UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
September 30, 2017
or
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
to
Commission File Number 001-34279
Gulf Island Fabrication, Inc.
(Exact name of registrant as specified in its charter)
Louisiana | 72-1147390 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
2170 Buckthorne Place, Suite 420 The woodlands, Texas | 77380 | |
(Address of principal executive offices) | (Zip Code) |
(713) 714-6100
(Registrant’s telephone number, including area code)
Securities registered pursuant to 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | Gifi | Nasdaq |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”filer,” “smaller reporting company” and “smaller reporting“emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
Emerging Growth Company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The number of shares of the registrant’s common stock, no par value per share, outstanding as of October 31, 2017,2023, was
GULF ISLAND FABRICATION, INC.
I N D E X
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1 | ||||
2 | ||||
3 | ||||
4 | ||||
5 | ||||
20 | ||||
42 | ||||
PART II | 43 | |||
1. | 43 | |||
1A. | 43 | |||
Item 5. | 43 | |||
Item 6. | 44 | |||
45 |
i
GLOSSARY OF TERMS
As used in this report filed on Form 10-Q for the quarter ended September 30, 2023 (“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.
2022 Annual Report | Our annual report for the year ended December 31, 2022, filed with the SEC on Form 10-K on March 28, 2023. |
2022 Financial | Our Financial Statements for the year ended December 31, 2022 and related notes, included in our 2022 Annual Report. |
Active Retained | 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. The Active Retained Shipyard Contracts did not include the contracts and related obligations for the projects that were subject to our previous MPSV Litigation. |
ASC | Accounting Standards Codification. |
ASU | Accounting Standards Update. |
Balance Sheet | Our Consolidated Balance Sheets, as filed in this Report. |
contract assets | Costs and estimated earnings recognized to date in excess of cumulative billings. |
contract liabilities | Cumulative billings in excess of costs and estimated earnings recognized to date and accrued contract losses. |
cost-reimbursable | Work is performed and billed to the customer at cost plus a profit margin or other variable fee arrangements which can include a mark-up. |
COVID-19 | The global coronavirus pandemic. |
deck | The component of a platform on which drilling, production, separating, gathering, piping, compression, well support, crew quartering and other functions related to offshore oil and gas development are conducted. |
DSS Acquisition | The acquisition of a services and industrial staffing business on December 1, 2021. |
DTA(s) | Deferred Tax Asset(s). |
EPC | Engineering, Procurement and Construction. |
Exchange Act | Securities Exchange Act of 1934, as amended. |
Fabrication Division | Our Fabrication reportable segment. |
Facilities | Our Houma Facilities and other facilities that support our operations. |
FDC | Fidelity & Deposit Company of Maryland. |
Financial Statements | Our Consolidated Financial Statements, including comparative consolidated Balance Sheets, Statements of Operations, Statements of Changes in Shareholders’ Equity and Statements of Cash Flows, as filed in this Report. |
GAAP | Generally Accepted Accounting Principles in the U.S. |
GIS | Gulf Island Shipyards, LLC. |
Gulf Coast | Along the coast of the Gulf of Mexico. |
Hornbeck | Hornbeck Offshore Services, LLC. |
Houma Facilities | Our owned facilities located in Houma, Louisiana that support our Fabrication Division and Services Division and represent our primary operating facilities. |
inland | Typically, bays, lakes and marshy areas. |
ii
Insurance Finance Arrangements | Short-term finance arrangements for insurance premiums associated with our property and equipment and general liability insurance coverages. |
jacket | A component of a fixed platform consisting of a tubular steel braced structure extending from the mudline of the seabed to a point above the water surface. The jacket is anchored with tubular steel piles driven into the seabed. The jacket supports the deck structure located above the water. |
labor hours | Hours worked by employees directly involved in the fabrication of our products or delivery of our services. |
LC Facility | Our $10.0 million letter of credit facility with Whitney Bank maturing on June 30, 2024, as amended. |
LNG | Liquefied Natural Gas. |
Mortgage Agreement | Multiple indebtedness mortgage arrangement with Zurich, to secure our obligations and liabilities under our Note Agreement with Zurich and our general indemnity agreement with Zurich associated with outstanding surety bonds for certain contracts. The mortgage arrangement encumbers the real estate associated with our Houma Facilities and includes certain covenants and events of default. |
modules | Fabricated structures that include structural steel, piping, valves, fittings, storage vessels and other equipment that are incorporated into a refining, petrochemical, LNG or industrial system. |
MPSV(s) | Multi-Purpose Supply Vessel(s). |
MPSV Litigation | The lawsuit filed in the Twenty-Second Judicial District Court for the Parish of St. Tammany, State of Louisiana and is styled Gulf Island Shipyards, LLC v. Hornbeck Offshore Services, LLC, bearing docket number 2018-14861, which was resolved on October 4, 2023. |
Note Agreement | Promissory note entered into with Zurich, 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. The promissory note was entered into in connection with the resolution of our MPSV Litigation. |
offshore | In unprotected waters outside coastlines. |
onshore | Inside the coastline on land. |
Performance Bonds | The performance bonds issued by Zurich in connection with the construction of two MPSVs that were subject to our previous MPSV Litigation, for which the face amount of the bonds totaled $50.0 million. |
performance obligation | A contractual obligation to construct and transfer a distinct good or service to a customer. It is the unit of account in Topic 606. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. |
piles | Rigid tubular pipes that are driven into the seabed to anchor a jacket. |
platform | A structure from which offshore oil and gas development drilling and production are conducted. |
POC | Percentage-of-completion. |
Restrictive Covenant Agreement | Restrictive covenant arrangement with Zurich, to secure our obligations and liabilities under our general indemnity agreement with Zurich associated with its outstanding surety bonds for certain contracts that precluded us from paying dividends or repurchasing shares of our common stock, which was terminated on November 6, 2023 in connection with the Settlement Agreement and Note Agreement. |
SEC | U.S. Securities and Exchange Commission. |
Services Division | Our Services reportable segment. |
Settlement Agreement | Agreement with Zurich 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. |
Shipyard Division | Our Shipyard reportable segment. |
Shipyard Transaction | The sale of our Shipyard Division’s operating assets and certain construction contracts on April 19, 2021. |
Statement of Cash Flows | Our Consolidated Statements of Cash Flows, as filed in this Report. |
iii
Statement of Operations | Our Consolidated Statements of Operations, as filed in this Report. |
Statement of Shareholders’ Equity | Our Consolidated Statements of Changes in Shareholders’ Equity, as filed in this Report. |
Surety or Sureties | A financial institution that issues bonds to customers on behalf of the Company for the purpose of providing third-party financial assurance related to the performance of our contracts. Payments by a Surety pursuant to one of our bonds in the event of non-performance are subject to reimbursement to such Surety by us under a general indemnity agreement relating to such bond. |
T&M | Time and materials. Work is performed and billed to the customer at contracted time and material rates. |
Topic 606 | The revenue recognition criteria prescribed under ASU 2014-09, Revenue from Contracts with Customers. |
U.S. | The United States of America. |
USL&H | United States Longshoreman and Harbor Workers Act. |
VA(s) | Valuation allowance(s). |
Whitney Bank | Hancock Whitney Bank. |
Zurich | FDC and Zurich American Insurance Company. |
iv
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, 2017 | December 31, 2016 | ||||||
(Unaudited) | (Note 1) | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 17,792 | $ | 51,167 | |||
Contracts receivable and retainage, net | 25,513 | 20,169 | |||||
Contracts in progress | 42,810 | 26,829 | |||||
Prepaid expenses and other assets | 4,158 | 3,222 | |||||
Inventory | 12,325 | 11,973 | |||||
Assets held for sale | 107,010 | — | |||||
Total current assets | 209,608 | 113,360 | |||||
Property, plant and equipment, net | 90,989 | 206,222 | |||||
Other assets | 2,783 | 2,826 | |||||
Total assets | $ | 303,380 | $ | 322,408 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 21,457 | $ | 9,021 | |||
Advance billings on contracts | 4,367 | 3,977 | |||||
Deferred revenue, current | 4,148 | 11,881 | |||||
Accrued contract losses | 1,982 | 387 | |||||
Accrued expenses and other liabilities | 13,685 | 10,032 | |||||
Income tax payable | — | 50 | |||||
Total current liabilities | 45,639 | 35,348 | |||||
Net deferred tax liabilities | 12,999 | 23,234 | |||||
Deferred revenue, noncurrent | — | 489 | |||||
Other liabilities | 895 | 305 | |||||
Total liabilities | 59,533 | 59,376 | |||||
Shareholders’ equity: | |||||||
Preferred stock, no par value, 5,000,000 shares authorized, no shares issued and outstanding | — | — | |||||
Common stock, no par value, 20,000,000 shares authorized, 14,851,949 issued and outstanding at September 30, 2017, and 14,695,020 at December 31, 2016, respectively | 10,817 | 10,641 | |||||
Additional paid-in capital | 100,388 | 98,813 | |||||
Retained earnings | 132,642 | 153,578 | |||||
Total shareholders’ equity | 243,847 | 263,032 | |||||
Total liabilities and shareholders’ equity | $ | 303,380 | $ | 322,408 |
|
| September 30, |
|
| December 31, |
| ||
|
| (Unaudited) |
|
|
|
| ||
ASSETS |
|
|
|
|
|
| ||
Current assets: |
|
|
|
|
|
| ||
Cash and cash equivalents |
| $ | 25,125 |
|
| $ | 33,221 |
|
Restricted cash |
|
| 1,197 |
|
|
| 1,603 |
|
Short-term investments |
|
| 15,437 |
|
|
| 9,905 |
|
Contract receivables and retainage, net |
|
| 35,684 |
|
|
| 29,427 |
|
Contract assets |
|
| 4,305 |
|
|
| 4,839 |
|
Prepaid expenses and other assets |
|
| 3,438 |
|
|
| 6,475 |
|
Inventory |
|
| 2,340 |
|
|
| 1,599 |
|
Total current assets |
|
| 87,526 |
|
|
| 87,069 |
|
Property, plant and equipment, net |
|
| 29,285 |
|
|
| 31,154 |
|
Goodwill |
|
| 2,217 |
|
|
| 2,217 |
|
Other intangibles, net |
|
| 735 |
|
|
| 842 |
|
Other noncurrent assets |
|
| 839 |
|
|
| 13,584 |
|
Total assets |
| $ | 120,602 |
|
| $ | 134,866 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
| ||
Current liabilities: |
|
|
|
|
|
| ||
Accounts payable |
| $ | 11,515 |
|
| $ | 8,310 |
|
Contract liabilities |
|
| 3,534 |
|
|
| 8,196 |
|
Accrued expenses and other liabilities |
|
| 13,247 |
|
|
| 14,283 |
|
Total current liabilities |
|
| 28,296 |
|
|
| 30,789 |
|
Contract liabilities, non-current |
|
| 20,000 |
|
|
| — |
|
Other noncurrent liabilities |
|
| 822 |
|
|
| 1,453 |
|
Total liabilities |
|
| 49,118 |
|
|
| 32,242 |
|
Shareholders’ equity: |
|
|
|
|
|
| ||
Preferred stock, no par value, 5,000 shares authorized, no shares issued |
|
| — |
|
|
| — |
|
Common stock, no par value, 30,000 shares authorized, 16,287 shares issued |
|
| 11,690 |
|
|
| 11,591 |
|
Additional paid-in capital |
|
| 108,257 |
|
|
| 107,372 |
|
Accumulated deficit |
|
| (48,463 | ) |
|
| (16,339 | ) |
Total shareholders’ equity |
|
| 71,484 |
|
|
| 102,624 |
|
Total liabilities and shareholders’ equity |
| $ | 120,602 |
|
| $ | 134,866 |
|
The accompanying notes are an integral part of these financial statements.
