UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
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
(Exact name of registrant as specified in its charter)
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(I.R.S. Employer Identification No.) |
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(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 |
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.
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging Growth Company |
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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
The number of shares of the registrant’s common stock, no par value per share, outstanding as of October 31, 2024, was
GULF ISLAND FABRICATION, INC.
I N D E X
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PART I |
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1 |
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Item 1. |
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1 |
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Consolidated Balance Sheets at September 30, 2024 (unaudited) and December 31, 2023 |
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2 |
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3 |
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4 |
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5 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3. |
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42 |
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Item 4. |
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42 |
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PART II |
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43 |
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Item 1. |
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43 |
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Item 1A. |
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43 |
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Item 2. |
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43 |
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Item 5. |
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43 |
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Item 6. |
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44 |
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45 |
i
GLOSSARY OF TERMS
As used in this report filed on Form 10-Q for the quarter ended September 30, 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 |
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Our annual report for the year ended December 31, 2023, filed with the SEC on Form 10-K on March 8, 2024. |
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2023 Financial Statements |
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Our Financial Statements for the year ended December 31, 2023 and related notes, included in our 2023 Annual Report. |
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ASC |
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Accounting Standards Codification. |
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ASU |
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Accounting Standards Update. |
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Balance Sheet |
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Our Consolidated Balance Sheets, as filed in this Report. |
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Board |
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Board of Directors. |
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contract assets |
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Costs and estimated earnings recognized to date in excess of cumulative billings. |
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contract liabilities |
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Cumulative billings in excess of costs and estimated earnings recognized to date and accrued contract losses. |
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cost-reimbursable |
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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. |
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COVID-19 |
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The global coronavirus pandemic. |
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deck |
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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. |
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DTA(s) |
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Deferred Tax Asset(s). |
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EPC |
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Engineering, Procurement and Construction. |
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Exchange Act |
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Securities Exchange Act of 1934, as amended. |
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Fabrication Division |
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Our Fabrication reportable segment. |
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Facilities |
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Our Houma Facilities and other facilities that support our operations. |
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FASB |
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Financial Accounting Standards Board. |
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Ferry Projects |
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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. |
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Financial Statements |
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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. |
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GAAP |
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Generally Accepted Accounting Principles in the U.S. |
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GIS |
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Gulf Island Shipyards, LLC. |
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GOM |
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Gulf of Mexico. |
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Gulf Coast |
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Along the coast of the Gulf of Mexico. |
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Hornbeck |
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Hornbeck Offshore Services, LLC. |
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Houma AHFS |
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Certain excess real property (consisting of land and buildings) of our Fabrication Division sold during the first quarter 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. |
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Houma Facilities |
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Our owned facilities located in Houma, Louisiana that support our Fabrication Division and Services Division and represent our primary operating facilities. |
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inland |
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Typically, bays, lakes and marshy areas. |
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Insurance Finance Arrangements |
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Short-term finance arrangements for insurance premiums associated with our property and equipment and general liability insurance coverages. |
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jacket |
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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. |
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labor hours |
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Hours worked by employees directly involved in the fabrication of our products or delivery of our services. |
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LC Facility |
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Our $10.0 million letter of credit facility with Whitney Bank maturing on June 30, 2026, as amended. |
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LNG |
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Liquefied Natural Gas. |
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Mortgage Agreement |
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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 second forty-vehicle ferry project. The mortgage arrangement encumbers the real estate associated with our Houma Facilities and includes certain covenants and events of default. |
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modules |
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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. |
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MPSV(s) |
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Multi-Purpose Supply Vessel(s). |
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MPSV Litigation |
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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. |
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Note Agreement |
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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. |
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offshore |
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In unprotected waters outside coastlines. |
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onshore |
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Inside the coastline on land. |
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Performance Bonds |
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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. |
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performance obligation |
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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. |
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piles |
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Rigid tubular pipes that are driven into the seabed to anchor a jacket. |
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platform |
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A structure from which offshore oil and gas development drilling and production are conducted. |
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POC |
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Percentage-of-completion. |
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SEC |
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U.S. Securities and Exchange Commission. |
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Services Division |
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Our Services reportable segment. |
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Settlement Agreement |
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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. |
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Share Repurchase Program |
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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, 2025, as amended. |
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iii
Shipyard Division |
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Our Shipyard reportable segment. |
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Shipyard Transaction |
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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. |
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Statement of Cash Flows |
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Our Consolidated Statements of Cash Flows, as filed in this Report. |
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Statement of Operations |
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Our Consolidated Statements of Operations, as filed in this Report. |
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Statement of Shareholders’ Equity |
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Our Consolidated Statements of Changes in Shareholders’ Equity, as filed in this Report. |
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Surety or Sureties |
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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. |
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T&M |
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Time and Materials. Work is performed and billed to the customer at contracted time and material rates. |
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Topic 606 |
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The revenue recognition criteria prescribed under ASU 2014-09, “Revenue from Contracts with Customers”. |
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U.S. |
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The United States of America. |
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USL&H |
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United States Longshoreman and Harbor Workers Act. |
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VA(s) |
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Valuation Allowance(s). |
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Whitney Bank |
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Hancock Whitney Bank. |
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Zurich |
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Fidelity & Deposit Company of Maryland and Zurich American Insurance Company. |
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iv
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
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September 30, |
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December 31, |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash |
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Short-term investments |
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Contract receivables and retainage, net |
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Contract assets |
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Prepaid expenses and other assets |
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Inventory |
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Assets held for sale |
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— |
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Total current assets |
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Property, plant and equipment, net |
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Goodwill |
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Other intangibles, net |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Contract liabilities |
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Accrued expenses and other liabilities |
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Long-term debt, current |
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Total current liabilities |
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Long-term debt, noncurrent |
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Other noncurrent liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Preferred stock, par value, |
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Common stock, par value, |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended |
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Nine Months Ended |
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2024 |
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2023 |
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2024 |
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2023 |
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Revenue |
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$ |
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$ |
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$ |
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$ |
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Cost of revenue |
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Gross profit (loss) |
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General and administrative expense |
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Other (income) expense, net |
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( |
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( |
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( |
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Operating income (loss) |
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( |
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Interest (expense) income, net |
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Income (loss) before income taxes |
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( |
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Income tax (expense) benefit |
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( |
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( |
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Net income (loss) |
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$ |
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$ |
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$ |
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$ |
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Per share data: |
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Basic income (loss) per share |
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$ |
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$ |
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$ |
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$ |
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Diluted income (loss) per share |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these financial statements.
- 2 -
GULF ISLAND FABRICATION, INC.
(UNAUDITED)
(in thousands)
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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Adoption of ASU 2016-13 |
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— |
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— |
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— |
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( |
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Balance at January 1, 2023 |
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Net income |
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— |
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— |
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— |
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Vesting of restricted stock |
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( |
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( |
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— |
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Stock-based compensation expense |
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— |
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— |
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Balance at March 31, 2023 |
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Net income |
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— |
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— |
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— |
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Vesting of restricted stock |
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( |
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( |
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— |
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Stock-based compensation expense |
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— |
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— |
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Balance at June 30, 2023 |
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Net loss |
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— |
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— |
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— |
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( |
) |
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( |
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Stock-based compensation expense |
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— |
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— |
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Balance at September 30, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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Common Stock |
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Additional |
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Accumulated |
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Total |
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Shares |
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Amount |
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Capital |
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Deficit |
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Equity |
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Balance at December 31, 2023 |
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$ |
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$ |
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$ |
( |
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$ |
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Net income |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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Repurchases of common stock |
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( |
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( |
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( |
) |
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— |
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( |
) |
Balance at March 31, 2024 |
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( |
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Net income |
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— |
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— |
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— |
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Vesting of restricted stock |
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( |
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( |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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Balance at June 30, 2024 |
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( |
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Net income |
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— |
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— |
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— |
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Stock-based compensation expense |
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— |
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— |
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Repurchases of common stock |
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( |
) |
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( |
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( |
) |
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— |
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( |
) |
Balance at September 30, 2024 |
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$ |
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|
$ |
|
|
$ |
( |
) |
|
$ |
|
The accompanying notes are an integral part of these financial statements.
