below for further discussion of our accrued contract losses.

Allowance for Doubtful Accounts and Credit Losses

Our provision for bad debts and credit losses is included in other (income) expense, net on our Statement of Operations, and for the three months ended March 31, 2024 and 2023, was not significant. Our allowance for doubtful accounts and credit losses at March 31, 2024 and December 31, 2023, was $0.2 million and $0.2 million, respectively. We had no significant write-offs or recoveries of previously recorded bad debts during the three months ended March 31, 2024 or 2023. See “New Accounting Standards” in Note 1 for discussion of our adoption of ASU 2016-13.

Variable Consideration

For the three months ended March 31, 2024 and 2023, we had no material amounts in revenue related to unapproved change orders, claims or incentives. However, at December 31, 2023, certain active projects for our Shipyard Division reflected a reduction to our estimated contract price for liquidated damages of $1.4 million.

Changes in Project Estimates

We determine the impact of changes in estimated margins on projects for a given period by calculating the amount of revenue recognized in the period that would have been recognized in a prior period had such estimated margins been forecasted in the prior period. The total impact of changes in estimated margins for a project as disclosed on a quarterly basis may be different from the applicable year-to-date impact due to the application of the POC method and the changing progress of the project at each period end. Such impacts may also be different when a project is commenced and completed within the applicable year-to-date period but spans multiple quarters.

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For the three months ended March 31, 2024 and 2023, individual projects with significant changes in estimated margins did not have a material net impact on our operating results. The status of projects in backlog at March 31, 2024, which have previously experienced material changes in estimates, is as follows:

Seventy-Vehicle Ferry Project – As discussed in our 2023 Financial Statements, as of December 31, 2023, we had completed, delivered and received final customer acceptance of our seventy-vehicle ferry. The warranty period for the vessel ends in the third quarter 2024. The project would experience further losses if we incur unanticipated warranty costs on the vessel.
Forty-Vehicle Ferry Projects – As discussed in our 2023 Financial Statements, as of December 31, 2023, we had completed, delivered and received final customer acceptance of the first of two forty-vehicle ferries, and had substantially completed and delivered our second forty-vehicle ferry. During the first quarter 2024, we received final customer acceptance of the second ferry. The warranty periods for the first vessel ends in the second quarter 2024 and the warranty period for the second vessel ends in the first quarter 2025. The projects would experience further losses if we incur unanticipated warranty costs on the vessels.

As discussed in our 2023 Financial Statements, as a result of design deficiencies, we experienced rework, construction and commissioning challenges on the two ferries, resulting in previous cost increases and liquidated damages, and the previous need to fabricate a new hull for the second vessel. Accordingly, during 2021, we submitted claims to our customer, and intend to pursue a lawsuit, to extend our project schedules and recover the cost impacts of the design deficiencies. The customer denied all liability. Our forecasts at March 31, 2024 do not reflect potential future benefits, if any, from the favorable resolution of the lawsuit and we can provide no assurance that we will be successful in recovering previously incurred costs.

Other Operating and Project Matters

During 2021, our operations were impacted by Hurricane Ida, which made landfall near Houma, Louisiana as a high-end Category 4 hurricane, causing debris and damage to our buildings and equipment at our Houma Facilities.

Fabrication Division Impacts – As of December 31, 2023, we had finalized all claims associated with our property and equipment insurance coverages, and at December 31, 2023, we had total insurance receivables on our Balance Sheet of $2.0 million. During the three months ended March 31, 2024 and 2023, we received insurance payments of $2.0 million and $0.7 million, respectively, from our insurance carriers associated with interruptions to our operations and damage to buildings and equipment. The classification of insurance proceeds within our Statement of Cash Flows is based on our use or intended use of the proceeds. Proceeds used or intended to be used for repairs that are not deemed to be capital in nature, and proceeds associated with interruptions to our operations, are reflected within operating activities. Proceeds used or intended to be used for repairs that are deemed capital in nature, or proceeds in excess of repair costs, are reflected within investing activities.

During the three months ended March 31, 2023, we recorded gains of $0.2 million (associated with our business interruption coverage) related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida. The gains are included in other (income) expense, net on our Statement of Operations and are reflected within our Fabrication Division.