- 1 -
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(in thousands, except per share data)
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Revenue | $ | 49,884 | $ | 65,384 | $ | 133,745 | $ | 230,864 | |||||||
Cost of revenue | 50,378 | 60,125 | 150,755 | 205,839 | |||||||||||
Gross profit (loss) | (494 | ) | 5,259 | (17,010 | ) | 25,025 | |||||||||
General and administrative expenses | 4,370 | 5,086 | 12,940 | 14,633 | |||||||||||
Asset impairment | — | — | 389 | — | |||||||||||
Operating income (loss) | (4,864 | ) | 173 | (30,339 | ) | 10,392 | |||||||||
Other income (expense): | |||||||||||||||
Interest expense | (45 | ) | (110 | ) | (262 | ) | (248 | ) | |||||||
Interest income | — | 12 | 12 | 20 | |||||||||||
Other income (expense), net | 38 | 599 | (221 | ) | 1,039 | ||||||||||
Total other income (expense) | (7 | ) | 501 | (471 | ) | 811 | |||||||||
Net income (loss) before income taxes | (4,871 | ) | 674 | (30,810 | ) | 11,203 | |||||||||
Income tax expense (benefit) | (1,761 | ) | 133 | (10,322 | ) | 4,134 | |||||||||
Net income (loss) | $ | (3,110 | ) | $ | 541 | $ | (20,488 | ) | $ | 7,069 | |||||
Per share data: | |||||||||||||||
Basic and diluted earnings (loss) per share - common shareholders | $ | (0.21 | ) | $ | 0.04 | $ | (1.38 | ) | $ | 0.48 | |||||
Cash dividend declared per common share | $ | 0.01 | $ | 0.01 | $ | 0.03 | $ | 0.03 |
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Revenue | $ | 5,023 |
|
| $ | 39,593 |
|
| $ | 106,517 |
|
| $ | 104,181 |
|
Cost of revenue |
| 34,902 |
|
|
| 35,373 |
|
|
| 126,881 |
|
|
| 98,709 |
|
Gross profit (loss) |
| (29,879 | ) |
|
| 4,220 |
|
|
| (20,364 | ) |
|
| 5,472 |
|
General and administrative expense |
| 4,080 |
|
|
| 4,510 |
|
|
| 12,883 |
|
|
| 12,965 |
|
Other (income) expense, net |
| (324 | ) |
|
| (944 | ) |
|
| (689 | ) |
|
| (3,698 | ) |
Operating income (loss) |
| (33,635 | ) |
|
| 654 |
|
|
| (32,558 | ) |
|
| (3,795 | ) |
Interest (expense) income, net |
| 397 |
|
|
| (46 | ) |
|
| 1,057 |
|
|
| (104 | ) |
Income (loss) before income taxes |
| (33,238 | ) |
|
| 608 |
|
|
| (31,501 | ) |
|
| (3,899 | ) |
Income tax (expense) benefit |
| 3 |
|
|
| (10 | ) |
|
| 9 |
|
|
| (2 | ) |
Net income (loss) | $ | (33,235 | ) |
| $ | 598 |
|
| $ | (31,492 | ) |
| $ | (3,901 | ) |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Per share data: |
|
|
|
|
|
|
|
|
|
|
| ||||
Basic and diluted income (loss) per share | $ | (2.04 | ) |
| $ | 0.04 |
|
| $ | (1.95 | ) |
| $ | (0.25 | ) |
The accompanying notes are an integral part of these financial statements.
- 2 -
GULF ISLAND FABRICATION, INC.
(UNAUDITED)
(in thousands, except share data)
Common Stock | Additional Paid-In Capital | Retained Earnings | Total Shareholders’ Equity | ||||||||||||||||
Shares | Amount | ||||||||||||||||||
Balance at January 1, 2017 | 14,695,020 | $ | 10,641 | $ | 98,813 | $ | 153,578 | $ | 263,032 | ||||||||||
Net income (loss) | — | — | — | (20,488 | ) | (20,488 | ) | ||||||||||||
Vesting of restricted stock | 156,929 | (88 | ) | (797 | ) | — | (885 | ) | |||||||||||
Compensation expense - restricted stock | — | 264 | 2,372 | — | 2,636 | ||||||||||||||
Dividends on common stock | — | — | — | (448 | ) | (448 | ) | ||||||||||||
Balance at September 30, 2017 | 14,851,949 | $ | 10,817 | $ | 100,388 | $ | 132,642 | $ | 243,847 |
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Total |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||
Balance at December 31, 2021 |
|
| 15,622 |
|
| $ | 11,384 |
|
| $ | 105,511 |
|
| $ | (12,987 | ) |
| $ | 103,908 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (5,027 | ) |
|
| (5,027 | ) |
Vesting of restricted stock |
|
| 153 |
|
|
| (6 | ) |
|
| (53 | ) |
|
| — |
|
|
| (59 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 57 |
|
|
| 514 |
|
|
| — |
|
|
| 571 |
|
Balance at March 31, 2022 |
|
| 15,775 |
|
|
| 11,435 |
|
|
| 105,972 |
|
|
| (18,014 | ) |
|
| 99,393 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 528 |
|
|
| 528 |
|
Vesting of restricted stock |
|
| 148 |
|
|
| (6 | ) |
|
| (56 | ) |
|
| — |
|
|
| (62 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 49 |
|
|
| 440 |
|
|
| — |
|
|
| 489 |
|
Balance at June 30, 2022 |
|
| 15,923 |
|
|
| 11,478 |
|
|
| 106,356 |
|
|
| (17,486 | ) |
|
| 100,348 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 598 |
|
|
| 598 |
|
Stock-based compensation expense |
|
| — |
|
|
| 40 |
|
|
| 364 |
|
|
| — |
|
|
| 404 |
|
Balance at September 30, 2022 |
|
| 15,923 |
|
| $ | 11,518 |
|
| $ | 106,720 |
|
| $ | (16,888 | ) |
| $ | 101,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Total |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Equity |
| |||||
Balance at December 31, 2022 |
|
| 15,973 |
|
| $ | 11,591 |
|
| $ | 107,372 |
|
| $ | (16,339 | ) |
| $ | 102,624 |
|
Adoption of ASU 2016-13 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (632 | ) |
|
| (632 | ) |
Balance at January 1, 2023 |
|
| 15,973 |
|
|
| 11,591 |
|
|
| 107,372 |
|
|
| (16,971 | ) |
|
| 101,992 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 641 |
|
|
| 641 |
|
Vesting of restricted stock |
|
| 82 |
|
|
| (18 | ) |
|
| (163 | ) |
|
| — |
|
|
| (181 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 51 |
|
|
| 458 |
|
|
| — |
|
|
| 509 |
|
Balance at March 31, 2023 |
|
| 16,055 |
|
|
| 11,624 |
|
|
| 107,667 |
|
|
| (16,330 | ) |
|
| 102,961 |
|
Net income |
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,102 |
|
|
| 1,102 |
|
Vesting of restricted stock |
|
| 232 |
|
|
| (30 | ) |
|
| (271 | ) |
|
| — |
|
|
| (301 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 44 |
|
|
| 400 |
|
|
| — |
|
|
| 444 |
|
Balance at June 30, 2023 |
|
| 16,287 |
|
| $ | 11,638 |
|
| $ | 107,796 |
|
| $ | (15,228 | ) |
| $ | 104,206 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (33,235 | ) |
|
| (33,235 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 52 |
|
|
| 461 |
|
|
| — |
|
|
| 513 |
|
Balance at September 30, 2023 |
|
| 16,287 |
|
| $ | 11,690 |
|
| $ | 108,257 |
|
| $ | (48,463 | ) |
| $ | 71,484 |
|
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, | |||||||
2017 | 2016 | ||||||
Cash flows from operating activities: | |||||||
Net income (loss) | $ | (20,488 | ) | $ | 7,069 | ||
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities: | |||||||
Bad debt expense | 19 | 422 | |||||
Depreciation and amortization | 10,141 | 19,262 | |||||
Amortization of deferred revenue | (2,397 | ) | (4,114 | ) | |||
Asset impairment | 389 | — | |||||
Loss (gain) on sale of assets | 224 | (924 | ) | ||||
Deferred income taxes | (10,235 | ) | 3,651 | ||||
Compensation expense - restricted stock | 2,636 | 2,452 | |||||
Changes in operating assets and liabilities: | |||||||
Contracts receivable and retainage, net | (5,363 | ) | 22,287 | ||||
Contracts in progress | (15,981 | ) | (5,834 | ) | |||
Prepaid expenses, inventory, and other current assets | (26 | ) | 1,050 | ||||
Accounts payable | 12,436 | (13,654 | ) | ||||
Advance billings on contracts | 390 | (20 | ) | ||||
Deferred revenue | (5,825 | ) | (8,928 | ) | |||
Deferred compensation | 590 | — | |||||
Accrued expenses and other liabilities | 2,336 | 4,713 | |||||
Accrued contract losses | 1,595 | (8,001 | ) | ||||
Net cash (used in) provided by operating activities | (29,559 | ) | 19,431 | ||||
Cash flows from investing activities: | |||||||
Capital expenditures | (4,515 | ) | (5,415 | ) | |||
Net cash received in acquisition | — | 1,588 | |||||
Proceeds from the sale of equipment | 2,120 | 5,813 | |||||
Net cash (used in) provided by investing activities | (2,395 | ) | 1,986 | ||||
Cash flows from financing activities: | |||||||
Tax payments made on behalf of employees from withheld, vested shares of common stock | (885 | ) | (163 | ) | |||
Payment of financing cost | (88 | ) | — | ||||
Payments of dividends on common stock | (448 | ) | (440 | ) | |||
Proceeds received from borrowings under our line of credit | 2,000 | — | |||||
Repayment of borrowings under our line of credit | (2,000 | ) | — | ||||
Net cash used in financing activities | (1,421 | ) | (603 | ) | |||
Net change in cash and cash equivalents | (33,375 | ) | 20,814 | ||||
Cash and cash equivalents at beginning of period | 51,167 | 34,828 | |||||
Cash and cash equivalents at end of period | $ | 17,792 | $ | 55,642 |
|
| Nine Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Cash flows from operating activities: |
|
|
|
|
|
| ||
Net loss |
| $ | (31,492 | ) |
| $ | (3,901 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
| ||
Depreciation and amortization |
|
| 4,115 |
|
|
| 3,764 |
|
Asset impairments |
|
| — |
|
|
| 484 |
|
Change in allowance for doubtful accounts and credit losses |
|
| (410 | ) |
|
| — |
|
Gain on sale or disposal of fixed assets, net |
|
| (249 | ) |
|
| (79 | ) |
Gain on insurance recoveries |
|
| (245 | ) |
|
| (1,200 | ) |
Stock-based compensation expense |
|
| 1,466 |
|
|
| 1,464 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
| ||
Contract receivables and retainage, net |
|
| (6,479 | ) |
|
| (17,026 | ) |
Contract assets |
|
| 534 |
|
|
| (3,048 | ) |
Prepaid expenses, inventory and other current assets |
|
| 2,829 |
|
|
| 1,203 |
|
Accounts payable |
|
| 2,914 |
|
|
| 2,811 |
|
Contract liabilities |
|
| (4,662 | ) |
|
| (2,355 | ) |
Accrued expenses and other current liabilities |
|
| (373 | ) |
|
| (288 | ) |
Noncurrent assets and liabilities, net |
|
| 31,880 |
|
|
| (654 | ) |
Net cash used in operating activities |
|
| (172 | ) |
|
| (18,825 | ) |
Cash flows from investing activities: |
|
|
|
|
|
| ||
Capital expenditures |
|
| (1,701 | ) |
|
| (1,032 | ) |
Proceeds from Shipyard Transaction |
|
| — |
|
|
| 886 |
|
Proceeds from sale of property and equipment |
|
| 396 |
|
|
| 2,035 |
|
Recoveries from insurance claims |
|
| 245 |
|
|
| 1,200 |
|
Purchases of short-term investments |
|
| (30,731 | ) |
|
| (9,809 | ) |
Maturities of short-term investments |
|
| 25,200 |
|
|
| — |
|
Net cash used in investing activities |
|
| (6,591 | ) |
|
| (6,720 | ) |
Cash flows from financing activities: |
|
|
|
|
|
| ||
Payments on Insurance Finance Arrangements |
|
| (1,257 | ) |
|
| (963 | ) |
Tax payments for vested stock withholdings |
|
| (482 | ) |
|
| (121 | ) |
Net cash used in financing activities |
|
| (1,739 | ) |
|
| (1,084 | ) |
Net decrease in cash, cash equivalents and restricted cash |
|
| (8,502 | ) |
|
| (26,629 | ) |
Cash, cash equivalents and restricted cash, beginning of period |
|
| 34,824 |
|
|
| 54,589 |
|
Cash, cash equivalents and restricted cash, end of period |
| $ | 26,322 |
|
| $ | 27,960 |
|
The accompanying notes are an integral part of these financial statements.