- 3 -
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: |
|
|
|
|
|
|
||
Depreciation and amortization |
|
|
|
|
|
|
||
Change in allowance for doubtful accounts and credit losses |
|
|
( |
) |
|
|
( |
) |
Gain on sale or disposal of assets held for sale and fixed assets, net |
|
|
( |
) |
|
|
( |
) |
Gain on insurance recoveries |
|
|
— |
|
|
|
( |
) |
Stock-based compensation expense |
|
|
|
|
|
|
||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Contract receivables and retainage, net |
|
|
|
|
|
( |
) |
|
Contract assets |
|
|
( |
) |
|
|
|
|
Prepaid expenses, inventory and other current assets |
|
|
|
|
|
|
||
Accounts payable |
|
|
( |
) |
|
|
|
|
Contract liabilities |
|
|
( |
) |
|
|
( |
) |
Accrued expenses and other current liabilities |
|
|
( |
) |
|
|
( |
) |
Noncurrent assets and liabilities, net |
|
|
( |
) |
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
|
|
|
( |
) |
|
Cash flows from investing activities: |
|
|
|
|
|
|
||
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Proceeds from sale of property and equipment |
|
|
|
|
|
|
||
Recoveries from insurance claims |
|
|
|
|
|
|
||
Purchases of short-term investments |
|
|
( |
) |
|
|
( |
) |
Maturities of short-term investments |
|
|
|
|
|
|
||
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
||
Payments on Insurance Finance Arrangements |
|
|
— |
|
|
|
( |
) |
Tax payments for vested stock withholdings |
|
|
( |
) |
|
|
( |
) |
Repurchases of common stock |
|
|
( |
) |
|
|
— |
|
Net cash used in financing activities |
|
|
( |
) |
|
|
( |
) |
Net decrease in cash, cash equivalents and restricted cash |
|
|
( |
) |
|
|
( |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
||
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
$ |
|
The accompanying notes are an integral part of these financial statements.
- 4 -
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 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 cleaning and environmental 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
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 and nine months ended September 30, 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:
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. 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 prices have somewhat stabilized, 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 September 30, 2024 and December 31, 2023, we had $
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 September 30, 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. During the first quarter 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 $
Depreciation and Amortization Expense
Property, plant and equipment are depreciated on a straight-line basis over estimated useful lives ranging from to
- 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 nine months ended September 30, 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 nine months ended September 30, 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:
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 and nine months ended September 30, 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.
- 9 -
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 September 30, 2024 and December 31, 2023, we had
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 nine months ended September 30, 2024, other (income) expense, net for our Fabrication Division included a gain of $
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 and nine months ended September 30, 2024, as
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 $
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.
- 10 -
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 and nine months ended September 30, 2024 and 2023 (in thousands):
|
|
Three Months Ended September 30, 2024 |
|
|||||||||||||||||
|
|
Services |
|
|
Fabrication |
|
|
Shipyard |
|
|
Eliminations |
|
|
Total |
|
|||||
Fixed-price and unit-rate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
T&M and cost-reimbursable |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Other |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Short-term |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
Services |
|
|
Fabrication |
|
|
Shipyard |
|
|
Eliminations |
|
|
Total |
|
|||||
Fixed-price and unit-rate |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
T&M and cost-reimbursable |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Other |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
||
Short-term |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
|
Nine Months Ended September 30, 2024 |
|
|||||||||||||||||
|
|
Services |
|
|
Fabrication |
|
|
Shipyard |
|
|
Eliminations |
|
|
Total |
|
|||||
Fixed-price and unit-rate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
T&M and cost-reimbursable |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Other |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Short-term |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
Services |
|
|
Fabrication |
|
|
Shipyard |
|
|
Eliminations |
|
|
Total |
|
|||||
Fixed-price and unit-rate |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
T&M and cost-reimbursable |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Other |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
|
||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Long-term |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Short-term |
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|||
Total |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
- 11 -
Future Performance Obligations
The following table summarizes our remaining performance obligations, disaggregated by operating segment and contract type, at September 30, 2024 (in thousands):
|
|
September 30, 2024 |
|
|||||||||||||
|
|
Services |
|
|
Fabrication |
|
|
Shipyard(1) |
|
|
Total |
|
||||
Fixed-price and unit-rate |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
T&M and cost-reimbursable |
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Total(2) |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
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.
|
|
September 30, |
|
|
December 31, |
|
||
|
|
2024 |
|
|
2023 |
|
||
Contract assets(1), (2) |
|
$ |
|
|
$ |
|
||
Contract liabilities(3), (4), (5) |
|
|
( |
) |
|
|
( |
) |
Contracts in progress, net |
|
$ |
|
|
$ |
( |
) |
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 and nine months ended September 30, 2024, was not significant. For the three and nine months ended September 30, 2023, we recognized income of $
- 12 -
Variable Consideration
For the three and nine months ended September 30, 2024 and 2023, we had no material amounts in revenue related to unapproved change orders, claims or incentives, other than the amounts related to the resolution of our previous MPSV Litigation discussed further below. However, at December 31, 2023, certain projects for our Shipyard Division reflected a reduction to our estimated contract price for liquidated damages of $
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.
Changes in Estimates for 2024 – For the three and nine months ended September 30, 2024, 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 September 30, 2024, which have previously experienced material changes in estimates, is as follows:
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 one of the vessels. Accordingly, during 2021, we submitted claims to our customer to recover the cost impacts of the design deficiencies. In accordance with contract requirements and North Carolina state law, in July 2024, we submitted our finalized claim to the customer for these cost and schedule impacts. In October 2024, the customer denied our claim, which cleared the way for us to litigate our claim. Accordingly, we have filed a lawsuit in North Carolina state court to have the claim decided before a judge. Our forecasts at September 30, 2024 do not reflect potential future benefits, if any, from the favorable resolution of the claim and we can provide no assurance that we will be successful in recovering previously incurred costs.
- 13 -
Changes in Estimates for 2023 – As a result of the resolution of our previous MPSV Litigation for our Shipyard Division, we recorded a charge of $
Fabrication Division
Shipyard Division
In connection with the delivery and commissioning of the vessel in the second quarter 2023, corrosion on the propeller blades was identified and the customer determined that replacement of the propeller blades will be required. The customer agreed to directly procure the new propeller blades and take responsibility for future installation of the blades once received. Further, the customer agreed to bear a portion of the cost of the new propeller blades, with the remainder borne by us through the aforementioned contract price reduction.
Other Operating and Project Matters
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 $
During the three and nine months ended September 30, 2023, we recorded gains of $
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 and nine months ended September 30, 2023, we recorded charges of $
- 14 -
3. CREDIT FACILITIES AND DEBT
LC Facility
On May 3, 2024, we amended our LC Facility to extend its maturity date to
Surety Bonds
We issue surety bonds in the ordinary course of business to support our projects and certain of our insurance coverages. At September 30, 2024, we had $
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 and Zurich American Insurance Company (collectively, “Zurich”)), pursuant to which we will pay Zurich $
|
|
Principal |
|
|
2024 |
|
$ |
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
2027 |
|
|
|
|
2028 |
|
|
|
|
Thereafter |
|
|
|
|
Total maturities(1), (2) |
|
$ |
|
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
- 15 -
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 $
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
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 $
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. During the second quarter 2024 and 2023, we reviewed our insurance coverage options for our property and equipment and determined that the benefits of such coverage were limited due to high premium costs and deductibles and increased coverage limitations. Accordingly, we are generally self-insured for exposures resulting from any future damage to our property and equipment.
- 16 -
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.
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 relate to air and water pollutants and the management and disposal of hazardous substances and wastes, among others. 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.