Shipyard Division Impacts – In addition to damage to our Houma Facilities, the storm resulted in damage to one of our forty-vehicle ferry projects, the multi-purpose supply vessels (“MPSV(s)”) and associated equipment that were previously in our possession and subject to our previous MPSV Litigation, and certain bulkheads where the vessels were moored. During the three months ended March 31, 2023, we recorded charges of $0.1 million related to actual costs incurred. The charges are included in other (income) expense, net on our Statement of Operations and are reflected within our Shipyard Division. See Note 4 for further discussion of the resolution of our MPSV Litigation.

3. CREDIT FACILITIES AND DEBT

LC Facility

On May 3, 2024, we amended our LC Facility to extend its maturity date to June 30, 2026. The LC Facility provides for up to $10.0 million of letters of credit, subject to our cash securitization of the letters of credit, and at March 31, 2024, we had $1.5 million of outstanding letters of credit under the LC Facility. Commitment fees on the unused portion of the LC Facility are 0.4% per annum and interest on outstanding letters of credit is 1.5% per annum. See Note 4 for further discussion of our letters of credit and associated security requirements.

- 13 -


 

Surety Bonds

We issue surety bonds in the ordinary course of business to support our projects and certain of our insurance coverages. At March 31, 2024, we had $52.5 million of outstanding surety bonds, of which $45.6 million relates to our Ferry Projects for our Shipyard Division (which will terminate upon expiration of the warranty periods for the projects) and $6.9 million relates to our Fabrication Division contracts and certain of our insurance coverages. See Note 2 for further discussion of the warranty periods for the Ferry Projects and Note 4 for further discussion of our surety bonds and related indemnification obligations.

Note Agreement

In connection with the resolution of our MPSV Litigation and the Settlement Agreement, on November 6, 2023, we entered into a promissory note (“Note Agreement”) with one of our Sureties (Fidelity & Deposit Company of Maryland (“FDC”) and Zurich American Insurance Company (together with FDC, “Zurich”)), pursuant to which we will pay Zurich $20.0 million. The Note Agreement bears interest at a fixed rate of 3.0% per annum commencing on January 1, 2024, with principal and interest payable in 15 equal annual installments of approximately $1.7 million, beginning on December 31, 2024 and ending on December 31, 2038. Future annual principal maturities under the Note Agreement are as follows (in thousands):

 

 

Principal
Maturities

 

2024

 

$

1,075

 

2025

 

 

1,108

 

2026

 

 

1,141

 

2027

 

 

1,175

 

2028

 

 

1,210

 

Thereafter

 

 

14,291

 

Total maturities(1), (2)

 

$

20,000

 

 

(1)
At March 31, 2024, the estimated present value of the Note Agreement amount was $13.0 million based on an estimated market rate of interest.
(2)
Due to the forbearance of interest until January 1, 2024, the effective rate on the Note Agreement is 2.9% per annum.

See Note 4 for further discussion of the resolution of our MPSV Litigation and the Settlement Agreement.

Mortgage Agreement

We have a multiple indebtedness mortgage arrangement (“Mortgage Agreement”) with Zurich to secure our obligations and liabilities under the Note Agreement and our general indemnity agreement with Zurich associated with an outstanding surety bond for our forty-vehicle ferry projects. The Mortgage Agreement, as amended, encumbers all real estate associated with the Houma Facilities, includes certain covenants and events of default, and requires that 50 percent of the net proceeds (as defined by the Mortgage Agreement) received by us in excess of $8.0 million from the sale of any real estate of our Houma Facilities be used to make early payments on the principal balance under the Note Agreement. The Mortgage Agreement will terminate when the obligations and liabilities of Zurich associated with the outstanding surety bond for the forty-vehicle ferry projects are discharged and the Note Agreement is repaid. See “Note Agreement” above for further discussion of the Note Agreement and Note 2 for further discussion of our forty-vehicle ferry projects.