- 4 -
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2017
(Unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Gulf Island Fabrication, Inc. ("Gulf Island," and together(together with its subsidiaries, "the“Gulf Island,” “the Company," "we" or "our"” “we,” “us” and “our”), is a leading fabricator of complex steel structures and marine vessels used in energy extractionmodules and production, petrochemical and industrial facilities, power generation, alternative energy projects and shipping and marine transportation operations. We also provide related installation,a provider of specialty services, including project management, hookup, commissioning, repair, maintenance, scaffolding, coatings, welding enclosures, civil construction and maintenancestaffing services with specialized crewsto the industrial and integrated project management capabilities. We are currently fabricating complex modules for the construction of a new petrochemical plant and two multi-purpose service vessels. We recently fabricated offshore wind turbine foundations for the first offshore wind power project in the United States. We also constructed one of the largest liftboats servicing the Gulf of Mexico ("GOM"), one of the deepest production jackets in the GOM and the first SPAR fabricated in the United States.energy sectors. Our customers include U.S. and, to a lesser extent, international energy producers,producers; refining, petrochemical, LNG, industrial and power operators; and marine operators.EPC companies. We currently operate and manage our business through three operating divisions: Fabrication, Shipyardsdivisions (“Services”, “Fabrication” and Services.“Shipyard”) and one non-operating division (“Corporate”), which represent our reportable segments. Our corporate headquarters is located in Houston,The Woodlands, Texas with fabricationand our primary operating facilities are located in Houma, JenningsLouisiana (“Houma Facilities”).
On April 19, 2021, we sold our Shipyard Division operating assets and Lake Charles, Louisiana. Our fabrication facilitiescertain construction contracts (“Shipyard Transaction”) and intend to wind down our remaining Shipyard Division operations by the fourth quarter 2023 (previously the third quarter 2023, but was delayed and is subject to the potential schedule impacts discussed in Aransas PassNote 2).
On December 1, 2021, we acquired a services and Ingleside, Texas are currently being marketedindustrial staffing business (“DSS Acquisition”), which increased our skilled workforce, further diversified our customer base and expanded our service offerings for sale.our Services Division.
On October 4, 2023, we resolved our MPSV Litigation. See Note 4 for further discussion of the resolution of our MPSV Litigation.
Basis of Presentation
The consolidated financial statements include the accounts of Gulf Island Fabrication, Inc. and itsaccompanying unaudited Consolidated Financial Statements (“Financial Statements”) reflect all wholly owned subsidiaries. All significant intercompanyIntercompany balances and transactions have been eliminated in consolidation.
Operating Cycle
The duration of our contracts vary, but may extend beyond twelve months from the consolidated financial statementsdate of contract award. Consistent with industry practice, assets and notes theretoliabilities 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. See Note 4 for discussion of the noncurrent contract liability associated with the resolution of our MPSV Litigation.
- 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 Company’s Annual ReportFinancial Statements.
Oil and Gas Price Volatility and Macroeconomic Conditions – Since 2008, the prices of oil and gas have experienced significant volatility, including depressed prices over extended periods, resulting in reductions in capital spending and drilling activities from our traditional offshore oil and gas customer base. Consequently, our operating results and cash flows were negatively impacted as we experienced reductions in revenue, lower margins due to competitive pricing and under-utilization of our operating facilities and resources. Beginning in 2020, the global coronavirus pandemic (“COVID-19”) added another layer of pressure and uncertainty on Form 10-Koil and gas prices (with oil prices reaching a twenty-year low and gas prices reaching a four-year low), 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 (with oil prices reaching an eight-year high and gas prices reaching a fourteen-year high), which positively impacted certain of our end markets. While oil and gas prices have somewhat stabilized, the duration of such stability is uncertain and difficult to predict.
In addition, global economic factors that are beyond our control, have and could continue to impact our operations, including, but are not limited to, supply chain disruptions (including global shipping and logistics challenges that began in 2020), inflationary pressures, economic slowdowns and recessions, bank failures, natural disasters, public health crises (such as COVID-19), and geopolitical conflicts (such as the conflict in Ukraine and the Israel-Hamas conflict).
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 year endedperiod. 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.
- 6 -
Cash Equivalents, Restricted Cash 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”).
Restricted Cash – At September 30, 2023 and December 31, 2016.2022, we had $1.2 million and $1.6 million, respectively, of restricted cash as security for letters of credit issued under our letter of credit facility (“LC Facility”) with Whitney Bank. Our restricted cash is held in an interest-bearing money market account with Whitney Bank. The classification of the restricted cash as current and noncurrent is determined by the contractual maturity dates of the letters of credit being secured, with letters of credit having maturity dates of twelve months or less from the balance sheet date classified as current, and letters of credit having maturity dates of longer than twelve months from the balance sheet date classified as noncurrent. See Note 3 for further discussion of our letters of credit and associated security requirements.
Short-term Investments – We consider investments with original maturities of more than three months but less than twelve months to be short-term investments. At September 30, 2023 and December 31, 2022, our short-term investments included U.S. Treasuries with original maturities of four and six months, respectively. 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
As further discussed under “New Accounting Standards” below, we adopted the following reclassificationsnew accounting standard for measuring credit losses effective January 1, 2023. 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 statementsassets for threecollectability and nine months ended September 30, 2016, to conform to current period presentation:
Stock-Based Compensation
Awards under our stock-based compensation plans are calculated using a fair value-based measurement method. Depending on the Company’s consolidated statementterms of cash flowsthe award, we use the straight-line or 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 nine months ended September 30, 2016, related tostock-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 by the Companyon behalf of employees to taxing authorities in order to satisfy employee income tax withholding obligations arising from the vesting of shares under our stock-based compensation plans are classified as a resultfinancing activity on our Consolidated Statements of Cash Flows (“Statement of Cash Flows”).
Depreciation and Amortization Expense
Property, plant and equipment are depreciated on a straight-line basis over estimated useful lives ranging from three to 25 years. Ordinary maintenance and repairs, which do not extend the physical or economic lives of the adoptionplant or equipment, are charged to expense as incurred. Intangible assets are amortized on a straight-line basis over seven years and amortization expense is reflected within general and administrative expense on our Statement of Accounting Standards Update 2016-09Operations.
- 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 discusseda change in "New Accounting Standards" below. This reclassificationreporting 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 impact to our financial position or resultsindicators of operations.
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 discussed in Note 8. These reclassificationsan impairment charge. Fair value is determined based on discounted cash flows, appraised values or third-party indications of value, as appropriate. We had no impactindicators of impairment during the nine months ended September 30, 2023.
Leases
We record a right-of-use asset and an offsetting lease liability on our Balance Sheet equal to the present value of our consolidatedlease 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 statements.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, goodwill and long-lived assets are non-recurring fair value measurements that fall within Level 3 of the fair value hierarchy.
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 Financial Accounting Standards Board ("FASB") issuedfabrication of steel structures and modules, and certain service arrangements. We recognize revenue from our contracts in accordance with Accounting Standards Update ("ASU"(“ASU”) No. 2014-09, “RevenueTopic 606 “Revenue from Contracts with Customers” (" (“Topic 606"606”), which supersedes the revenue recognition requirements in
- 8 -
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 fromfor 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 the customer has obtained control of a promised asset.
Long-term Contracts Satisfied Over Time – Revenue for our fixed-price and unit-ratelong-term contracts is recognized underusing the percentage-of-completionPOC method computed by the significant inputs method which measures the percentage of labor hoursbased on contract costs incurred to date as compared to total estimated total labor hours for each contract. Revenue fromcontract costs (an input method). Fixed-price contracts, that are based upon time workedor contracts with a more significant fixed-price component, generally provide us with greater control over project schedule and materials incurred (“T&M”) is recognized at the contracted rates as thetiming of when work is performed and the costs are incurred. Topic 606 will be effective for financial statements issued for fiscal years beginning after December 15, 2017,incurred, and interim periods within those fiscal years.
Short-term Contracts and our prior period presentation has not changed. Future effects to the Company’s income tax expense (benefit) as a result of the adoption of this ASU will depend on the timing, number of shares and the closing price per share of the Company’s common stock on the dates of vesting.
Assets | South Texas Fabrication Yards | Prospect Shipyard | Consolidated | |||||||||
Land | $ | 5,492 | $ | — | $ | 5,492 | ||||||
Buildings and improvements | 117,582 | — | 117,582 | |||||||||
Machinery and equipment | 93,552 | 2,719 | 96,271 | |||||||||
Furniture and fixtures | 867 | 82 | 949 | |||||||||
Vehicles | 610 | — | 610 | |||||||||
Other | — | — | — | |||||||||
Less: accumulated depreciation | (113,596 | ) | (298 | ) | (113,894 | ) | ||||||
Total assets held for sale | $ | 104,507 | $ | 2,503 | $ | 107,010 |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||
2017 | 2016 | 2017 | 2016 | ||||
Pass-through costs as a percentage of revenues | 48.4% | 33.8% | 45.3% | 35.0% | |||
Variable Consideration–Revenue and gross profit onor 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 claimsliquidated damages that may not be resolved until the later stages of the contract or after the contract has been completedcompleted. 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 delivery occurs.include estimated amounts in transaction price to the extent it is probable that a significant future reversal of cumulative revenue recognized will not occur or when we conclude that any significant uncertainty associated with the variable consideration is resolved. See Note 2 for further discussion of our unapproved change orders, claims, incentives and liquidated damages.
Additional Disclosures– Topic 606 also requires disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. See Note 2 for required disclosures under Topic 606.
Pre-Contract Costs
Pre-contract costs are generally charged to cost of revenue as incurred, but in certain cases their recognition may be deferred if specific probability criteria are met. At September 30, 2017,2023 and December 31, 2022, we had no deferred pre-contract costs.
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.
- 9 -
Income Taxes
Income taxes have been provided for using the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted rates expected to be in effect during the year in which the differences are expected to reverse. Due to state income tax laws related to the apportionment of revenue for our projects, judgment is required to estimate the effective tax rate expected to apply to tax differences that are anticipated to reverse in the future.
A valuation allowance is provided to reserve for deferred tax assets (“DTA(s)”) if, based upon the available evidence, it is more likely than not that some or all of the DTAs will not be realized. The realization of our DTAs depends on our ability to generate sufficient taxable income of the appropriate character and in the appropriate jurisdictions. Our effective tax rate differs from our statutory rate for the three months ended September 30, 2023, and nine months ended September 30, 2023 and 2022, as no federal income tax benefit was recorded for our losses as a full valuation allowance was recorded against our net deferred tax assets generated during the periods, and for the three months ended September 30, 2022, as no federal income tax expense was recorded for our income as it was fully offset by the reversal of valuation allowance on our net deferred tax assets. Income taxes recorded for the three and nine months ended September 30, 2023 and 2022 relate to state income taxes.
Reserves for uncertain tax positions are recognized when we consider it more likely than not that additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not we have received tax assessments. Interest and penalties on uncertain tax positions are recorded within income tax expense.
New Accounting Standards
Financial Instruments – In the first quarter 2023, we adopted ASU 2016-13, “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments,” which changes the way we evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, short-term investments, loans and other instruments, we are required to use a new forward-looking “expected loss” model to evaluate impairment, which includes considering a broader range of information to estimate expected credit losses and may potentially result in earlier recognition of allowances for losses. The new accounting standard was adopted using the cumulative-effect transition method with any cumulative-effect adjustment being recorded to accumulated deficit on January 1, 2023. Upon adoption, we recorded a $0.6 million increase to beginning accumulated deficit, a $0.4 million decrease to contract receivables and retainage, net and contract assets, and a $0.2 million decrease to other noncurrent assets, on our Balance Sheet. Adoption of the new standard did not have a material effect on our results of operations or related disclosures.
Business Combinations – In the first quarter 2023, we adopted ASU 2021-08, “Business Combinations - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which changes the way companies measure contract assets and contract liabilities from contracts with customers acquired in a business combination and creates an exception to the general recognition and measurement principle of ASC 805. Adoption of the new standard did not have a material effect on our financial position, results of operations or related disclosures.