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 and nine months ended September 30, 2024 and 2023 (in thousands, except per share data):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net income (loss) |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Weighted average basic shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Effect of dilutive share-based awards |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
||
Weighted average diluted shares |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic income (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
||
Diluted income (loss) per share |
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
- 17 -
Shareholders’ Equity
On December 1, 2023, our Board approved a share repurchase program (“Share Repurchase Program”) authorizing the repurchase of up to $
6. OPERATING SEGMENTS
We currently operate and manage our business through
Services Division – Our Services Division provides maintenance, repair, construction, scaffolding, coatings, welding enclosures, cleaning and environmental 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; 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 September 30, 2024 and December 31, 2023, the net operating liabilities on our Balance Sheet associated with our Shipyard Division operations totaled $
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.
- 18 -
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.
|
|
Three Months Ended September 30, 2024 |
|
|||||||||||||||||
|
|
Services |
|
|
Fabrication |
|
|
Shipyard |
|
|
Corporate |
|
|
Consolidated |
|
|||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Capital expenditures |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Total assets(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
Services |
|
|
Fabrication |
|
|
Shipyard |
|
|
Corporate |
|
|
Consolidated |
|
|||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Gross profit (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
||
Operating income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
||
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Capital expenditures |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Total assets(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2024 |
|
|||||||||||||||||
|
|
Services |
|
|
Fabrication |
|
|
Shipyard |
|
|
Corporate |
|
|
Consolidated |
|
|||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
||||
Operating income (loss) |
|
|
|
|
|
|
|
|
|
|
|
( |
) |
|
|
|
||||
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Capital expenditures |
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Total assets(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2023 |
|
|||||||||||||||||
|
|
Services |
|
|
Fabrication |
|
|
Shipyard |
|
|
Corporate |
|
|
Consolidated |
|
|||||
Revenue |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|||
Gross profit (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
— |
|
|
|
( |
) |
||
Operating income (loss) |
|
|
|
|
|
|
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
||
Depreciation and amortization expense |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Capital expenditures |
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
|
|
||||
Total assets(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 19 -
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is provided to assist readers in understanding our financial performance during the periods presented and significant trends that may impact our future performance. This discussion should be read in conjunction with our Financial Statements and the related notes thereto. References to “Notes” relate to the Notes to our Financial Statements in Item 1. References to “nm” relate to percentage references that are not considered meaningful. Certain terms are defined in the “Glossary of Terms” beginning on page ii.
Cautionary Statement on Forward-Looking Information
This Report contains forward-looking statements in which we discuss our potential future performance, operations and projects. Forward-looking statements, within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, are all statements other than statements of historical facts, such as projections or expectations relating to operating results; diversification and entry into new end markets; improvement of risk profile; industry outlook; oil and gas prices; timing of investment decisions and new project awards; cash flows and cash balance; capital expenditures; tax rates; implementation of our share repurchase program; liquidity; and execution of strategic initiatives. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “targets,” “intends,” “likely,” “will,” “should,” “to be,” “potential” and any similar expressions are intended to identify those assertions as forward-looking statements. The timing and amount of any share repurchases will be at the discretion of management and will depend on a variety of factors including, but not limited to, our operating performance, cash flow and financial position, the market price of our common stock and general economic and market conditions. The share repurchase program may be modified, increased, suspended or terminated at any time at the Board’s discretion.
We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include: supply chain disruptions, inflationary pressures, economic slowdowns and recessions, natural disasters, public health crises, labor costs and geopolitical conflicts, and the related volatility in oil and gas prices and other factors impacting the global economy; cyclical nature of the oil and gas industry; competition; reliance on significant customers; competitive pricing and cost overruns on our projects; performance of subcontractors and dependence on suppliers; timing and our ability to secure and commence execution of new project awards, including fabrication projects for refining, petrochemical, LNG, industrial and sustainable energy end markets; our ability to maintain and further improve project execution; nature of our contract terms and customer adherence to such terms; suspension or termination of projects; changes in contract estimates; customer or subcontractor disputes; operating dangers, weather events and availability and limits on insurance coverage; operability and adequacy of our major equipment; our ability to raise additional capital; our ability to amend or obtain new debt financing or credit facilities on favorable terms; our ability to generate sufficient cash flow; our ability to resolve any material legal proceedings; our ability to execute our share repurchase program and enhance shareholder value; our ability to obtain letters of credit or surety bonds and ability to meet any indemnification obligations thereunder; consolidation of our customers; financial ability and credit worthiness of our customers; adjustments to previously reported profits or losses under the percentage-of-completion method; our ability to employ a skilled workforce; loss of key personnel; utilization of facilities or closure or consolidation of facilities; failure of our safety assurance program; barriers to entry into new lines of business; weather impacts to operations; any future asset impairments; changes in trade policies of the U.S. and other countries; compliance with regulatory and environmental laws; lack of navigability of canals and rivers; systems and information technology interruption or failure and data security breaches; performance of partners in any future joint ventures and other strategic alliances; shareholder activism; and other factors described under “Risk Factors” in Part I, Item 1A of our 2023 Annual Report and as may be further updated by subsequent filings with the SEC.
Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the date the forward-looking statements are made, which we cannot control. Further, we may make changes to our business plans that could affect our results. We caution investors that we undertake no obligation to publicly update or revise any forward-looking statements, which speak only as of the date made, for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise, and notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes.
- 20 -
Overview
We are a leading fabricator of complex steel structures and modules and provider of specialty services, including project management, hookup, commissioning, repair, maintenance, scaffolding, coatings, welding enclosures, civil construction and cleaning and environmental 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. 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. 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.
Impacts of Oil and Gas Price Volatility and Macroeconomic Conditions on Operations
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. 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 prices have somewhat stabilized, 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. See Note 1 for further discussion of the impacts of oil and gas price volatility and macroeconomic conditions and Note 2 for further discussion of the impacts of the aforementioned on our projects.
- 21 -
Other Impacts to Operations
Hurricanes Francine and Helene – In mid-September 2024, Hurricane Francine made landfall near our Houma Facilities as a Category 2 hurricane, and in late-September 2024, Hurricane Helene made landfall along the coast of Florida as a Category 4 hurricane. While we did not experience any significant damage to our Houma Facilities or equipment as a result of Hurricane Francine, our Fabrication Division operations were temporarily suspended due to pre-storm preparation activities and post-storm power outages. Further, our Services Division operations were impacted due to the temporary removal of our personnel from customer offshore platforms while both storms approached and passed through the Gulf of Mexico (“GOM”). As a result of the aforementioned, our operating results for the third quarter 2024 were negatively impacted due to reduced utilization of our facilities and resources.
Houma AHFS – During the first quarter 2024, we sold certain excess real property (consisting of land and buildings) that was part of our Houma Facilities, resulting in a gain for the nine months ended September 30, 2024 for our Fabrication Division. The property sold was classified as an asset held for sale (“Houma AHFS”) on our Balance Sheet at December 31, 2023. See Note 1 for further discussion of the sale of our Houma AHFS.
MPSV Litigation – During the fourth quarter 2023, we resolved our MPSV Litigation and entered into the Settlement Agreement and Note Agreement, resulting in a charge during the three and nine months ended September 30, 2023 for our Shipyard Division. See Note 3 for further discussion of the Note Agreement and Note 4 for further discussion of the resolution of our MPSV Litigation and the Settlement Agreement.
Ferry Projects – During 2023 and 2022, we experienced construction challenges and cost increases on our Ferry Projects for our Shipyard Division. See Note 2 for further discussion of our Ferry Projects.
Offshore Jackets Project – During 2022, we were awarded a large contract for the fabrication of offshore jackets for our Fabrication Division. In February 2023, we received direction from our customer to suspend all activities on the project, and in July 2023, the customer canceled the contract.
Hurricane Ida – During 2021, our operations were impacted by Hurricane Ida. During the nine months ended September 30, 2024 and 2023, we received insurance payments associated with our insurance coverages, and during the three and nine months ended September 30, 2023, we recorded gains for our Fabrication Division related to the net impact of insurance recoveries and costs associated with such damage. See Note 2 for further discussion of the impacts of Hurricane Ida.