Insurance Finance Arrangements

In connection with the renewal of our property and equipment insurance coverages during 2022, and general liability insurance coverages during the first quarter 2023, we entered into short-term premium finance arrangements (“Insurance Finance Arrangements”). The property and equipment arrangement totaled $2.4 million, payable in ten equal monthly installments through March 2023, with interest at a fixed rate of 4.3% per annum. The general liability arrangement totaled $0.5 million, payable in eight equal monthly installments through August 2023, with interest at a fixed rate of 6.6% per annum. We considered the transactions to be non-cash financing activities, with the initial financed amount reflected within accrued expenses and other liabilities, and a corresponding asset reflected within prepaid expenses and other assets, on our Balance Sheet. During the three months ended March 31, 2023, we made principal payments of $1.0 million, which have been reflected as a financing activity on our Statement of Cash Flows.

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4. COMMITMENTS AND CONTINGENCIES

Routine Legal Proceedings

We are subject to various routine legal proceedings in the normal conduct of our business, primarily involving commercial disputes and claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the U.S. and the Jones Act. While the outcome of these legal proceedings cannot be predicted with certainty, we believe that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on our financial position, results of operations or liquidity.

Resolution of MPSV Litigation

On March 19, 2018, our subsidiary, Gulf Island Shipyards, LLC (“GIS”), received termination notices from its customer, Hornbeck Offshore Services, LLC (“Hornbeck”), of the contracts for the construction of two MPSVs. GIS disputed the purported terminations and disagreed with Hornbeck’s reasons for such terminations. In connection with such purported terminations, Hornbeck also made claims against the performance bonds issued by Zurich in connection with the construction of the MPSVs, for which the face amount of the bonds totaled $50.0 million (“Performance Bonds”). On October 2, 2018, GIS filed a lawsuit against Hornbeck to enforce its rights and remedies under the applicable construction contracts for the two MPSVs. The lawsuit was filed in the Twenty-Second Judicial District Court for the Parish of St. Tammany, State of Louisiana and was styled Gulf Island Shipyards, LLC v. Hornbeck Offshore Services, LLC, bearing docket number 2018-14861 (“MPSV Litigation”). Hornbeck subsequently asserted counterclaims against GIS and Zurich seeking damages.

On October 4, 2023, the MPSV Litigation was dismissed in full with prejudice at the request of the parties after the parties reached an agreement in principle. In addition, on November 6, 2023, GIS and the Company entered into an agreement (“Settlement Agreement”) with Zurich pursuant to which Zurich released GIS and the Company from all of their obligations under the Performance Bonds and the associated general indemnity agreements relating to the Performance Bonds, and we agreed to release possession of the MPSVs to Zurich, which occurred in the fourth quarter 2023. Further, we entered into the Note Agreement. See Note 3 for further discussion of the Note Agreement.

As a result of the resolution of the MPSV Litigation, during the third quarter 2023, we recorded a charge of $32.5 million, consisting of (i) a $12.5 million non-cash charge associated with the write-off of a noncurrent net contract asset related to the MPSV construction contracts, and (ii) a $20.0 million charge associated with recording a liability resulting from the Settlement Agreement and Note Agreement. The charge was reflected as a reduction to previously recognized revenue on the MPSV construction contracts and the liability is reflected as current and long-term debt on our Balance Sheet at March 31, 2024 and December 31, 2023.

Insurance

We maintain insurance coverage for various aspects of our business and operations. However, we may be exposed to future losses due to coverage limitations and our use of deductibles and self-insured retentions for our exposures related to property and equipment damage, builder’s risk, third-party liability and workers’ compensation and USL&H claims. In connection with our insurance coverage renewal for our property and equipment during the second quarter 2023, we determined that the benefits of maintaining insurance coverage for our property and equipment were limited due to high premium costs and deductibles and increased coverage limitations. Accordingly, we did not renew all of our property and equipment coverage and are now generally self-insured for exposures resulting from any future damage to our property and equipment.

To the extent we have insurance coverage, we do not have an offset right for liabilities in excess of any deductibles and self-insured retentions. Accordingly, we have recorded a liability for estimated amounts in excess of our deductibles and retentions, and have recorded a corresponding asset related to estimated insurance recoveries, on our Balance Sheet. Further, to the extent we are self-insured, reserves are recorded based upon our estimates, with input from legal and insurance advisors. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change.