- 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, 2023 and 2022 (in thousands):
|
| Three Months Ended September 30, 2023 |
| |||||||||||||||||
|
| Services |
|
| Fabrication |
|
| Shipyard |
|
| Eliminations |
|
| Total |
| |||||
Fixed-price and unit-rate |
| $ | 557 |
|
| $ | 12,185 |
|
| $ | (32,702 | ) |
| $ | (20 | ) |
| $ | (19,980 | ) |
T&M and cost-reimbursable |
|
| 21,086 |
|
|
| 2,794 |
|
|
| — |
|
|
| — |
|
|
| 23,880 |
|
Other |
|
| 1,333 |
|
|
| — |
|
|
| — |
|
|
| (210 | ) |
|
| 1,123 |
|
Total |
| $ | 22,976 |
|
| $ | 14,979 |
|
| $ | (32,702 | ) |
| $ | (230 | ) |
| $ | 5,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term |
| $ | 557 |
|
| $ | 13,043 |
|
| $ | (32,702 | ) |
| $ | (20 | ) |
| $ | (19,122 | ) |
Short-term |
|
| 22,419 |
|
|
| 1,936 |
|
|
| — |
|
|
| (210 | ) |
|
| 24,145 |
|
Total |
| $ | 22,976 |
|
| $ | 14,979 |
|
| $ | (32,702 | ) |
| $ | (230 | ) |
| $ | 5,023 |
|
|
| Three Months Ended September 30, 2022 |
| |||||||||||||||||
|
| Services |
|
| Fabrication |
|
| Shipyard |
|
| Eliminations |
|
| Total |
| |||||
Fixed-price and unit-rate |
| $ | 986 |
|
| $ | 11,410 |
|
| $ | 1,849 |
|
| $ | (1 | ) |
| $ | 14,244 |
|
T&M and cost-reimbursable |
|
| 20,937 |
|
|
| 2,373 |
|
|
| — |
|
|
| — |
|
|
| 23,310 |
|
Other |
|
| 646 |
|
|
| 1,646 |
|
|
| — |
|
|
| (253 | ) |
|
| 2,039 |
|
Total |
| $ | 22,569 |
|
| $ | 15,429 |
|
| $ | 1,849 |
|
| $ | (254 | ) |
| $ | 39,593 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term |
| $ | 986 |
|
| $ | 14,078 |
|
| $ | 1,849 |
|
| $ | (1 | ) |
| $ | 16,912 |
|
Short-term |
|
| 21,583 |
|
|
| 1,351 |
|
|
| — |
|
|
| (253 | ) |
|
| 22,681 |
|
Total |
| $ | 22,569 |
|
| $ | 15,429 |
|
| $ | 1,849 |
|
| $ | (254 | ) |
| $ | 39,593 |
|
|
| Nine Months Ended September 30, 2023 |
| |||||||||||||||||
|
| Services |
|
| Fabrication |
|
| Shipyard |
|
| Eliminations |
|
| Total |
| |||||
Fixed-price and unit-rate |
| $ | 1,356 |
|
| $ | 37,773 |
|
| $ | (30,973 | ) |
| $ | (30 | ) |
| $ | 8,126 |
|
T&M and cost-reimbursable |
|
| 64,456 |
|
|
| 31,609 |
|
|
| — |
|
|
| — |
|
|
| 96,065 |
|
Other |
|
| 3,221 |
|
|
| — |
|
|
| — |
|
|
| (895 | ) |
|
| 2,326 |
|
Total |
| $ | 69,033 |
|
| $ | 69,382 |
|
| $ | (30,973 | ) |
| $ | (925 | ) |
| $ | 106,517 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term |
| $ | 1,356 |
|
| $ | 65,259 |
|
| $ | (30,973 | ) |
| $ | (30 | ) |
| $ | 35,612 |
|
Short-term |
|
| 67,677 |
|
|
| 4,123 |
|
|
| — |
|
|
| (895 | ) |
|
| 70,905 |
|
Total |
| $ | 69,033 |
|
| $ | 69,382 |
|
| $ | (30,973 | ) |
| $ | (925 | ) |
| $ | 106,517 |
|
|
| Nine Months Ended September 30, 2022 |
| |||||||||||||||||
|
| Services |
|
| Fabrication |
|
| Shipyard |
|
| Eliminations |
|
| Total |
| |||||
Fixed-price and unit-rate |
| $ | 3,557 |
|
| $ | 25,651 |
|
| $ | 7,314 |
|
| $ | (7 | ) |
| $ | 36,515 |
|
T&M and cost-reimbursable |
|
| 59,903 |
|
|
| 3,588 |
|
|
| — |
|
|
| — |
|
|
| 63,491 |
|
Other |
|
| 1,953 |
|
|
| 2,646 |
|
|
| — |
|
|
| (424 | ) |
|
| 4,175 |
|
Total |
| $ | 65,413 |
|
| $ | 31,885 |
|
| $ | 7,314 |
|
| $ | (431 | ) |
| $ | 104,181 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Long-term |
| $ | 3,557 |
|
| $ | 29,319 |
|
| $ | 7,314 |
|
| $ | (7 | ) |
| $ | 40,183 |
|
Short-term |
|
| 61,856 |
|
|
| 2,566 |
|
|
| — |
|
|
| (424 | ) |
|
| 63,998 |
|
Total |
| $ | 65,413 |
|
| $ | 31,885 |
|
| $ | 7,314 |
|
| $ | (431 | ) |
| $ | 104,181 |
|
- 11 -
Future Performance Obligations
The following table summarizes our remaining performance obligations, disaggregated by operating segment and contract type, at September 30, 2023 (in thousands):
|
| September 30, 2023 |
| |||||||||||||
|
| Services |
|
| Fabrication |
|
| Shipyard |
|
| Total |
| ||||
Fixed-price and unit-rate |
| $ | 867 |
|
| $ | 10,033 |
|
| $ | 726 |
|
| $ | 11,626 |
|
T&M and cost-reimbursable(1) |
|
| — |
|
|
| 1,474 |
|
|
| — |
|
|
| 1,474 |
|
Total(2) |
| $ | 867 |
|
| $ | 11,507 |
|
| $ | 726 |
|
| $ | 13,100 |
|
Contracts Assets and Liabilities
The timing of customer invoicing and recognition of revenue using the POC method may occur at different times. Customer invoicing is generally dependent upon contractual billing terms, which could provide for customer payments in advance of performing the work, milestone billings based on the completion of certain phases of the work, or billings when services are provided. Revenue recognized in excess of amounts billed is reflected as contract assets on our Balance Sheet, or to the extent we have an unconditional right to the consideration, is reflected as contract receivables on our Balance Sheet. Amounts billed in excess of revenue recognized, and accrued contract losses, are reflected as contract liabilities on our Balance Sheet. Information with respect to contracts that were incomplete at September 30, 2023 and December 31, 2022, is as follows (in thousands):
|
| September 30, |
|
| December 31, |
| ||
|
| 2023 |
|
| 2022 |
| ||
Contract assets(1), (2) |
| $ | 4,305 |
|
| $ | 4,839 |
|
Contract liabilities(3), (4), (5) |
|
| (3,534 | ) |
|
| (8,196 | ) |
Contracts in progress, net |
| $ | 771 |
|
| $ | (3,357 | ) |
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. For the three and nine months ended September 30, 2023, we recognized income of $0.2 million and $0.4 million, respectively, associated with revisions to our allowance for doubtful accounts and credit losses, and for the three and nine months ended September 30, 2022, changes were not significant. Our allowance for doubtful accounts and credit losses at September 30, 2023 was $0.2 million, and it was not significant at December 31, 2022. We recorded a $0.6 million increase to beginning accumulated deficit as of January 1, 2023, in connection with our adoption of ASU 2016-13. We had no significant write-offs or recoveries of previously recorded bad debts during the three or nine months ended September 30, 2023 or 2022. See “New Accounting Standards” in Note 1 for further discussion of our adoption of ASU 2016-13.
- 12 -
Variable Consideration
For the three and nine months ended September 30, 2023 and 2022, 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 MPSV Litigation discussed further below. However, at September 30, 2023 and December 31, 2022, certain active projects within our Shipyard Division reflected a reduction to our estimated contract price for liquidated damages of $1.5 million and $1.4 million, respectively.
Changes in Project Estimates
We determine the impact of changes in estimated margins on projects whichfor a given period by calculating the amount of revenue recognized in the period that would have been approvedrecognized 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 scopethe 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.
As a result of the resolution of our MPSV Litigation, we recorded a charge of $32.5 million during each of the three and nine months ended September 30, 2023. See Note 4 for further discussion of the resolution of our MPSV Litigation.
For each of the three and nine months ended September 30, 2023, significant changes in estimated margins on projects positively impacted operating results for our Fabrication Division by $0.7 million, and negatively impacted operating results for our Shipyard Division by $1.5 million and $2.3 million, respectively. For the three and nine months ended September 30, 2022, individual projects with significant changes in estimated margins did not have a material net impact on our operating results. The changes in estimates for the 2023 periods were associated with the following:
Fabrication Division
Shipyard Division
As discussed in our previous quarterly filing, 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 has determined that replacement of the propeller blades will be required. The customer has agreed to directly procure the new propeller blades and take responsibility for future installation of the blades once received. However, the customer believes we should bear the cost of the new propeller blades through a contract price reduction. We disagree with the customer given the fact that the customer specified the materials and equipment manufacturers to be used for the propulsion system and specified the cathodic protection to be used to mitigate corrosion. In light of the disagreement with the customer regarding who is responsible for the cost of the propeller blades, our forecasts at September 30, 2023, reflect a contract price reduction related to the estimated cost of the propeller blades. We are having ongoing discussions with the customer regarding who should bear final responsibility for the cost of the propeller blades.
At September 30, 2023, the vessel was substantially complete and has been delivered to the customer. We anticipate completion of commissioning activities and final sea trials to occur in the fourth quarter 2023 (previously the third quarter 2023, but was delayed due to the aforementioned impacts). At September 30, 2023, the project was in a loss position and our reserve for estimated losses was $0.1 million. If future subcontractor availability or costs differ from our current estimates, our schedule is further extended or we incur additional liquidated damages, we experience challenges during commissioning or sea trials for the vessel, or unanticipated warranty costs, the project would experience further delays and losses.
- 13 -
As discussed in our 2022 Financial Statements, we have experienced rework, construction and commissioning challenges on the two ferries, resulting in forecast cost increases and liquidated damages and the previous need to fabricate a new hull for the remaining vessel. Accordingly, during 2021 we submitted claims to our customer, and subsequently filed a lawsuit, to extend our project schedules and recover the cost impacts of the design deficiencies. The customer denied all liability. Further, during the fourth quarter 2022 and early 2023, we received correspondence from our customer indicating that the new hull for the remaining ferry under construction was exhibiting deformation issues that are potentially beyond the customer’s desired tolerance levels. Our subsequent evaluation did not support the customer’s conclusions and we completed construction of the vessel as designed.
Our forecast costs and scheduled completion date for the remaining vessel are based on the current vessel design and reflect our best estimates; however, such estimates may be impacted by any future challenges with the vessel design deficiencies, including the final resolution of the aforementioned design and deformation issues in dispute. If future subcontractor availability or costs differ from our current estimates, our schedule is further extended or we incur additional liquidated damages, we experience challenges during delivery, commissioning or sea trails for the remaining vessel, or other challenges associated with the design deficiencies, including unanticipated warranty costs (for either vessel), and are unable to recover associated costs from our customer, or the customer rejects delivery and/or final acceptance of the remaining vessel due to the design dispute, the project would experience further delays and losses. Our forecasts at September 30, 2023 do not reflect potential future benefits, if any, from the favorable resolution of the aforementioned lawsuit and we can provide no assurance that we will be successful recovering previously incurred costs.
Other Operating and Project Matters
Hurricane Ida – On August 29, 2021, Hurricane Ida made landfall near Houma, Louisiana as a high-end Category 4 hurricane, with high winds and heavy rains causing damage to buildings and equipment at our Houma Facilities and resulting in significant debris throughout the facility. Our insurance coverages in effect at the time of the storm generally specify coverage amounts for each of our buildings (including contents) and major equipment.
During the nine months ended September 30, 2016,2023 and 2022, we received insurance payments of $2.2 million and $7.0 million, respectively, from our insurance carriers associated with interruptions to our operations and damage to buildings and equipment. In addition, we have received payments from our insurance carriers during other periods subsequent to the storm associated with interruptions to our operations and damage to buildings and equipment. Such payments are nonrefundable, and with respect to our buildings, represent the insurance carriers’ estimate of the damage to each building based on the estimated depreciated value of such buildings plus repair costs incurred by us in excess of such estimates for certain buildings. To the extent we incur further repair costs for a building in excess of the amounts received, we may receive additional insurance proceeds up to the limits of our insurance coverage for such building. The classification of insurance proceeds within our Statement of Cash Flows is based on our use or intended use of the proceeds. Proceeds used or intended to be used for repairs that are not deemed to be capital in nature, and proceeds associated with interruptions to our operations, are reflected within operating activities. Proceeds used or intended to be used for repairs that are deemed capital in nature, or proceeds in excess of anticipated repair costs, are reflected within investing activities.