Initiatives to Improve Operating Results and Generate Stable, Profitable Growth
During 2020, we outlined a strategy to address our operational, market and economic challenges and position the Company to generate stable, profitable growth. Underpinning the first phase of our strategic transformation was a focus on the following initiatives:
- 22 -
With the significant progress achieved on these objectives, during 2021, we shifted our focus to the current phase of our strategic transformation, which is focused on generating stable, profitable growth. Underpinning this strategy is a focus on the following initiatives, which encompass any ongoing initiatives associated with the first phase of our strategic transformation:
Progress on the Current Phase of our Strategic Transformation
Efforts to expand our skilled workforce – We are focused on ways to improve retention and enhance and add to our skilled, craft personnel, as we believe a strong workforce will be a key differentiator in pursuing new project awards given the scarcity of available skilled labor. Our acquisition of a services and industrial staffing business during 2021 nearly doubled our skilled workforce and expanded our geographic footprint. We have successfully maintained our overall headcount levels and have opportunistically looked to shift our workforce to higher margin opportunities given the industry-wide labor constraints. We continue to evaluate opportunities to expand our skilled labor headcount given the favorable demand trends, including strategic acquisitions to increase our craft labor headcount.
Efforts to further improve our resource utilization – We continue to take actions to improve our resource utilization through the rationalization and integration of our facilities and operations.
- 23 -
Efforts to further strengthen project execution and maintain bidding discipline – We have taken, and continue to take, actions to improve our project execution by enhancing our proposal, estimating and operations resources, processes and procedures. Our actions include strategic changes in management and key personnel, the addition of functional expertise, project management training, development of a formal “lessons learned” program, and other measures designed to strengthen our personnel, processes and procedures. Further, we are taking a disciplined approach to pursuing and bidding project opportunities, putting more rigor around our bid estimates to provide greater confidence that our estimates are achievable, increasing accountability and providing incentives for the execution of projects in line with our original estimates and subsequent forecasts, and incorporating previous experience into the bidding and execution of future projects. Additionally, we are focused on managing the risks associated with long-term fixed price contracts given the unpredictability of labor availability and labor and material costs, with a priority on increasing the mix of T&M contracts in our backlog.
Efforts to diversify our offshore services customer base, increase our offshore services offerings and expand our services business to include onshore facilities along the Gulf Coast – We believe diversifying and expanding our services business will deliver a more stable revenue stream while providing underpinning work to recruit, develop and retain our craft professionals. Our acquisition of a services and industrial staffing business during 2021 accelerated our progress in this initiative and provided a stronger platform to continue such progress. Further, during 2022, we expanded our offshore services offering to include welding enclosures, which provide a safe environment for welding, cutting and burning without the need to shut down operations. Additionally, during the second quarter 2024, we expanded our offshore services offering to include cleaning and environmental services, which provides decontamination, flushing and removal of hydrocarbon residue from process equipment and piping on offshore facilities prior to the performance of maintenance, repair or decommissioning. We are also pursuing opportunities to partner with original equipment manufacturers to provide critical services to our customers along the Gulf Coast and strategic partnership opportunities with engineering companies to provide turnkey solutions.
Efforts to continue to pursue opportunities in our traditional offshore fabrication markets – We continue to fabricate structures associated with our traditional offshore markets, including subsea and associated structures. During 2022, we were awarded a large contract for the fabrication of offshore jackets; however, the project was suspended in February 2023 and canceled in July 2023. Since early 2023, we have been awarded multiple contracts for the fabrication of subsea structures, resulting from our previous strategic decision to focus our resources on the subsea fabrication market. We expect subsea fabrication activity to remain strong for the remainder of 2024 and well into 2025, associated with anticipated subsea developments in the GOM, Guyana and Brazil.
- 24 -
Efforts to reduce our reliance on the offshore oil and gas construction sector, pursue new growth end markets and increase our T&M versus fixed price revenue mix – While we continue to pursue opportunities in our traditional offshore markets, we are pursuing initiatives to grow our business and diversify our revenue mix.
Operating Outlook
Our focus remains on securing profitable new project awards and backlog and generating operating income and cash flows, while ensuring the safety and well-being of our workforce. Our success, including achieving the aforementioned initiatives, will be determined by, among other things:
- 25 -
In addition, the near-term utilization of our Fabrication Division will be impacted by the timing of new project awards and their execution, including the replacement of our canceled offshore jackets project, and our operations may continue to be impacted by inefficiencies and disruptions associated with employee turnover, craft labor hiring challenges, engineering delays, and supplier and subcontractor disruptions. Our results may also be adversely affected by (i) costs associated with the retention of certain personnel that may be temporarily under-utilized as we evaluate our resource requirements to support our future operations, (ii) investments in strategic opportunities, (iii) investments in key personnel and process improvement efforts to support our aforementioned initiatives, and (iv) higher costs and availability of craft labor due to industry labor constraints. See Note 1 and “Impacts of Oil and Gas Price Volatility and Macroeconomic Conditions on Operations” above for further discussion of the impacts of oil and gas price volatility and macroeconomic conditions, “Other Impacts to Operations” above for further discussion of the project cancellation and Note 2 and “Results of Operations” below for further discussion of our project impacts.
Critical Accounting Policies
For a discussion of critical accounting policies and estimates used in the preparation of our Financial Statements, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 included in our 2023 Annual Report. There have been no changes to our critical accounting policies and estimates since December 31, 2023.
New Project Awards and Backlog
New project awards represent expected revenue values of new contract commitments received during a given period, including scope growth on existing commitments. A commitment represents authorization from our customer to begin work or purchase materials pursuant to a written agreement, letter of intent or other form of authorization. Backlog represents the unrecognized revenue value of our new project awards and at September 30, 2024, was consistent with the value of remaining performance obligations for our contracts required to be disclosed under Topic 606 and presented in Note 2. 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. We believe that backlog, a non-GAAP financial measure, provides useful information to investors as it represents work that we are obligated to perform under our current contracts. New project awards and backlog may vary significantly each reporting period based on the timing of our major new contract commitments.
Projects in our backlog are generally subject to delay, suspension, termination, or an increase or decrease in scope at the option of the customer; however, the customer is required to pay us for work performed and materials purchased through the date of termination, suspension, or decrease in scope. Depending on the size of the project, the delay, suspension, termination or increase or decrease in scope of any one contract could significantly impact our backlog and change the expected amount and timing of revenue recognized. New project awards by operating segment for the three and nine months ended September 30, 2024 and 2023, are as follows (in thousands):
|
|
Three Months Ended |
|
|
Nine Months Ended |
|
||||||||||
|
|
2024 |
|
|
2023 |
|
|
2024 |
|
|
2023 |
|
||||
Services |
|
$ |
20,205 |
|
|
$ |
22,776 |
|
|
$ |
68,065 |
|
|
$ |
68,578 |
|
Fabrication |
|
|
16,902 |
|
|
|
16,589 |
|
|
|
52,784 |
|
|
|
46,733 |
|
Shipyard |
|
|
— |
|
|
|
(718 |
) |
|
|
354 |
|
|
|
(1,067 |
) |
Eliminations |
|
|
(205 |
) |
|
|
(230 |
) |
|
|
(673 |
) |
|
|
(925 |
) |
Total |
|
$ |
36,902 |
|
|
$ |
38,417 |
|
|
$ |
120,530 |
|
|
$ |
113,319 |
|
Backlog by operating segment at September 30, 2024 and December 31, 2023, is as follows (in thousands):
|
|
September 30, 2024 |
|
|
December 31, 2023 |
|
||||||||||
|
|
Amount |
|
|
Labor Hours |
|
|
Amount |
|
|
Labor Hours |
|
||||
Services |
|
$ |
22 |
|
|
|
— |
|
|
$ |
502 |
|
|
|
4 |
|
Fabrication |
|
|
11,548 |
|
|
|
95 |
|
|
|
11,739 |
|
|
|
104 |
|
Shipyard(1) |
|
|
126 |
|
|
|
— |
|
|
|
709 |
|
|
|
1 |
|
Total(2) |
|
$ |
11,696 |
|
|
|
95 |
|
|
$ |
12,950 |
|
|
|
109 |
|
- 26 -
Results of Operations
Comparison of the Three Months Ended September 30, 2024 and 2023 (in thousands in each table, except for percentages):
Consolidated
|
|
Three Months Ended |
|
|
Favorable |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
New project awards |
|
$ |
36,902 |
|
|
$ |
38,417 |
|
|
$ |
(1,515 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
37,640 |
|
|
$ |
5,023 |
|
|
$ |
32,617 |
|
Cost of revenue |
|
|
32,984 |
|
|
|
34,902 |
|
|
|
1,918 |
|
Gross profit (loss) |
|
|
4,656 |
|
|
|
(29,879 |
) |
|
|
34,535 |
|
Gross profit (loss) percentage |
|
|
12.4 |
% |
|
nm |
|
|
|
|
||
General and administrative expense |
|
|
2,985 |
|
|
|
4,080 |
|
|
|
1,095 |
|
Other (income) expense, net |
|
|
(1 |
) |
|
|
(324 |
) |
|
|
(323 |
) |
Operating income (loss) |
|
|
1,672 |
|
|
|
(33,635 |
) |
|
|
35,307 |
|
Interest (expense) income, net |
|
|
647 |
|
|
|
397 |
|
|
|
250 |
|
Income (loss) before income taxes |
|
|
2,319 |
|
|
|
(33,238 |
) |
|
|
35,557 |
|
Income tax (expense) benefit |
|
|
(2 |
) |
|
|
3 |
|
|
|
(5 |
) |
Net income (loss) |
|
$ |
2,317 |
|
|
$ |
(33,235 |
) |
|
$ |
35,552 |
|
References below to 2024 and 2023 refer to the three months ended September 30, 2024 and 2023, respectively.