- 15 -


 

Letters of Credit and Surety Bonds

We obtain letters of credit under our LC Facility or surety bonds from financial institutions to provide to our customers in order to secure advance payments or guarantee performance under our contracts, or in lieu of retention being withheld on our contracts. Letters of credit under our LC Facility are subject to cash securitization of the full amount of the outstanding letters of credit. In the event of non-performance under a contract, our cash securitization with respect to the letter of credit supporting such contract would become the property of Whitney Bank. With respect to surety bonds, payments by a Surety pursuant to a bond in the event of non-performance are subject to reimbursement to such Surety by us under a general indemnity agreement relating to such bond. Such indemnification obligations may include the face amount of the surety bond, or portions thereof, as well as other reimbursable items such as interest and certain investigative expenses and legal fees of the Surety. Such indemnification obligations would require us to use our cash, cash equivalents or short-term investments, and we may not have sufficient liquidity to satisfy such indemnification obligations. When a contract is complete, the contingent obligation terminates, and letters of credit or surety bonds are returned. See Note 3 for further discussion of our LC Facility and surety bonds.

Environmental Matters

Our operations are subject to extensive and changing U.S. federal, state and local laws and regulations, as well as the laws of other countries, that establish health and environmental quality standards. These standards, among others, relate to air and water pollutants and the management and disposal of hazardous substances and wastes. We are exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or wastes. In connection with the historical operation of our facilities, including those associated with acquired operations, substances which currently are or might be considered hazardous were used or disposed of at some sites that will or may require us to make expenditures for remediation. We believe we are in compliance, in all material respects, with environmental laws and regulations and maintain insurance coverage to mitigate exposure to environmental liabilities. We do not believe any environmental matters will have a material adverse effect on our financial condition, results of operations or cash flow.

Leases

We maintain operating leases for our corporate office and certain operating facilities and equipment. See Note 1 for further discussion of our leases.

 

- 16 -


 

5. INCOME (LOSS) PER SHARE AND SHAREHOLDERS’ EQUITY

Income (Loss) Per Share

The following table presents the computation of basic and diluted income per share for the three months ended March 31, 2024 and 2023 (in thousands, except per share data):

 

 

 

Three Months Ended March 31,

 

 

 

2024

 

 

2023

 

Numerator:

 

 

 

 

 

 

Net income

 

$

6,240

 

 

$

641

 

 

 

 

 

 

 

 

Denominator:

 

 

 

 

 

 

Weighted average basic shares

 

 

16,215

 

 

 

15,994

 

Effect of dilutive share-based awards

 

 

540

 

 

 

365

 

Weighted average diluted shares

 

 

16,755

 

 

 

16,359

 

 

 

 

 

 

 

 

Basic income per share

 

$

0.38

 

 

$

0.04

 

Diluted income per share

 

$

0.37

 

 

$

0.04

 

 

Shareholders’ Equity

On December 1, 2023, our Board approved a share repurchase program (“Share Repurchase Program”) authorizing the repurchase of up to $5.0 million of our outstanding common stock, effective from December 15, 2023 through December 15, 2024. The timing and amount of any share repurchases is at the discretion of management and may be made from time to time through transactions in the open market, in privately negotiated transactions or by other means in accordance with applicable laws. The Share Repurchase Program does not obligate us to repurchase any shares of common stock and may be modified, increased, suspended or terminated at the discretion of our Board. During the three months ended March 31, 2024, we repurchased 60,860 shares of our common stock for $0.3 million, and at March 31, 2024, we had remaining authorization to purchase $4.6 million under the Share Repurchase Program.

6. OPERATING SEGMENTS

We currently operate and manage our business through three operating divisions (“Services”, “Fabrication” and “Shipyard”) and one non-operating division (“Corporate”), which represent our reportable segments. Our three operating divisions and Corporate Division are discussed below.

Services Division Our Services Division provides maintenance, repair, construction, scaffolding, coatings, welding enclosures and other specialty services on offshore platforms and inland structures and at industrial facilities; provides services required to connect production equipment and service modules and equipment on offshore platforms; provides project management and commissioning services; provides industrial staffing services; and performs municipal and drainage projects, including pump stations, levee reinforcement, bulkheads and other public works. Our services activities are managed from our various Facilities.