- 14 -
The timing of payments from our insurance carriers have, and may continue to, differ from when we incur the applicable repair and cleanup costs, and accordingly, we have accounted for such differences in timing as follows:
Based on the above, during the three months ended September 30, 2023 and 2022, and nine months ended September 30, 2023 and 2022, we recorded gains of $0.3 million (all related to revenueour business interruption coverage), $1.3 million, $0.5 million (including $0.6 million related to our business interruption coverage) and $4.4 million, respectively, related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida. The gains are included in other (income) expense, net on change orders recognized in prior periods that were not recovered.
In addition to reimburse us for all damagesdamage to our Houma Facilities, the storm resulted in damage to one of our forty-vehicle ferry projects, the multi-purpose supply vessels (“MPSVs”) and repair costs.
Offshore Jackets Project – As discussed above, in February 2023, we received direction from our customer to suspend all activities on our offshore jackets project for our Fabrication Division, and in July 2023, the customer cancelled the contract. At September 30, 2023, we had $5.0 million of accounts receivable on our Balance Sheet related to the assets heldproject and we expect such amounts to be paid in the fourth quarter 2023. We have received a payment guarantee bond as security for sale atthe remaining accounts receivable amounts.
3. CREDIT FACILITIES AND DEBT
LC Facility
On May 5, 2023, we amended our Prospect shipyard.LC Facility with Whitney Bank to reduce our letters of credit capacity from $20.0 million to $10.0 million, subject to our cash securitization of the letters of credit, and extend the maturity date to June 30, 2024. Commitment fees on the unused portion of the LC Facility are 0.4% per annum and interest on outstanding letters of credit is 1.5% per annum. At September 30, 2023, we had $1.2 million of outstanding letters of credit under the LC Facility. See Note 2.4 for further discussion of our letters of credit and associated security requirements.
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, 2023, we had $101.6 million of outstanding surety bonds, of which $50.0 million related to our MPSV projects that were subject to our MPSV Litigation (which was resolved on October 4, 2023 and the associated bonds were subsequently terminated), $45.6 million relates to our Active Retained Shipyard Contracts, and $6.0 million relates to our Fabrication Division contracts and certain of our insurance coverages. See Note 4 for further discussion of our surety bonds and related indemnification obligations and the resolution of our MPSV Litigation.
- 15 -
Insurance Finance Arrangement
In connection with the renewal of our property and equipment insurance coverages during 2022, and general liability insurance coverages during the first quarter 2023, we entered into short-term premium finance arrangements (“Insurance Finance Arrangements”). The property and equipment arrangement totaled $2.4 million, payable in ten equal monthly installments through March 2023, with interest at a fixed rate of 4.3% per annum. The general liability arrangement totaled $0.5 million, payable in eight equal monthly installments through August 2023, with interest at a fixed rate of 6.6% per annum. We considered the transactions to be non-cash financing activities, with the initial financed amount reflected within accrued expenses and other liabilities, and a corresponding asset reflected within prepaid expenses and other assets, on our Balance Sheet. For the nine months ended September 30, 2023 and 2022, we have reflected principal payments of $1.3 million and $1.0 million, respectively, as a financing activity on our Statement of Cash Flows.
Mortgage Agreement and Restrictive Covenant Agreement
In connection with the receipt of a consent for the Shipyard Transaction from one of our Sureties (Fidelity & Deposit Company of Maryland (“FDC”) and Zurich American Insurance Company (together with FDC, “Zurich”)), we entered into a multiple indebtedness mortgage (“Mortgage Agreement”) and a restrictive covenant arrangement (“Restrictive Covenant Agreement”) with Zurich to secure our obligations for our MPSV projects and two forty-vehicle ferry projects. The Mortgage Agreement encumbers all real estate that was not sold in connection with the Shipyard Transaction and includes certain covenants and events of default. In connection with the resolution of our MPSV Litigation and the Note Agreement entered into with Zurich, the Mortgage Agreement was modified on November 6, 2023, to include a provision requiring that 50 percent of the proceeds received by us in excess of $8.0 million from the sale of any real estate of our Houma Facilities be used to make early payments on the principal balance under the Note Agreement. The Mortgage Agreement will terminate when the obligations and liabilities of Zurich associated with the outstanding surety bonds for the forty-vehicle ferry projects are discharged and the Note Agreement is repaid. The Restrictive Covenant Agreement precluded us from paying dividends or repurchasing shares of our common stock; however, in connection with the resolution of our MPSV Litigation, the Restrictive Covenant Agreement was terminated. See Note 1 for further discussion of the Shipyard Transaction and Note 4 for further discussion of the resolution of our MPSV Litigation and the Note Agreement.
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.
MPSV Litigation Resolution
On March 19, 2018, our subsidiary, Gulf Island Shipyards, LLC (“GIS”), received termination notices from its customer, Hornbeck Offshore Services, LLC (“Hornbeck”), of the contracts for the construction of two MPSVs. GIS disputed the purported terminations and disagreed with Hornbeck’s reasons for such terminations. In connection with such purported terminations, Hornbeck also made claims against the performance bonds issued by Zurich in connection with the construction of the MPSVs, for which the face amount of the bonds totaled $50.0 million (“Performance Bonds”). On October 2, 2018, GIS filed a lawsuit against Hornbeck to enforce its rights and remedies under the applicable construction contracts for the two MPSVs. The lawsuit was filed in the Twenty-Second Judicial District Court for the Parish of St. Tammany, State of Louisiana and was styled Gulf Island Shipyards, LLC v. Hornbeck Offshore Services, LLC, bearing docket number 2018-14861 (“MPSV Litigation”). Hornbeck subsequently asserted counterclaims against GIS and Zurich seeking damages.
On October 4, 2023, the MPSV Litigation was dismissed in full with prejudice at the request of the parties after the parties reached an agreement in principle. To effectuate such agreement, on November 6, – EARNINGS2023, 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. Further, we entered into a promissory note (“Note Agreement”) payable to Zurich in the principal amount of $20 million. The Note Agreement bears interest at a fixed rate of 3.0% per annum commencing on January 1, 2024, with principal and interest payable in 15 equal annual installments of approximately $1.7 million, beginning on December 31, 2024 and ending on December 31, 2038. The estimated present value of the Note Agreement amount is $12.6 million based on an estimated market rate of interest.
- 16 -
As a result of the resolution of the MPSV Litigation, we recorded a charge of $32.5 million during each of the three and nine months ended September 30, 2023, consisting of (i) a $12.5 million charge associated with the write-off of a noncurrent net contract asset related to the MPSV construction contracts, and (ii) a $20.0 million charge associated with recording a liability resulting from the Note Agreement. Because the Note Agreement was entered into subsequent to September 30, 2023, the liability has been reflected as a noncurrent contract liability on our Balance Sheet at September 30, 2023, and will be reclassified as long-term debt in the fourth quarter 2023. The charge was reflected as a reduction to previously recognized revenue on the MPSV construction contracts, resulting in a negative revenue amount for the Shipyard Division for the three and nine months ended September 30, 2023, and is included in the changes in noncurrent assets and liabilities, net on our Statement of Cash Flows.
Insurance
We maintain insurance coverage for various aspects of our business and operations. However, we may be exposed to future losses due to coverage limitations and our use of deductibles and self-insured retentions for our exposures related to property and equipment damage, builder’s risk, third-party liability and workers’ compensation and USL&H claims. In connection with our insurance coverage renewal for our property and equipment in the second quarter 2023, we determined that the benefits of maintaining insurance coverage for our property and equipment were limited due to high premium costs and deductibles and increased coverage limitations. Accordingly, we did not renew all of our property and equipment coverage and are now generally self-insured for exposures resulting from any future damage to our property and equipment.
To the extent we have insurance coverage, we do not have an offset right for liabilities in excess of any deductibles and self-insured retentions. Accordingly, we have recorded a liability for estimated amounts in excess of our deductibles and retentions, and have recorded a corresponding asset related to estimated insurance recoveries, on our Balance Sheet. Further, to the extent we are self-insured, reserves are recorded based upon our estimates, with input from legal and insurance advisors. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change. See Note 2 for discussion of insurance deductibles incurred associated with damage caused by Hurricanes Ida.
Letters of Credit and Surety Bonds
We obtain letters of credit under our LC Facility or surety bonds from financial institutions to provide to our customers in order to secure advance payments or guarantee performance under our contracts, or in lieu of retention being withheld on our contracts. Letters of credit under our LC Facility are subject to cash securitization of the full amount of the outstanding letters of credit. In the event of non-performance under a contract, our cash securitization with respect to the letter of credit supporting such contract would become the property of Whitney Bank. With respect to surety bonds, payments by a Surety pursuant to a bond in the event of non-performance are subject to reimbursement to such Surety by us under a general indemnity agreement relating to such bond. Such indemnification obligations may include the face amount of the surety bond, or portions thereof, as well as other reimbursable items such as interest and certain investigative expenses and legal fees of the Surety. Such indemnification obligations would require us to use our cash, cash equivalents or short-term investments, and we may not have sufficient liquidity to satisfy such indemnification obligations. When a contract is complete, the contingent obligation terminates, and letters of credit or surety bonds are returned. See Note 3 for further discussion of our LC Facility and surety bonds.
Environmental Matters
Our operations are subject to extensive and changing U.S. federal, state and local laws and regulations, as well as the laws of other countries, that establish health and environmental quality standards. These standards, among others, relate to air and water pollutants and the management and disposal of hazardous substances and wastes. We are exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or wastes. In connection with the historical operation of our facilities, including those associated with acquired operations, substances which currently are or might be considered hazardous were used or disposed of at some sites that will or may require us to make expenditures for remediation. We believe we are in compliance, in all material respects, with environmental laws and regulations and maintain insurance coverage to mitigate exposure to environmental liabilities. We do not believe any environmental matters will have a material adverse effect on our financial condition, results of operations or cash flow.
Leases
We maintain operating leases for our corporate office and certain operating facilities and equipment. See Note 1 for further discussion of our leases.
- 17 -
5. INCOME (LOSS) PER SHARE AND SHAREHOLDERS' EQUITY
The following table sets forthpresents the computation of basic and diluted earningsincome (loss) per share for the three and nine months ended September 30, 2023 and 2022 (in thousands, except per share data):
|
| Three Months Ended September 30, |
|
| Nine Months Ended September 30, |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Net income (loss) |
| $ | (33,235 | ) |
| $ | 598 |
|
| $ | (31,492 | ) |
| $ | (3,901 | ) |
Weighted average shares(1) |
|
| 16,287 |
|
|
| 15,923 |
|
|
| 16,162 |
|
|
| 15,808 |
|
Basic and diluted income (loss) per common share |
| $ | (2.04 | ) |
| $ | 0.04 |
|
| $ | (1.95 | ) |
| $ | (0.25 | ) |
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||||||
2017 | 2016 | 2017 | 2016 | ||||||||||||
Basic and diluted: | |||||||||||||||
Numerator: | |||||||||||||||
Net income (loss) | $ | (3,110 | ) | $ | 541 | $ | (20,488 | ) | $ | 7,069 | |||||
Less: Distributed and undistributed income (loss) (unvested restricted stock) | (14 | ) | 2 | (100 | ) | 70 | |||||||||
Net income attributable to common shareholders | $ | (3,096 | ) | $ | 539 | $ | (20,388 | ) | $ | 6,999 | |||||
Denominator: | |||||||||||||||
Weighted-average shares (1) | 14,852 | 14,633 | 14,821 | 14,621 | |||||||||||
Basic and diluted earnings (loss) per share - common shareholders | $ | (0.21 | ) | $ | 0.04 | $ | (1.38 | ) | $ | 0.48 |
6. OPERATING SEGMENTS
We currently operate and manage our financial covenants.
Services Division –Our Services Division provides maintenance, repair, construction, scaffolding, coatings, welding enclosures and other specialty services on offshore platforms and inland structures and at industrial facilities; provides services required to connect production equipment and service modules and equipment on offshore platforms; provides project management reduced its allocationand commissioning services; provides industrial staffing services; and performs municipal and drainage projects, including pump stations, levee reinforcement, bulkheads and other public works. Our services activities are managed from our various Facilities and include the results of corporate administrative coststhe DSS Acquisition. See Note 1 for further discussion of the DSS Acquisition.
Fabrication Division –Our Fabrication Division fabricates modules, skids and overhead expenses from its corporate, non-operating division to its operating divisions in order to individually evaluate corporate administrative costspiping systems for onshore refining, petrochemical, LNG and overhead within our Corporate divisionindustrial 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, on April 19, 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 (“Active Retained Shipyard Contracts”) that were under construction as of the transaction date and excluded the contracts and related obligations for the projects that were subject to not overly burden our MPSV Litigation (which was resolved on October 4, 2023). The Active Retained Shipyard Contracts have been or will be completed at our Houma Facilities and we intend to wind down our Shipyard Division operations by the fourth quarter 2023 (previously the third quarter 2023, but was delayed and is subject to the potential schedule impacts discussed in Note 2). At September 30, 2023 and December 31, 2022, the net operating divisionsliabilities on our Balance Sheet associated with our Shipyard Division operations totaled $3.5 million and $2.7 million, respectively. See Note 1 for further discussion of the Shipyard Transaction and Note 4 for further discussion of the resolution of our MPSV Litigation.