New project awards – New project awards for 2024 and 2023 were $36.9 million and $38.4 million, respectively. New project awards for 2024 and 2023 were primarily related to:
Revenue – Revenue for 2024 and 2023 was $37.6 million and $5.0 million, respectively. The increase was primarily due to:
See “Other Impacts to Operations” above for further discussion of the impacts of hurricanes Francine and Helene. See Note 4 for further discussion of the resolution of our MPSV Litigation.
Gross profit (loss) – Gross profit for 2024 was $4.7 million (12.4% of revenue) and gross loss for 2023 was $29.9 million. The gross profit for 2024 relative to gross loss for 2023 was primarily due to:
See “Operating Segments” below and Note 2 for discussion of our project impacts.
- 27 -
General and administrative expense – General and administrative expense for 2024 and 2023 was $3.0 million and $4.1 million, respectively, representing a decrease of 26.8%. The decrease was primarily due to:
See Note 4 for further discussion of the resolution of our MPSV Litigation.
Other (income) expense, net – Other (income) expense, net for 2023 was income of $0.3 million. 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. Other income for 2023 was primarily due to:
See Note 2 for further discussion of the impacts of Hurricane Ida.
Interest (expense) income, net – Interest (expense) income, net for 2024 and 2023 was income of $0.6 million and $0.4 million, respectively. Interest (expense) income, net for both periods includes the net impact of interest earned on our cash and short-term investment balances and interest incurred on the unused portion of our LC Facility. The 2024 period also includes interest incurred on our long-term debt and the 2023 period includes interest incurred on our Insurance Finance Arrangements. The increase in income for 2024 relative to 2023 was primarily due to higher interest earned on our cash and short-term investment balances and the elimination of interest on our Insurance Finance Arrangements for the 2024 period, offset partially by interest incurred on our long-term debt for the 2024 period.
Income tax (expense) benefit – Income tax (expense) benefit for 2024 and 2023 represents state income taxes. No federal income tax expense was recorded for our income for 2024 as it was fully offset by the reversal of valuation allowance on our net deferred tax assets, and no federal income tax benefit was recorded for our loss for 2023 as a full valuation allowance was recorded against our net deferred tax assets generated during the period.
- 28 -
Operating Segments
Services Division
|
|
Three Months Ended |
|
|
Favorable (Unfavorable) |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
New project awards |
|
$ |
20,205 |
|
|
$ |
22,776 |
|
|
$ |
(2,571 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
20,245 |
|
|
$ |
22,976 |
|
|
$ |
(2,731 |
) |
Gross profit |
|
|
2,040 |
|
|
|
3,260 |
|
|
|
(1,220 |
) |
Gross profit percentage |
|
|
10.1 |
% |
|
|
14.2 |
% |
|
|
|
|
General and administrative expense |
|
|
634 |
|
|
|
701 |
|
|
|
67 |
|
Other (income) expense, net |
|
|
10 |
|
|
|
(18 |
) |
|
|
(28 |
) |
Operating income |
|
|
1,396 |
|
|
|
2,577 |
|
|
|
(1,181 |
) |
References below to 2024 and 2023 refer to the three months ended September 30, 2024 and 2023, respectively.
New project awards – New project awards for 2024 and 2023 were $20.2 million and $22.8 million, respectively, and were primarily related to offshore services work, including new project awards associated with our welding enclosures business line.
Revenue – Revenue for 2024 and 2023 was $20.2 million and $23.0 million, respectively, representing a decrease of 11.9%. The decrease was primarily due to:
See “Other Impacts to Operations” above for further discussion of the impacts of hurricanes Francine and Helene.
Gross profit – Gross profit for 2024 and 2023 was $2.0 million (10.1% of revenue) and $3.3 million (14.2% of revenue), respectively. The decrease in gross profit for 2024 relative to 2023 was primarily due to:
General and administrative expense – General and administrative expense for 2024 and 2023 was $0.6 million and $0.7 million, respectively, representing a decrease of 9.6%. The decrease was primarily due to cost savings and the timing of certain costs.
- 29 -
Fabrication Division
|
|
Three Months Ended |
|
|
Favorable (Unfavorable) |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
New project awards |
|
$ |
16,902 |
|
|
$ |
16,589 |
|
|
$ |
313 |
|
|
|
|
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
17,110 |
|
|
$ |
14,979 |
|
|
$ |
2,131 |
|
Gross profit |
|
|
2,541 |
|
|
|
1,217 |
|
|
|
1,324 |
|
Gross profit percentage |
|
|
14.9 |
% |
|
|
8.1 |
% |
|
|
|
|
General and administrative expense |
|
|
489 |
|
|
|
448 |
|
|
|
(41 |
) |
Other (income) expense, net |
|
|
18 |
|
|
|
(135 |
) |
|
|
(153 |
) |
Operating income |
|
|
2,034 |
|
|
|
904 |
|
|
|
1,130 |
|
References below to 2024 and 2023 refer to the three months ended September 30, 2024 and 2023, respectively.
New project awards – New project awards for 2024 and 2023 were $16.9 million and $16.6 million, respectively, and were primarily related to small-scale fabrication work.
Revenue – Revenue for 2024 and 2023 was $17.1 million and $15.0 million, respectively, representing an increase of 14.2%. The increase was primarily due to higher small-scale fabrication activity.
Gross profit – Gross profit for 2024 and 2023 was $2.5 million (14.9% of revenue) and $1.2 million (8.1% of revenue), respectively. The increase in gross profit for 2024 relative to 2023 was primarily due to:
General and administrative expense – General and administrative expense for 2024 and 2023 was $0.5 million and $0.4 million, respectively, representing an increase of 9.2%. The increase was primarily due to higher business development costs and the timing of certain costs.
Other (income) expense, net – Other (income) expense, net for 2023 was expense of $0.1 million and was primarily due to:
See Note 2 for further discussion of the impacts of Hurricane Ida.
