Gulf Island Fabrication, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS

REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS

3 Months Ended

Mar. 31, 2019

Revenue from Contract with Customer [Abstract]

REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS

As discussed in Note 1, we recognize revenue for 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, for the three months ended March 31, 2019 and 2018 (in thousands):



		Three Months Ended March 31, 2019
		Fabrication		Shipyard		Services		Eliminations			Total
Contract Type
Fixed-price and unit-rate ⁽¹⁾		$	12,631	$	33,626	$	6,231	$	(614	)	$	51,874
T&M ⁽²⁾		—		2,961		10,622		—			13,583
Other		—		—		2,749		(601		)	2,148
	Total	$	12,631	$	36,587	$	19,602	$	(1,215	)	$	67,605



		Three Months Ended March 31, 2018
		Fabrication		Shipyard		Services		Eliminations			Total
Contract Type
Fixed-price and unit-rate ⁽¹⁾		$	17,343	$	17,222	$	10,290	$	(453	)	$	44,402
T&M ⁽²⁾		—		1,343		10,585		—			11,928
Other		—		—		995		(35		)	960
	Total	$	17,343	$	18,565	$	21,870	$	(488	)	$	57,290

____________

(1) Revenue is recognized as the contract is progressed over time.

(2) Revenue is recognized at contracted rates when the work is performed and costs are incurred.

Future Performance Obligations Required Under Contracts

A summary of our remaining performance obligations by operating segment at March 31, 2019 is as follows (in thousands).



Segment	Performance Obligations at March 31, 2019
Fabrication	$	71,144
Shipyard ^{(1) (2)}	226,250
Services	15,397
Total	$	312,791

_____________


(1)	Amount excludes approximately $21.9 million of remaining performance obligations related to contracts for the construction of two MPSVs that are subject to dispute pursuant to a termination notice from our customer. See Note 5 for further discussion of these contracts.


(2)	Amount excludes remaining performance obligations related to contract awards in April 2019 for the construction of a regional class marine research vessel (approximately $70.0 million) and two towing, salvage and rescue ships (approximately $129.0 million).

We expect to recognize revenue for our remaining performance obligations at March 31, 2019 in the following periods (in thousands):



Year	Total
Remainder of 2019	$	180,172
2020	101,924
2021	29,825
Thereafter	$	870
Total	$	312,791

Contracts Assets and Liabilities

Revenue recognition and customer invoicing for our fixed-price and unit-rate contracts may occur at different times. Revenue recognition is based upon our estimated percentage-of-completion as discussed in Note 1; however, customer invoicing is generally dependent upon predetermined 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. Amounts billed in excess of revenue recognized, and accrued contract losses, are reflected as contract liabilities on our Balance Sheet. Contract assets and contract liabilities included in our Balance Sheet at March 31, 2019 and December 31, 2018, are as follows (in thousands):



	March 31,			December 31,
	2019			2018
Contract assets	$	38,707		$	29,982
Contract liabilities ^{(1), (2), (3)}	(9,234		)	(16,845		)
Contracts in progress, net	$	29,473		$	13,137

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(1)	The decrease in contract liabilities compared to December 31, 2018, was primarily due to the unwind of advance payments on two separate projects in our Fabrication and Shipyard Divisions.


(2)	Revenue recognized during the three months ended March 31, 2019 and 2018 related to amounts included in our contract liabilities balance at December 31, 2018 and 2017, was $13.5 million and $4.3 million, respectively.


(3)	Contract liabilities at March 31, 2019 and December 31, 2018, includes accrued contract losses of $1.5 million and $2.4 million, respectively. See "Project Changes in Estimates" below for further discussion of our accrued contract losses.

Allowance for Doubtful Accounts

Our provision for bad debts for the three months ended March 31, 2019 and 2018 was $53,000 and $8,000, respectively, and is included in other (income) expense, net on our Statement of Operations. Our allowance for doubtful accounts at March 31, 2019 and December 31, 2018 was $0.4 million and $0.4 million, respectively.

Changes in Project Estimates

For the three months ended March 31, 2019 and 2018, individual projects with significant changes in estimated margins did not have a material net impact on our loss from operations. At March 31, 2019, our eight uncompleted harbor tug projects within our Shipyard Division were in a loss position and our reserve for estimated losses on the projects was $1.3 million. The loss position on the projects is a result of increased forecast costs incurred during the second half of 2018 associated primarily with lower than anticipated craft labor productivity related to pipe installation and testing and extensions of schedule for the projects. The projects are scheduled to be completed at various dates ranging from the second quarter 2019 through 2020. If future craft labor productivity differs from our current estimates, we are unable to achieve our progress estimates, our schedules are further extended or the projects incur schedule liquidated damages, the projects would experience further losses.