Corporate Divisionand Allocations –Our Corporate Division includes costs that do not directly relate to their operations. Accordingly, a significant portion of our corporate administrative costs and overhead expenses are retained within the results of our corporate division. In addition, we have also allocated certain personnel previously included in the operating divisions to our Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and its Corporate division each meeting the criteria of reportable segments under GAAP. Our operating divisions and Corporate division are discussed below.
- 18 -
Segment Results –We generally evaluate the performance of, and allocate resources to, our segmentsdivisions based upon gross profit (loss)or loss and operating income (loss).or loss. Segment assets are comprised of all assets attributable to each segment. Corporate administrative costs and overhead are allocated to our three operating divisions for expenses that directly relate to the operations or relate to shared services as discussed above. During 2016, we allocated substantially all of our corporate administrative costs and overhead to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation.division. Intersegment revenues are priced at the estimated fair value of work performed. Summarized financial information concerningfor our segments as of September 30, 2023 and 2022, and for the three and nine months ended September 30, 20172023 and 2016,2022, is as follows (in thousands):
|
| Three Months Ended September 30, 2023 |
| |||||||||||||||||
|
| Services |
|
| Fabrication |
|
| Shipyard |
|
| Corporate |
|
| Consolidated |
| |||||
Revenue |
| $ | 22,976 |
|
| $ | 14,979 |
|
| $ | (32,702 | ) |
| $ | (230 | ) |
| $ | 5,023 |
|
Gross profit (loss) |
|
| 3,260 |
|
|
| 1,217 |
|
|
| (34,356 | ) |
|
| — |
|
|
| (29,879 | ) |
Operating income (loss) |
|
| 2,577 |
|
|
| 904 |
|
|
| (35,117 | ) |
|
| (1,999 | ) |
|
| (33,635 | ) |
Depreciation and amortization expense |
|
| 502 |
|
|
| 813 |
|
|
| — |
|
|
| 75 |
|
|
| 1,390 |
|
Capital expenditures |
|
| — |
|
|
| 573 |
|
|
| — |
|
|
| 72 |
|
|
| 645 |
|
Total assets(1) |
|
| 30,407 |
|
|
| 44,372 |
|
|
| 727 |
|
|
| 45,096 |
|
|
| 120,602 |
|
|
| Three Months Ended September 30, 2022 |
| |||||||||||||||||
|
| Services |
|
| Fabrication |
|
| Shipyard |
|
| Corporate |
|
| Consolidated |
| |||||
Revenue |
| $ | 22,569 |
|
| $ | 15,429 |
|
| $ | 1,849 |
|
| $ | (254 | ) |
| $ | 39,593 |
|
Gross profit (loss) |
|
| 3,163 |
|
|
| 1,326 |
|
|
| (269 | ) |
|
| — |
|
|
| 4,220 |
|
Operating income (loss) |
|
| 2,390 |
|
|
| 2,120 |
|
|
| (1,393 | ) |
|
| (2,463 | ) |
|
| 654 |
|
Depreciation and amortization expense |
|
| 382 |
|
|
| 807 |
|
|
| — |
|
|
| 51 |
|
|
| 1,240 |
|
Capital expenditures |
|
| 499 |
|
|
| 4 |
|
|
| — |
|
|
| 55 |
|
|
| 558 |
|
Total assets(1) |
|
| 33,899 |
|
|
| 40,061 |
|
|
| 17,349 |
|
|
| 43,430 |
|
|
| 134,739 |
|
|
| Nine Months Ended September 30, 2023 |
| |||||||||||||||||
|
| Services |
|
| Fabrication |
|
| Shipyard |
|
| Corporate |
|
| Consolidated |
| |||||
Revenue |
| $ | 69,033 |
|
| $ | 69,382 |
|
| $ | (30,973 | ) |
| $ | (925 | ) |
| $ | 106,517 |
|
Gross profit (loss) |
|
| 10,348 |
|
|
| 5,243 |
|
|
| (35,955 | ) |
|
| — |
|
|
| (20,364 | ) |
Operating income (loss) |
|
| 8,187 |
|
|
| 4,443 |
|
|
| (39,268 | ) |
|
| (5,920 | ) |
|
| (32,558 | ) |
Depreciation and amortization expense |
|
| 1,440 |
|
|
| 2,460 |
|
|
| — |
|
|
| 215 |
|
|
| 4,115 |
|
Capital expenditures |
|
| 508 |
|
|
| 1,111 |
|
|
| — |
|
|
| 82 |
|
|
| 1,701 |
|
Total assets(1) |
|
| 30,407 |
|
|
| 44,372 |
|
|
| 727 |
|
|
| 45,096 |
|
|
| 120,602 |
|
|
| Nine Months Ended September 30, 2022 |
| |||||||||||||||||
|
| Services |
|
| Fabrication |
|
| Shipyard |
|
| Corporate |
|
| Consolidated |
| |||||
Revenue |
| $ | 65,413 |
|
| $ | 31,885 |
|
| $ | 7,314 |
|
| $ | (431 | ) |
| $ | 104,181 |
|
Gross profit (loss) |
|
| 8,295 |
|
|
| (2,064 | ) |
|
| (759 | ) |
|
| — |
|
|
| 5,472 |
|
Operating income (loss) |
|
| 5,912 |
|
|
| 787 |
|
|
| (3,965 | ) |
|
| (6,529 | ) |
|
| (3,795 | ) |
Depreciation and amortization expense |
|
| 1,128 |
|
|
| 2,436 |
|
|
| — |
|
|
| 200 |
|
|
| 3,764 |
|
Capital expenditures |
|
| 817 |
|
|
| 160 |
|
|
| — |
|
|
| 55 |
|
|
| 1,032 |
|
Total assets(1) |
|
| 33,899 |
|
|
| 40,061 |
|
|
| 17,349 |
|
|
| 43,430 |
|
|
| 134,739 |
|
Three Months Ended September 30, 2017 | ||||||||||||||||||
Fabrication | Shipyards (1) | Services | Corporate | Eliminations | Consolidated | |||||||||||||
Revenue | $ | 18,318 | $ | 15,074 | $ | 17,651 | $ | — | $ | (1,159 | ) | $ | 49,884 | |||||
Gross profit (loss) | 1,250 | (3,504 | ) | 1,912 | (152 | ) | — | (494 | ) | |||||||||
Operating income (loss) | 472 | (4,392 | ) | 1,217 | (2,161 | ) | — | (4,864 | ) | |||||||||
Total assets | 205,463 | 96,614 | 100,820 | 364,016 | (463,533 | ) | 303,380 | |||||||||||
Depreciation and amortization expense | 1,133 | 1,030 | 413 | 95 | — | 2,671 | ||||||||||||
Capital expenditures | 1,479 | 1,054 | 94 | 25 | — | 2,652 | ||||||||||||
Three Months Ended September 30, 2016 | ||||||||||||||||||
Fabrication | Shipyards (1) | Services | Corporate | Eliminations | Consolidated | |||||||||||||
Revenue | $ | 22,311 | $ | 23,060 | $ | 20,928 | $ | — | $ | (915 | ) | $ | 65,384 | |||||
Gross profit (loss) | 601 | 1,945 | 2,918 | (205 | ) | — | 5,259 | |||||||||||
Operating income (loss) | (284 | ) | 477 | 1,975 | (1,995 | ) | — | 173 | ||||||||||
Total assets | 285,320 | 75,779 | 100,781 | 332,617 | (457,285 | ) | 337,212 | |||||||||||
Depreciation and amortization expense | 4,637 | 1,183 | 443 | 123 | — | 6,386 | ||||||||||||
Capital expenditures | 1,228 | 318 | 565 | 14 | — | 2,125 | ||||||||||||
Nine Months Ended September 30, 2017 | ||||||||||||||||||
Fabrication | Shipyards (1) | Services | Corporate | Eliminations | Consolidated | |||||||||||||
Revenue | $ | 42,517 | $ | 51,798 | $ | 43,758 | $ | — | $ | (4,328 | ) | $ | 133,745 | |||||
Gross profit (loss) | 216 | (19,061 | ) | 2,335 | (500 | ) | — | (17,010 | ) | |||||||||
Operating income (loss) | (2,216 | ) | (22,285 | ) | 327 | (6,165 | ) | — | (30,339 | ) | ||||||||
Total assets | 205,463 | 96,614 | 100,820 | 364,016 | (463,533 | ) | 303,380 | |||||||||||
Depreciation and amortization expense | 5,420 | 3,034 | 1,266 | 421 | — | 10,141 | ||||||||||||
Capital expenditures | 2,327 | 1,872 | 199 | 117 | — | 4,515 | ||||||||||||
Nine Months Ended September 30, 2016 | ||||||||||||||||||
Fabrication | Shipyards (1) | Services | Corporate | Eliminations | Consolidated | |||||||||||||
Revenue | $ | 70,436 | $ | 86,553 | $ | 76,179 | $ | — | $ | (2,304 | ) | $ | 230,864 | |||||
Gross profit (loss) | 4,564 | 9,742 | 11,158 | (439 | ) | — | 25,025 | |||||||||||
Operating income (loss) | 1,743 | 5,524 | 8,696 | (5,571 | ) | — | 10,392 | |||||||||||
Total assets | 285,320 | 75,779 | 100,781 | 332,617 | (457,285 | ) | 337,212 | |||||||||||
Depreciation and amortization expense | 14,081 | 3,507 | 1,342 | 332 | — | 19,262 | ||||||||||||
Capital expenditures | 2,539 | 534 | 1,612 | 730 | — | 5,415 | ||||||||||||
7. SUBSEQUENT EVENTS
On October 4, 2023, we resolved our MPSV Litigation, resulting in a charge of $32.5 million during both the three and Arbitration:
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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 “Liquidity and Capital Resources” and other statementssignificant trends that may impact our future performance. This discussion should be read in this reportconjunction with our Financial Statements and the exhibits heretorelated 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 factfacts, such as projections or expectations relating to operating results, timing of delivery of vessels related to the Active Retained Shipyard Contracts and subsequent wind down of our Shipyard Division operations; impacts of the resolution of the MPSV Litigation; 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; liquidity; tax rates; 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. These
We caution readers that forward-looking statements are subject to certain risksnot guarantees of future performance and uncertainties that could cause actual results and outcomes tomay differ materially from the results and outcomes predictedthose anticipated, projected or assumed in such forward-looking statements. Investors are cautioned not to place undue reliance upon suchthe forward-looking statements. Important factors that maycan cause our actual results to differ materially from expectationsthose anticipated in the forward-looking statements include: supply chain disruptions (including global shipping and logistics challenges), inflationary pressures, economic slowdowns and recessions, natural disasters, public health crises (such as COVID-19), labor costs and geopolitical conflicts (such as the conflict in Ukraine and the Israel-Hamas conflict), and the related volatility in oil and gas prices and other factors impacting the global economy; cyclical nature of the oil and gas industry; our ability to resolve any material legal proceedings; 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 projections include thosetermination 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; recoveries of any insurance proceeds for previous damage at our Houma Facilities; 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 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; focus on environmental, social and governance factors by institutional investors and regulators; and other factors described under “Risk Factors” in Part I, Item 1A of our 2022 Annual Report as updated in Item 1A. Risk Factors included1A “Risk Factors” in our Annual Reportquarterly report on Form 10-K10-Q for the yearquarter ended December 31, 2016.
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 marine vessels used in energy extractionmodules and production, petrochemical and industrial facilities, power generation, alternative energy projects and shipping and marine transportation operations. We also provide related installation,provider of specialty services, including project management, hookup, commissioning, repair, maintenance, scaffolding, coatings, welding enclosures, civil construction and maintenancestaffing services with specialized crewsto the industrial and integrated project management capabilities. We are currently fabricating complex modules for the construction of a new petrochemical plant and two multi-purpose service vessels. We recently fabricated offshore wind turbine foundations for the first offshore wind power project in the United States. We also constructed one of the largest liftboats servicing the Gulf of Mexico ("GOM"), one of the deepest production jackets in the GOM and the first SPAR fabricated in the United States.energy sectors. Our customers include U.S. and, to a lesser extent, international energy producers,producers; refining, petrochemical, LNG, industrial and power operators; and marine operators.