- 30 -
Shipyard Division
|
|
Three Months Ended |
|
|
Favorable (Unfavorable) |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
New project awards |
|
$ |
— |
|
|
$ |
(718 |
) |
|
$ |
718 |
|
|
|
|
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
490 |
|
|
$ |
(32,702 |
) |
|
$ |
33,192 |
|
Gross profit (loss) |
|
|
75 |
|
|
|
(34,356 |
) |
|
|
34,431 |
|
Gross profit (loss) percentage |
|
|
15.3 |
% |
|
nm |
|
|
|
|
||
General and administrative expense |
|
|
— |
|
|
|
857 |
|
|
|
857 |
|
Other (income) expense, net |
|
|
53 |
|
|
|
(96 |
) |
|
|
(149 |
) |
Operating income (loss) |
|
|
22 |
|
|
|
(35,117 |
) |
|
|
35,139 |
|
References below to 2024 and 2023 refer to the three months ended September 30, 2024 and 2023, respectively.
New project awards – New project awards for 2023 were negative $0.7 million and were primarily related to liquidated damages and contract price adjustments for our Ferry Projects.
Revenue – Revenue for 2024 and 2023 was $0.5 million and negative $32.7 million, respectively. The negative revenue for 2023 was primarily due to the reversal of previously recognized revenue resulting from the resolution of our MPSV Litigation. The reversals were due to:
See Note 3 for further discussion of the Note Agreement and Note 4 for further discussion of the resolution of our MPSV Litigation and the Settlement Agreement.
Gross profit (loss) – Gross profit for 2024 was $0.1 million and gross loss for 2023 was $34.4 million. The gross loss for 2023 was primarily due to:
See Note 2 for further discussion of our Ferry Projects and Note 4 for further discussion of the resolution of our MPSV Litigation.
General and administrative expense – General and administrative expense for 2023 was $0.9 million and was related to legal and advisory fees associated with our previous MPSV Litigation. See Note 4 for further discussion of the resolution of our MPSV Litigation.
Other (income) expense, net – Other (income) expense, net for 2024 and 2023 was expense of $0.1 million and income of $0.1 million, respectively.
- 31 -
Corporate Division
|
|
Three Months Ended |
|
|
Favorable (Unfavorable) |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
New project awards (eliminations) |
|
$ |
(205 |
) |
|
$ |
(230 |
) |
|
$ |
25 |
|
|
|
|
|
|
|
|
|
|
|
|||
Revenue (eliminations) |
|
$ |
(205 |
) |
|
$ |
(230 |
) |
|
$ |
25 |
|
Gross profit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
General and administrative expense |
|
|
1,862 |
|
|
|
2,074 |
|
|
|
212 |
|
Other (income) expense, net |
|
|
(82 |
) |
|
|
(75 |
) |
|
|
7 |
|
Operating loss |
|
|
(1,780 |
) |
|
|
(1,999 |
) |
|
|
219 |
|
References below to 2024 and 2023 refer to the three months ended September 30, 2024 and 2023, respectively.
General and administrative expense – General and administrative expense for 2024 and 2023 was $1.9 million and $2.1 million, respectively, representing a decrease of 10.2%. The decrease was primarily due to lower incentive plan costs and the timing of certain costs.
Other (income) expense, net – Other (income) expense, net for 2024 and 2023 was income of $0.1 million and $0.1 million, respectively.
- 32 -
Comparison of the Nine Months Ended September 30, 2024 and 2023 (in thousands in each table, except for percentages):
Consolidated
|
|
Nine Months Ended |
|
|
Favorable |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
New project awards |
|
$ |
120,530 |
|
|
$ |
113,319 |
|
|
$ |
7,211 |
|
|
|
|
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
121,783 |
|
|
$ |
106,517 |
|
|
$ |
15,266 |
|
Cost of revenue |
|
|
106,845 |
|
|
|
126,881 |
|
|
|
20,036 |
|
Gross profit (loss) |
|
|
14,938 |
|
|
|
(20,364 |
) |
|
|
35,302 |
|
Gross profit (loss) percentage |
|
|
12.3 |
% |
|
nm |
|
|
|
|
||
General and administrative expense |
|
|
9,823 |
|
|
|
12,883 |
|
|
|
3,060 |
|
Other (income) expense, net |
|
|
(3,548 |
) |
|
|
(689 |
) |
|
|
2,859 |
|
Operating income (loss) |
|
|
8,663 |
|
|
|
(32,558 |
) |
|
|
41,221 |
|
Interest (expense) income, net |
|
|
1,792 |
|
|
|
1,057 |
|
|
|
735 |
|
Income (loss) before income taxes |
|
|
10,455 |
|
|
|
(31,501 |
) |
|
|
41,956 |
|
Income tax (expense) benefit |
|
|
(9 |
) |
|
|
9 |
|
|
|
(18 |
) |
Net income (loss) |
|
$ |
10,446 |
|
|
$ |
(31,492 |
) |
|
$ |
41,938 |
|
References below to 2024 and 2023 refer to the nine months ended September 30, 2024 and 2023, respectively.
New project awards – New project awards for 2024 and 2023 were $120.5 million and $113.3 million, respectively. New project awards for 2024 and 2023 were primarily related to:
Revenue – Revenue for 2024 and 2023 was $121.8 million and $106.5 million, respectively, representing an increase of 14.3%. The increase was primarily due to:
See Note 4 for further discussion of the resolution of our MPSV Litigation.
Gross profit (loss) – Gross profit for 2024 was $14.9 million (12.3% of revenue) and gross loss for 2023 was $20.4 million. The gross profit for 2024 relative to gross loss for 2023 was primarily due to:
See “Operating Segments” below and Note 2 for discussion of our project impacts and Note 4 for further discussion of our property and equipment insurance coverages.
- 33 -
General and administrative expense – General and administrative expense for 2024 and 2023 was $9.8 million and $12.9 million, respectively, representing a decrease of 23.8%. The decrease was primarily due to:
See Note 4 for further discussion of the resolution of our MPSV Litigation.
Other (income) expense, net – Other (income) expense, net for 2024 and 2023 was income of $3.5 million and $0.7 million, respectively. 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. Other income for 2024 was primarily due to:
Other income for 2023 was primarily due to:
See Note 1 for further discussion of the sale of our Houma AHFS, Note 2 for further discussion of the impacts of Hurricane Ida and Note 4 for further discussion of the resolution of our MPSV Litigation.
Interest (expense) income, net – Interest (expense) income, net for 2024 and 2023 was income of $1.8 million and $1.1 million, respectively. Interest (expense) income, net for both periods includes the net impact of interest earned on our cash and short-term investment balances and interest incurred on the unused portion of our LC Facility. The 2024 period also includes interest incurred on our long-term debt and the 2023 period includes interest incurred on our Insurance Finance Arrangements. The increase in income for 2024 relative to 2023 was primarily due to higher interest earned on our cash and short-term investment balances and the elimination of interest on our Insurance Finance Arrangements for the 2024 period, offset partially by interest incurred on our long-term debt for the 2024 period.
Income tax (expense) benefit – Income tax (expense) benefit for 2024 and 2023 represents state income taxes. No federal income tax expense was recorded for our income for 2024 as it was fully offset by the reversal of valuation allowance on our net deferred tax assets, and no federal income tax benefit was recorded for our loss for 2023 as a full valuation allowance was recorded against our net deferred tax assets generated during the period.
- 34 -
Operating Segments
Services Division
|
|
Nine Months Ended |
|
|
Favorable (Unfavorable) |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
New project awards |
|
$ |
68,065 |
|
|
$ |
68,578 |
|
|
$ |
(513 |
) |
|
|
|
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
68,546 |
|
|
$ |
69,033 |
|
|
$ |
(487 |
) |
Gross profit |
|
|
8,541 |
|
|
|
10,348 |
|
|
|
(1,807 |
) |
Gross profit percentage |
|
|
12.5 |
% |
|
|
15.0 |
% |
|
|
|
|
General and administrative expense |
|
|
2,064 |
|
|
|
2,203 |
|
|
|
139 |
|
Other (income) expense, net |
|
|
25 |
|
|
|
(42 |
) |
|
|
(67 |
) |
Operating income |
|
|
6,452 |
|
|
|
8,187 |
|
|
|
(1,735 |
) |
References below to 2024 and 2023 refer to the nine months ended September 30, 2024 and 2023, respectively.