Fabrication Division Our Fabrication Division fabricates modules, skids and piping systems for onshore refining, petrochemical, LNG and industrial facilities and offshore facilities; fabricates foundations, secondary steel components and support structures for alternative energy developments and coastal mooring facilities; fabricates offshore production platforms and associated structures, including jacket foundations, piles and topsides for fixed production and utility platforms, as well as hulls and topsides for floating production and utility platforms; and fabricates other complex steel structures and components. Our fabrication activities are performed at our Houma Facilities.

Shipyard Division Our Shipyard Division previously fabricated newbuild marine vessels and provided marine repair and maintenance services. However, during 2021, we completed the Shipyard Transaction. The Shipyard Transaction excluded the contracts and related obligations for our Ferry Projects that were under construction as of the transaction date, and excluded the contracts and related obligations for the projects that were subject to our previous MPSV Litigation, which was resolved on October 4, 2023. Construction of the Ferry Projects was performed at our Houma Facilities and the wind down of our remaining Shipyard Division operations was substantially completed in the fourth quarter 2023. Final completion of the wind down will occur upon completion of the warranty periods for the Ferry Projects, the last of which ends in the first quarter 2025. At March 31, 2024 and December 31, 2023, the net operating liabilities on our Balance Sheet associated with our Shipyard Division operations totaled $1.8 million and $1.4 million, respectively. See Note 1 for further discussion of the Shipyard Transaction, Note 2 for further discussion of our Ferry Projects and Note 4 for further discussion of the resolution of our MPSV Litigation.

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Corporate Division and Allocations Our Corporate Division includes costs that do not directly relate to our operating divisions. Such costs include, but are not limited to, costs of maintaining our corporate office, executive management salaries and incentives, board of directors’ fees, certain insurance costs and costs associated with overall corporate governance and reporting requirements for a publicly traded company. Shared resources and costs that benefit more than one operating division are allocated amongst the operating divisions based on each operating division’s estimated share of the benefit received. Such costs include, but are not limited to, human resources, insurance, information technology, accounting, business development and certain division leadership.

Segment Results We generally evaluate the performance of, and allocate resources to, our divisions based upon gross profit or loss and operating income or loss. Segment assets are comprised of all assets attributable to each division. Intersegment revenues are priced at the estimated fair value of work performed. Summarized financial information for our segments as of March 31, 2024 and 2023, and for the three months ended March 31, 2024 and 2023, is as follows (in thousands):

 

 

 

Three Months Ended March 31, 2024

 

 

 

Services

 

 

Fabrication

 

 

Shipyard

 

 

Corporate

 

 

Consolidated

 

Revenue

 

$

25,534

 

 

$

17,138

 

 

$

409

 

 

$

(200

)

 

$

42,881

 

Gross profit

 

 

3,613

 

 

 

2,192

 

 

 

319

 

 

 

 

 

 

6,124

 

Operating income (loss)

 

 

2,867

 

 

 

4,721

 

 

 

342

 

 

 

(2,222

)

 

 

5,708

 

Depreciation and amortization expense

 

 

480

 

 

 

635

 

 

 

 

 

 

78

 

 

 

1,193

 

Capital expenditures

 

 

294

 

 

 

2,259

 

 

 

 

 

 

 

 

 

2,553

 

Total assets(1)

 

 

28,228

 

 

 

33,172

 

 

 

541

 

 

 

65,817

 

 

 

127,758

 

 

 

 

Three Months Ended March 31, 2023

 

 

 

Services

 

 

Fabrication

 

 

Shipyard

 

 

Corporate

 

 

Consolidated

 

Revenue

 

$

21,587

 

 

$

39,662

 

 

$

1,347

 

 

$

(428

)

 

$

62,168

 

Gross profit (loss)

 

 

2,987

 

 

 

2,462

 

 

 

(415

)

 

 

 

 

 

5,034

 

Operating income (loss)

 

 

2,341

 

 

 

2,244

 

 

 

(2,203

)

 

 

(2,054

)