On April 19, 2021, we sold our Shipyard Division operating assets and certain construction contracts (“Shipyard Transaction”) and intend to be challengedwind down our remaining Shipyard Division operations by the fourth quarter 2023 (previously the third quarter 2023, but was delayed and is subject to the potential schedule impacts discussed in Note 2). See Note 1 for further discussion of the Shipyard Transaction.
On December 1, 2021, we acquired a services and industrial staffing business (“DSS Acquisition,”) which increased our skilled workforce, further diversified our customer base and expanded our service offerings for our Services Division. See Note 1 for further discussion of the DSS Acquisition.
On October 4, 2023, we resolved our MPSV Litigation. See Note 4 for further discussion of the resolution of our MPSV Litigation.
Impacts of Oil and Gas Price Volatility and Macroeconomic Conditions on Operations
Since 2008, the prices of oil and gas have experienced significant volatility, including depressed prices over extended periods, resulting in reductions in capital spending and drilling activities from our traditional offshore oil and gas customer base. Consequently, our operating results and cash flows were negatively impacted as lowwe experienced reductions in revenue, lower margins due to competitive pricing and under-utilization of our operating facilities and resources. Beginning in 2020, the global coronavirus pandemic (“COVID-19”) added another layer of pressure and uncertainty on oil and gas prices remain. Our customers in the global(with oil prices reaching a twenty-year low and gas industry continue to limit capital spending relative to the already reduced spending levels from 2015 and 2016. This has alsoprices reaching a four-year low), which further negatively impacted the marine and offshore service industries that support offshore exploration and production which has had an adverse effect oncertain of our overall backlog levels and created challenges with respect to our ability to operate our facilities at desired utilization levels. As a result, we have experienced significant decreases in revenue. Oil and gas producers are not expected to increase drilling activity in the near term. As a result, we do not anticipate any real movement in the near term as it relates to offshore investment and related project activity as producers focus on land-based oil and gas production through newly discovered shale finds.
In addition, global economic factors that are beyond our control, have and an ice class, z-drive tug.
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 secured some offshore platform facility expansion work which entails the onshore fabricationincluded, or may continue to include, among other things, reduced bidding activity; suspension or termination of structuralbacklog; deterioration of customer financial condition; and production components as well as offshore installationunanticipated project costs and hook-up scopesschedule 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 work. In addition to onshore plant expansionsperformance by subcontractors and maintenance programs.
Other Impacts to Operations
Hurricane Ida – On August 29, 2021, Hurricane Ida made landfall near Houma, Louisiana as a high-end Category 4 hurricane, with high winds and heavy rains causing damage to buildings and equipment at our Houma Facilities and resulting in significant debris throughout the facility. See Note 2 for further discussion of the impacts of Hurricane Ida.
Ferry Projects – We have experienced construction challenges and cost increases on our seventy-vehicle ferry and forty-vehicle ferry projects. See Note 2 for further discussion of our project impacts.
- 21 -
Initiatives to Improve Operating Results and Generate Stable, Profitable Growth
We previously 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:
With the significant progress achieved on these objectives, we have shifted our focus to the next phase of our strategic transformation, which is focused on generating stable, profitable growth. Underpinning this strategy is a focus on the following initiatives:
Progress on our Strategic Transformation Initiatives
Efforts to mitigate the impacts of COVID-19 on our operations and workforce – We continue to take actions to mitigate the impacts of COVID-19 on our operations and maintain a safe work environment for our workforce, including maintaining protocols for handling employees who have tested positive for COVID-19 or have come in contact with individuals that have tested positive for COVID-19. In addition, we have protocols for employees to return to work that test positive for COVID-19, including requiring a negative COVID-19 antigen test prior to returning to work.
Efforts to reduce our risk profile – The completion of the Shipyard Transaction improved our risk profile by removing potential future risks associated with certain construction contracts that represented approximately 90% of our backlog awards in 2017with durations that extended through 2024. The Active Retained Shipyard Contracts have been or will be completed at our Houma Facilities and 2018; however, management believes that even if we are successfulwinding down our Shipyard Division operations, which is currently anticipated to occur by the fourth quarter 2023 (previously the third quarter 2023, but was delayed and is subject to the potential schedule impacts discussed in obtaining these awards there isNote 2). See Note 1 for further discussion of the Shipyard Transaction.
Efforts to preserve and improve our liquidity – We continue to take actions to preserve and improve our liquidity, including cost reduction initiatives, monetization of under-utilized assets and facilities, and an expected lagongoing focus on project cash flow management. In addition, as a result of several months before these awards will materialize into work atthe Shipyard Transaction and anticipated wind down of our facilities. While we have
- 22 -
Efforts to improve our resource utilization and centralize key project resources – We have reducedimproved our resource utilization and centralized key project resources through the level of our workforce based on booked work in allrationalization and integration of our facilities and operations.
Efforts to improve our competitiveness, project execution and bidding discipline – We have reduced our capital expenditurestaken, and continue to evaluatetake, actions to improve our competitiveness and 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 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. The DSS Acquisition in the fourth quarter 2021 nearly doubled our skilled workforce and expanded our geographic footprint for skilled labor, which we believe will contribute to the retention and recruitment of personnel. We have successfully maintained our headcount levels for our Services Division and have opportunistically looked to shift our workforce to higher margin opportunities given the industry-wide labor constraints. See “Overview” above and Note 1 for further discussion of the DSS Acquisition.
- 23 -
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. The DSS Acquisition in the fourth quarter 2021 accelerated our progress in this initiative and provides a stronger platform to continue such progress. Further, in the third quarter 2022, we made capital and other investments to expand 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. We are also pursuing opportunities to rationalize assets that are either underutilized, under-performing or not expectedpartner with original equipment manufacturers to provide sufficient long-term value which includecritical services to our South Texas assets ascustomers along the Gulf Coast and strategic partnership opportunities with engineering companies to provide turnkey solutions. See “Overview” above and Note 1 for further discussed below.
Efforts to the Gulf of Mexico. Our Texas North Yardpursue opportunities in Aransas Pass, Texas, is located along the U.S. Intracoastal Waterway and is approximately three miles north of the Corpus Christi Ship Channel. These facilities are currently underutilized and represent excess capacity within our Fabrication division. Our net book value of these assets was $104.5 million at September 30, 2017.traditional offshore fabrication markets – We continue to fabricate structures associated with our traditional offshore markets, including subsea and associated structures. During the third quarter 2022, we were awarded a large contract for the fabrication of jacket foundations for an offshore project; however, the project was suspended in February 2023 and cancelled in July 2023. See “New Project Awards and Backlog” below and Note 2 for further discussion of the project cancellation.
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.
- 24 -
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:
In addition, the near-term utilization of our Fabrication Yard as necessary. As a resultDivision will be impacted by the timing of new project awards and their execution, including the decisionreplacement of our cancelled offshore jackets project, and our operations may continue to market our South Texas facilities for salebe impacted by inefficiencies and the underutilization currently being experienced, we expect to incurdisruptions 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 maintaining the facilityretention of certain personnel that will notmay be recoverable until such timetemporarily under-utilized as we are ableevaluate our resource requirements to consummate one or more salessupport our future operations, (ii) investments in key personnel and process improvement efforts to support our aforementioned initiatives, and (iii) higher costs and availability of these assets. These costs include insurance, general maintenancecraft labor due to industry labor constraints. See Note 1 for further discussion of the property in its current state, property taxes and retained employees which will be expensed as incurred. We have executed a letterimpacts of interest with a proposed buyer for the sale of our South Yard in Ingleside, Texas. While this letter of interest is non-binding, the proposed buyers will be conducting several surveys on the property during the next few months as part of their due diligence. We do not expect the sale of these assets to impact our ability to service our deepwater customers or operate our Fabrication division.
Critical Accounting Policies and Estimates
For a discussion of critical accounting policies and estimates we useused in the preparation of our Consolidated Financial Statements, refer to Item 7. “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations”Operations” in Part II, Item 7 included in our 2022 Annual Report on Form 10-K for the year ended December 31, 2016.Report. There have been no changes in our evaluation ofto our critical accounting policies and estimates since December 31, 2016.
New Project Awards and Backlog
New project awards represent expected revenue values of commitments received during a given period, including scope growth on management’s estimate of the direct labor hours required to complete, and the remaining revenue to be recognized with respect to those projects for which aexisting commitments. A commitment represents authorization from our customer has authorized us to begin work or purchase materials pursuant to a written contracts, lettersagreement, letter of intent or other formsform of authorization. As engineeringBacklog represents the unrecognized revenue for our new project awards and design plans are finalized or changes to existing plans are made, management’s estimateat September 30, 2023, was consistent with the value of the direct labor hoursremaining performance obligations for our contracts required to completebe disclosed under Topic 606 and presented in Note 2. In general, a project and theperformance 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 at completion is likely to change.
- 25 -
Projects in our backlog are generally subject to delay, suspension, termination, or a reductionan increase or decrease in scope at the option of the customer, althoughcustomer; however, the customer is required to pay us for work performed and materials purchased through the date of termination, suspension, or reductiondecrease in scope. In addition, customers have the ability to delay the execution of projects.
September 30, 2017 | December 31, 2016 | |||||||||
Division | $'s | Labor hours | $'s | Labor hours | ||||||
Fabrication | $ | 29,554 | 254 | $ | 65,444 | 707 | ||||
Shipyards | 200,909 | 1,045 | 59,771 | 457 | ||||||
Services | 21,918 | 265 | 7,757 | 101 | ||||||
Intersegment eliminations | (649 | ) | — | — | — | |||||
Total backlog (1) | $ | 251,732 | 1,564 | $ | 132,972 | 1,265 | ||||
Number | Percentage | Number | Percentage | |||||||
Major customers (2) | five | 82.7% | two | 80.5% | ||||||
Backlog is expected to be recognized in revenue during: | $'s | Percentage | ||||||||
2017 (3) | $ | 40,352 | 16.0% | |||||||
2018 (3) | 139,529 | 55.4% | ||||||||
2019 (3) | 63,451 | 25.2% | ||||||||
2020 (3) | 8,400 | 3.4% | ||||||||
$ | 251,732 | 100.0% | ||||||||
Three Months Ended September 30, | Increase or (Decrease) | |||||||||||
2017 | 2016 | Amount | Percent | |||||||||
Revenue | $ | 49,884 | $ | 65,384 | $ | (15,500 | ) | (23.7)% | ||||
Cost of revenue | 50,378 | 60,125 | (9,747 | ) | (16.2)% | |||||||
Gross profit (loss) | (494 | ) | 5,259 | (5,753 | ) | (109.4)% | ||||||
Gross profit (loss) percentage | (1.0 | )% | 8.0 | % | ||||||||
General and administrative expenses | 4,370 | 5,086 | (716 | ) | (14.1)% | |||||||
Operating income (loss) | (4,864 | ) | 173 | (5,037 | ) | (2,911.6)% | ||||||
Other income (expense): | ||||||||||||
Interest expense | (45 | ) | (110 | ) | 65 | |||||||
Interest income | — | 12 | (12 | ) | ||||||||
Other income (expense), net | 38 | 599 | (561 | ) | ||||||||
Total other income (expense) | (7 | ) | 501 | (508 | ) | 101.4% | ||||||
Net income (loss) before income taxes | (4,871 | ) | 674 | (5,545 | ) | (822.7)% | ||||||
Income tax expense (benefit) | (1,761 | ) | 133 | (1,894 | ) | (1,424.1)% | ||||||
Net income (loss) | $ | (3,110 | ) | $ | 541 | $ | (3,651 | ) | (674.9)% |
|
| Three Months Ended |
|
| Nine Months Ended |
| ||||||||||
|
| 2023 |
|
| 2022 |
|
| 2023 |
|
| 2022 |
| ||||
Services |
| $ | 22,776 |
|
| $ | 22,110 |
|
| $ | 68,578 |
|
| $ | 64,572 |
|
Fabrication |
|
| 16,589 |
|
|
| 116,926 |
|
|
| 46,733 |
|
|
| 136,948 |
|
Shipyard |
|
| (718 | ) |
|
| 380 |
|
|
| (1,067 | ) |
|
| 1,213 |
|
Eliminations |
|
| (230 | ) |
|
| (254 | ) |
|
| (925 | ) |
|
| (431 | ) |
Total |
| $ | 38,417 |
|
| $ | 139,162 |
|
| $ | 113,319 |
|
| $ | 202,302 |
|
Backlog by Division at September 30, 2023 and December 31, 2022, is as follows (in thousands):
|
| September 30, 2023 |
|
| December 31, 2022 |
| ||||||||||
|
| Amount |
|
| Labor Hours |
|
| Amount |
|
| Labor Hours |
| ||||
Services |
| $ | 867 |
|
|
| 8 |
|
| $ | 1,322 |
|
|
| 20 |
|
Fabrication(1) |
|
| 11,507 |
|
|
| 119 |
|
|
| 110,287 |
|
|
| 613 |
|
Shipyard(2) |
|
| 726 |
|
|
| 2 |
|
|
| 3,272 |
|
|
| 22 |
|
Total(3) |
| $ | 13,100 |
|
|
| 129 |
|
| $ | 114,881 |
|
|
| 655 |
|
Fabrication | Three Months Ended September 30, | Increase or (Decrease) | ||||||||||||
2017 | 2016 | Amount | Percent | |||||||||||
Revenue | $ | 18,318 | $ | 22,311 | $ | (3,993 | ) | (17.9)% | ||||||
Gross profit (loss) | 1,250 | 601 | 649 | 108.0% | ||||||||||
Gross profit (loss) percentage | 6.8 | % | 2.7 | % | 4.1% | |||||||||
General and administrative expenses | 778 | 885 | (107 | ) | (12.1)% | |||||||||
Operating income (loss) | 472 | (284 | ) |
- 26 -
Results of Operations
Comparison of the Three Months Ended September 30, 2023 and 2022(in thousands in each table, except for percentages):
Consolidated
|
| Three Months Ended September 30, |
|
| Favorable |
| ||||||
|
| 2023 |
|
| 2022 |
|
| Change |
| |||
New project awards |
| $ | 38,417 |
|
| $ | 139,162 |
|
| $ | (100,745 | ) |
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | 5,023 |
|
| $ | 39,593 |
|
| $ | (34,570 | ) |
Cost of revenue |
|
| 34,902 |
|
|
| 35,373 |
|
|
| 471 |
|
Gross profit (loss) |
|
| (29,879 | ) |
|
| 4,220 |
|
|
| (34,099 | ) |
Gross profit (loss) percentage |
| nm |
|
|
| 10.7 | % |
|
|
| ||
General and administrative expense |
|
| 4,080 |
|
|
| 4,510 |
|
|
| 430 |
|
Other (income) expense, net |
|
| (324 | ) |
|
| (944 | ) |
|
| (620 | ) |
Operating income (loss) |
|
| (33,635 | ) |
|
| 654 |
|
|
| (34,289 | ) |
Interest (expense) income, net |
|
| 397 |
|
|
| (46 | ) |
|
| 443 |
|
Income (loss) before income taxes |
|
| (33,238 | ) |
|
| 608 |
|
|
| (33,846 | ) |
Income tax (expense) benefit |
|
| 3 |
|
|
| (10 | ) |
|
| 13 |
|
Net income (loss) |
| $ | (33,235 | ) |
| $ | 598 |
|
| $ | (33,833 | ) |
References below to 2023 and 2022 refer to the three months ended September 30, 2016.2023 and 2022, respectively.