New project awards – New project awards for 2024 and 2023 were $68.1 million and $68.6 million, respectively, and were primarily related to offshore services work, including new project awards associated with our welding enclosures business line.
Revenue – Revenue for 2024 and 2023 was $68.5 million and $69.0 million, respectively, representing a decrease of 0.7%. The decrease was primarily due to lower offshore services work.
Gross profit – Gross profit for 2024 and 2023 was $8.5 million (12.5% of revenue) and $10.3 million (15.0% of revenue), respectively. The decrease in gross profit for 2024 relative to 2023 was primarily due to:
General and administrative expense – General and administrative expense for 2024 and 2023 was $2.1 million and $2.2 million, respectively, representing a decrease of 6.3%. The decrease was primarily due to cost savings and the timing of certain costs.
- 35 -
Fabrication Division
|
|
Nine Months Ended |
|
|
Favorable (Unfavorable) |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
New project awards |
|
$ |
52,784 |
|
|
$ |
46,733 |
|
|
$ |
6,051 |
|
|
|
|
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
52,975 |
|
|
$ |
69,382 |
|
|
$ |
(16,407 |
) |
Gross profit |
|
|
5,972 |
|
|
|
5,243 |
|
|
|
729 |
|
Gross profit percentage |
|
|
11.3 |
% |
|
|
7.6 |
% |
|
|
|
|
General and administrative expense |
|
|
1,475 |
|
|
|
1,438 |
|
|
|
(37 |
) |
Other (income) expense, net |
|
|
(3,387 |
) |
|
|
(638 |
) |
|
|
2,749 |
|
Operating income |
|
|
7,884 |
|
|
|
4,443 |
|
|
|
3,441 |
|
References below to 2024 and 2023 refer to the nine months ended September 30, 2024 and 2023, respectively.
New project awards – New project awards for 2024 and 2023 were $52.8 million and $46.7 million, respectively, and were primarily related to small-scale fabrication work.
Revenue – Revenue for 2024 and 2023 was $53.0 million and $69.4 million, respectively, representing a decrease of 23.6%. The decrease was primarily due to:
Gross profit – Gross profit for 2024 and 2023 was $6.0 million (11.3% of revenue) and $5.2 million (7.6% of revenue), respectively. The increase in gross profit for 2024 relative to 2023 was primarily due to:
See Note 4 for further discussion of our property and equipment insurance coverages.
General and administrative expense – General and administrative expense for 2024 and 2023 was $1.5 million and $1.4 million, respectively, representing an increase of 2.6%. The increase was primarily due to higher business development costs and the timing of certain costs.
Other (income) expense, net – Other (income) expense, net for 2024 and 2023 was income of $3.4 million and $0.6 million, respectively. Other income for 2024 was primarily due to:
Other income for 2023 was primarily due to:
See Note 1 for further discussion of the sale of our Houma AHFS and Note 2 for further discussion of the impacts of Hurricane Ida.
- 36 -
Shipyard Division
|
|
Nine Months Ended |
|
|
Favorable (Unfavorable) |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
New project awards |
|
$ |
354 |
|
|
$ |
(1,067 |
) |
|
$ |
1,421 |
|
|
|
|
|
|
|
|
|
|
|
|||
Revenue |
|
$ |
935 |
|
|
$ |
(30,973 |
) |
|
$ |
31,908 |
|
Gross profit (loss) |
|
|
425 |
|
|
|
(35,955 |
) |
|
|
36,380 |
|
Gross profit (loss) percentage |
|
|
45.5 |
% |
|
nm |
|
|
|
|
||
General and administrative expense |
|
|
— |
|
|
|
3,107 |
|
|
|
3,107 |
|
Other (income) expense, net |
|
|
52 |
|
|
|
206 |
|
|
|
154 |
|
Operating income (loss) |
|
|
373 |
|
|
|
(39,268 |
) |
|
|
39,641 |
|
References below to 2024 and 2023 refer to the nine months ended September 30, 2024 and 2023, respectively.
New project awards – New project awards for 2024 and 2023 were $0.4 million and negative $1.1 million, respectively. New project awards for 2024 were primarily related to change orders for our seventy-vehicle ferry project and the negative new project awards for 2023 were primarily related to liquidated damages for our Ferry Projects.
Revenue – Revenue for 2024 and 2023 was $0.9 million and negative $31.0 million, respectively. The negative revenue for 2023 was primarily due to the reversal of previously recognized revenue resulting from the resolution of our MPSV Litigation. The reversals were due to:
See Note 3 for further discussion of the Note Agreement and Note 4 for further discussion of the resolution of our MPSV Litigation and the Settlement Agreement.
Gross profit (loss) – Gross profit for 2024 was $0.4 million and gross loss for 2023 was $36.0 million. The gross loss for 2023 was primarily due to:
See Note 2 for further discussion of our Ferry Projects and Note 4 for further discussion of the resolution of our MPSV Litigation.
General and administrative expense – General and administrative expense for 2023 was $3.1 million and was related to legal and advisory fees associated with our previous MPSV Litigation. See Note 4 for further discussion of the resolution of our MPSV Litigation.
Other (income) expense, net – Other (income) expense, net for 2024 and 2023 was expense of $0.1 million and $0.2 million, respectively. Other expense for 2023 was primarily due to:
See Note 2 for further discussion of the impacts of Hurricane Ida and Note 4 for further discussion of the resolution of our MPSV Litigation.
- 37 -
Corporate Division
|
|
Nine Months Ended |
|
|
Favorable (Unfavorable) |
|
||||||
|
|
2024 |
|
|
2023 |
|
|
Change |
|
|||
New project awards (eliminations) |
|
$ |
(673 |
) |
|
$ |
(925 |
) |
|
$ |
252 |
|
|
|
|
|
|
|
|
|
|
|
|||
Revenue (eliminations) |
|
$ |
(673 |
) |
|
$ |
(925 |
) |
|
$ |
252 |
|
Gross profit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
General and administrative expense |
|
|
6,284 |
|
|
|
6,135 |
|
|
|
(149 |
) |
Other (income) expense, net |
|
|
(238 |
) |
|
|
(215 |
) |
|
|
23 |
|
Operating loss |
|
|
(6,046 |
) |
|
|
(5,920 |
) |
|
|
(126 |
) |
References below to 2024 and 2023 refer to the nine months ended September 30, 2024 and 2023, respectively.
General and administrative expense – General and administrative expense for 2024 and 2023 was $6.3 million and $6.1 million, respectively, representing an increase of 2.4%. The increase was primarily due to higher costs associated with initiatives to diversify and enhance our business and the timing of certain costs.
Other (income) expense, net – Other (income) expense, net for 2024 and 2023 was income of $0.2 million and $0.2 million, respectively.
- 38 -
Liquidity and Capital Resources
Available Liquidity
Our primary sources of liquidity are our cash, cash equivalents and scheduled maturities of our short-term investments. At September 30, 2024, our cash, cash equivalents, short-term investments and restricted cash totaled $66.8 million, as follows (in thousands):
|
|
September 30, |
|
|
Cash and cash equivalents |
|
$ |
21,328 |
|
Short-term investments(1) |
|
|
44,022 |
|
Available cash, cash equivalents and short-term investments |
|
|
65,350 |
|
Restricted cash |
|
|
1,475 |
|
Total cash, cash equivalents, short-term investments and restricted cash |
|
$ |
66,825 |
|
Our available liquidity is impacted by changes in our working capital and our capital expenditure requirements. Fluctuations in our working capital, and its components, are not unusual in our business and are impacted by the size of our projects and the mix of our backlog. Our working capital is particularly impacted by the timing of new project awards and related payments in advance of performing work, and the subsequent achievement of billing milestones or project progress on backlog. Working capital is also impacted at period-end by the timing of contract receivables collections and accounts payable payments on our projects.
At September 30, 2024, our working capital was $80.2 million and included $66.8 million of cash, cash equivalents, short-term investments and restricted cash and $1.1 million of current debt. Excluding cash, cash equivalents, short-term investments, restricted cash and current debt, our working capital at September 30, 2024 was $14.5 million, and consisted of: net contract assets and contract liabilities of $4.3 million; contract receivables and retainage of $23.5 million; inventory, prepaid expenses and other current assets of $6.3 million; and accounts payable, accrued expenses and other current liabilities of $19.7 million. The components of our working capital (excluding cash, cash equivalents, short-term investments, restricted cash and current debt) at September 30, 2024 and December 31, 2023, and changes in such amounts during the nine months ended September 30, 2024, were as follows (in thousands):
|
|
September 30, |
|
|
December 31, |
|
|
Change(3) |
|
|||
Contract assets |
|
$ |
5,815 |
|
|
$ |
2,739 |
|
|
$ |
3,076 |
|
Contract liabilities(1) |
|
|
(1,479 |
) |
|
|
(5,470 |
) |
|
|
3,991 |
|
Contracts in progress, net(2) |
|
|
4,336 |
|
|
|
(2,731 |
) |
|
|
7,067 |
|
Contract receivables and retainage, net |
|
|
23,504 |
|
|
|
36,298 |
|
|
|
(12,794 |
) |
Prepaid expenses, inventory and other current assets |
|
|
6,339 |
|
|
|
9,066 |
|
|
|
(2,727 |
) |
Accounts payable, accrued expenses and other current liabilities |
|
|
(19,699 |
) |
|
|
(23,302 |
) |
|
|
3,603 |
|
Total |
|
$ |
14,480 |
|
|
$ |
19,331 |
|
|
$ |
(4,851 |
) |
Cash Flow Activity (in thousands)
|
|
Nine Months Ended September 30, |
|
|||||
|
|
2024 |
|
|
2023 |
|
||
Net cash provided by (used in) operating activities |
|
$ |
15,943 |
|
|
$ |
(172 |
) |
Net cash used in investing activities |
|
|
(30,729 |
) |
|
|
(6,591 |
) |
Net cash used in financing activities |
|
|
(2,062 |
) |
|
|
(1,739 |
) |
- 39 -
Operating Activities – Cash provided by operating activities for the nine months ended September 30, 2024 was $15.9 million and cash used in operating activities for the nine months ended September 30, 2023 was $0.2 million, and was primarily due to the net impacts of the following:
2024 Activity
2023 Activity
Investing Activities – Cash used in investing activities for the nine months ended September 30, 2024 and 2023 was $30.7 million and $6.6 million, respectively. Cash used in investing activities for 2024 was primarily due to net purchases of short-term investments of $35.8 million and capital expenditures of $4.9 million, offset partially by proceeds from the sale of our Houma AHFS and fixed assets of $9.6 million and recoveries from insurance claims of $0.3 million. Cash used in investing activities for 2023 was primarily due to net purchases of short-term investments of $5.5 million and capital expenditures of $1.7 million, offset partially by proceeds from the sale of fixed assets of $0.4 million and recoveries from insurance claims of $0.2 million. See Note 1 for further discussion of the sale of our Houma AHFS and Note 2 for further discussion of our insurance claims associated with Hurricane Ida.
Financing Activities – Cash used in financing activities for the nine months ended September 30, 2024 and 2023 was $2.1 million and $1.7 million, respectively. Cash used in financing activities for 2024 was primarily due to the repurchase of $0.9 million of our common stock under our Share Repurchase Program and tax payments of $1.2 million made on behalf of employees from vested stock withholdings. Cash used in financing activities for 2023 was primarily due to payments on our Insurance Finance Arrangements of $1.3 million and tax payments of $0.5 million made on behalf of employees from vested stock withholdings. See Note 3 for further discussion of our Insurance Finance Arrangements and Note 5 for further discussion of our Share Repurchase Program.
- 40 -
Credit Facilities
See Note 3 for discussion of our LC Facility, Surety Bonds, Note Agreement, Mortgage Agreement and Insurance Finance Arrangements.
Registration Statement
We have a shelf registration statement that is effective with the SEC that expires on August 24, 2026. The shelf registration statement enables us to issue up to $200.0 million in either debt or equity securities, or a combination thereof, from time to time subsequent to the filing of a prospectus supplement, which among other things, identifies the underwriter, dealer or agent, specifies the number and value of securities that may be sold, and provides a time frame over which the securities may be offered.
Liquidity Outlook
We have made significant progress in our efforts to preserve and improve our liquidity, including cost reductions, the sale of under-utilized assets and facilities, improved project cash flow management and the completion of the Shipyard Transaction. The primary uses of our liquidity for the remainder of 2024 and the foreseeable future are to fund:
We anticipate capital expenditures of approximately $0.5 to $1.0 million for the remainder of 2024. Approximately $4.5 million of our total estimated capital expenditures for 2024 relate to upgrades to our Houma Facilities and investments in more technologically advanced equipment. In the first quarter 2024, we received insurance proceeds of $2.0 million associated with damage previously caused to our Houma Facilities by Hurricane Ida, which has partially supplemented our capital expenditures for 2024. Further investments in our facilities and equipment may be required to win and execute potential new project awards, which are not included in these estimates. See Note 2 for further discussion of the insurance proceeds received associated with damage previously caused by Hurricane Ida.
We believe that our cash, cash equivalents and short-term investments at September 30, 2024, will be sufficient to enable us to fund our operating expenses, meet our working capital and capital expenditure requirements, and satisfy any debt service obligations or other funding requirements, for the remainder of 2024 and the foreseeable future. Our evaluation of the sufficiency of our cash and liquidity is primarily based on our financial forecasts for 2024 and 2025, which are impacted by our existing backlog and estimates of future new project awards and may be further impacted by the ongoing effects of oil and gas price volatility and macroeconomic conditions, and future losses, if any, 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. We can provide no assurances that our financial forecasts will be achieved or that we will have sufficient cash and short-term investments to meet planned operating expenses and unforeseen cash requirements. Accordingly, we may be required to obtain new or additional credit facilities, sell additional assets or conduct equity or debt offerings at a time when it is not beneficial to do so.
Off-Balance Sheet Arrangements
We are not a party to any contract or other obligation not included on our Balance Sheet that has, or is reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
- 41 -
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 4. Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures were effective as of the end of the period covered by this Report.
During the third quarter 2024, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
- 42 -
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
See Note 4 of our Financial Statements in Part I, Item 1 for discussion of our legal proceedings, including the resolution of our MPSV Litigation in the fourth quarter 2023, which is incorporated herein by reference.
Item 1A. Risk Factors.
There have been no material changes to our risk factors previously disclosed in Part I, Item 1A. “Risk Factors” of our 2023 Annual Report.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Issuer Purchases of Equity Securities
The following table summarizes our purchases of common stock during the three months ended September 30, 2024.
|
|
|
|
|
|
|
|
Current Program(1) |
|
|||||||
Period |
|
Total Number of |
|
|
Average |
|
|
Total Number of |
|
|
Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program |
|
||||
July 1 to 31, 2024 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
|
$ |
4,599 |
|
August 1 to 31, 2024 |
|
|
27,231 |
|
|
$ |
5.49 |
|
|
|
27,231 |
|
|
$ |
4,449 |
|
September 1 to 30, 2024 |
|
|
83,677 |
|
|
$ |
5.45 |
|
|
|
83,677 |
|
|
$ |
3,993 |
|
Total |
|
|
110,908 |
|
|
$ |
5.46 |
|
|
|
110,908 |
|
|
|
|
Item 5. Other Information.
During the quarter ended September 30, 2024, no director or officer of the Company
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Item 6. Exhibits.
Exhibit Number |
|
Description of Exhibit |
|
|
|
3.1 |
|
|
3.2 |
|
|
31.1 |
|
CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. * |
31.2 |
|
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. * |
32 |
|
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. * |
101.INS |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Linkbase Document. * |
104 |
|
The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2024, has been formatted in Inline XBRL and is contained in Exhibit 101. * |
* Filed or furnished herewith.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.
GULF ISLAND FABRICATION, INC. |
|
|
|
BY: |
/s/ Westley S. Stockton |
|
Westley S. Stockton |
|
Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer) |
Date: November 5, 2024
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