New project awards – New project awards for 2023 and 2022 were $38.4 million and $139.2 million, respectively. New project awards for both periods were primarily related to:
The 2022 period also included an award for the fabrication of jacket foundations for an offshore project (which was cancelled by the customer in July 2023) for our Fabrication Division.
Revenue – Revenue for 2023 and 2022 was $5.0 million and $39.6 million, respectively, representing a decrease of 87.3%. The decrease iswas primarily due to:
See Note 4 for further discussion of the resolution of our fabrication yards as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore fabrication projects.
- 27 -
Gross profit (loss) -
The gross loss for 2023 relative to gross profit for 2022 was primarily due to:
See “Operating Segments” below and Note 2 for further discussion of our project impacts and Note 4 for further discussion of the resolution of our MPSV Litigation.
General and administrative expense – General and administrative expense for 2023 and 2022 was $4.1 million and $4.5 million, respectively, representing a decrease of 9.5%. The decrease was primarily due to lower legal and advisory fees associated with our previous MPSV Litigation for our Shipyard Division. General and administrative expense included legal and advisory fees of $0.9 million and $1.2 million for 2023 and 2022, respectively, associated with our previous MPSV Litigation, which are reflected within our Shipyard Division. See Note 4 for further discussion of the resolution of our MPSV Litigation.
Other (income) expense, net –Other (income) expense, net for 2023 and 2022 was income of $0.3 million and $0.9 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 2023 was primarily due to:
Other income for 2022 was primarily due to:
See Note 2 for further discussion of $601,000the impacts of Hurricanes Ida.
- 28 -
Interest (expense) income, net – Interest (expense) income, net for 2023 and 2022 was income of $0.4 million and expense of less than $0.1 million, respectively. Interest (expense) income, net for both periods included 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 and on our Insurance Finance Arrangements. The income for 2023 relative to expense for 2022 was primarily due to higher interest earned on our cash and short-term investment balances for the three months ended September 30, 2016. The increase in gross profit2023 period.
Income tax (expense) benefit – Income tax (expense) benefit for 2023 and 2022 represents state income taxes. No federal income tax benefit was due to
Operating Segments
Services Division
|
| Three Months Ended September 30, |
|
| Favorable (Unfavorable) |
| ||||||
|
| 2023 |
|
| 2022 |
|
| Change |
| |||
New project awards |
| $ | 22,776 |
|
| $ | 22,110 |
|
| $ | 666 |
|
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | 22,976 |
|
| $ | 22,569 |
|
| $ | 407 |
|
Gross profit |
|
| 3,260 |
|
|
| 3,163 |
|
|
| 97 |
|
Gross profit percentage |
|
| 14.2 | % |
|
| 14.0 | % |
|
|
| |
General and administrative expense |
|
| 701 |
|
|
| 791 |
|
|
| 90 |
|
Other (income) expense, net |
|
| (18 | ) |
|
| (18 | ) |
|
| — |
|
Operating income |
|
| 2,577 |
|
|
| 2,390 |
|
|
| 187 |
|
References below to 2023 and administrative expenses
New project awards – New project awards for 2023 and 2022 were $22.8 million and $22.1 million, respectively, and were primarily related to offshore services work, with the increase primarily due to decreasesincremental new project awards associated with our welding enclosures business line (commenced in costs resulting from lower bonuses accrued during 2017 as a resultthe third quarter 2022).
Revenue – Revenue for 2023 and 2022 was $23.0 million and $22.6 million, respectively, representing an increase of 1.8%. The increase was primarily due to incremental revenue associated with our welding enclosures business line (commenced in the third quarter 2022).
Gross profit – Gross profit for 2023 and 2022 was $3.3 million (14.2% of revenue) and $3.2 million (14.0% of revenue), respectively. The increase in gross profit for 2023 relative to 2022 was primarily due to:
General and continued cost minimization efforts implemented by managementadministrative expense – General and administrative expense for the period.
Shipyards | Three Months Ended September 30, | Increase or (Decrease) | ||||||||||||
2017 | 2016 | Amount | Percent | |||||||||||
Revenue (1) | $ | 15,074 | $ | 23,060 | $ | (7,986 | ) | (34.6)% | ||||||
Gross profit (loss) (1) | (3,504 | ) | 1,945 | (5,449 | ) | (280.2)% | ||||||||
Gross profit (loss) percentage | (23.2 | )% | 8.4 | % | (31.6)% | |||||||||
General and administrative expenses | 888 | 1,468 | (580 | ) | (39.5)% | |||||||||
Operating income (loss) (1) | (4,392 | ) | 477 |
- 29 -
Fabrication Division
|
| Three Months Ended September 30, |
|
| Favorable (Unfavorable) |
| ||||||
|
| 2023 |
|
| 2022 |
|
| Change |
| |||
New project awards |
| $ | 16,589 |
|
| $ | 116,926 |
|
| $ | (100,337 | ) |
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | 14,979 |
|
| $ | 15,429 |
|
| $ | (450 | ) |
Gross profit |
|
| 1,217 |
|
|
| 1,326 |
|
|
| (109 | ) |
Gross profit percentage |
|
| 8.1 | % |
|
| 8.6 | % |
|
|
| |
General and administrative expense |
|
| 448 |
|
|
| 507 |
|
|
| 59 |
|
Other (income) expense, net |
|
| (135 | ) |
|
| (1,301 | ) |
|
| (1,166 | ) |
Operating income |
|
| 904 |
|
|
| 2,120 |
|
|
| (1,216 | ) |
References below to 2023 and 2022 refer to the three months ended September 30, 2016,2023 and 2022, respectively.
New project awards – New project awards for 2023 and 2022 were $16.6 million and $116.9 million, respectively, and were primarily related to small-scale fabrication work. The 2022 period also included an award for the fabrication of jacket foundations for an offshore project (which was cancelled by the customer in July 2023).
Revenue – Revenue for 2023 and 2022 was $15.0 million and $15.4 million, respectively, representing a decrease of 2.9%. The decrease was primarily due to:
Gross profit – Gross profit for 2023 and 2022 was $1.2 million (8.1% of revenue) and $1.3 million (8.6% of revenue), respectively. Gross profit for 2023 was primarily impacted by:
The decrease in gross profit for 2023 relative to 2022 was primarily due to:
See Note 2 for further discussion of our project impacts.
General and administrative expense – General and administrative expense for 2023 and 2022 was $0.4 million and $0.5 million, respectively, representing a gross profitdecrease of $1.9 million for the three months ended September 30, 2016.11.6%. The decrease was primarily due to various cost savings.
Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was income of $0.1 million and $1.3 million, respectively. Other income for 2023 was primarily due to:
Other income for 2022 was primarily due to gains of $1.3 million related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our Prospect shipyard as we wind down operations at this facility.
- 30 -
Shipyard Division
|
| Three Months Ended September 30, |
|
| Favorable (Unfavorable) |
| ||||||
|
| 2023 |
|
| 2022 |
|
| Change |
| |||
New project awards |
| $ | (718 | ) |
| $ | 380 |
|
| $ | (1,098 | ) |
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | (32,702 | ) |
| $ | 1,849 |
|
| $ | (34,551 | ) |
Gross loss |
|
| (34,356 | ) |
|
| (269 | ) |
|
| (34,087 | ) |
Gross loss percentage |
| nm |
|
|
| (14.5 | )% |
|
|
| ||
General and administrative expense |
|
| 857 |
|
|
| 1,193 |
|
|
| 336 |
|
Other (income) expense, net |
|
| (96 | ) |
|
| (69 | ) |
|
| 27 |
|
Operating loss |
|
| (35,117 | ) |
|
| (1,393 | ) |
|
| (33,724 | ) |
References below to 2023 and administrative expenses
New project awards – New project awards for 2023 and 2022 were negative $0.7 million and $0.4 million, respectively. The negative new project awards for 2023 were due to liquidated damages and contract price adjustments for our seventy-vehicle ferry and remaining forty-vehicle ferry project.
Revenue – Revenue for 2023 and 2022 was negative $32.7 million and $1.8 million, respectively. The decrease was primarily due to:
See Note 4 for further discussion of the resolution of our MPSV Litigation and the Note Agreement.
Gross loss –Gross loss for 2023 and 2022 was $34.4 million and $0.3 million (14.5% of revenue), respectively. The gross loss for 2023 was primarily due to:
The increase in gross loss for 2023 relative to 2022 was primarily due to:
Services | Three Months Ended September 30, | Increase or (Decrease) | ||||||||||||
2017 | 2016 | Amount | Percent | |||||||||||
Revenue | $ | 17,651 | $ | 20,928 | $ | (3,277 | ) | (15.7)% | ||||||
Gross profit (loss) | 1,912 | 2,918 | (1,006 | ) | (34.5)% | |||||||||
Gross profit (loss) percentage | 10.8 | % | 13.9 | % | (3.1)% | |||||||||
General and administrative expenses | 695 | 943 | (248 | ) | (26.3)% | |||||||||
Operating income (loss) | 1,217 | 1,975 |
See Note 2 for further discussion of our project impacts and Note 4 for further discussion of the resolution of our MPSV Litigation and the Note Agreement.
- 31 -
General and administrative expense – General and administrative expense for 2023 and 2022 was $0.9 million and $1.2 million, respectively, representing a decrease of 28.2%. General and administrative expense relates 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 2023 and 2022 was income of $0.1 million and $0.1 million, respectively. Other income for 2023 was primarily due to:
See Note 2 for further discussion of the impacts of Hurricane Ida.
Corporate Division
|
| Three Months Ended September 30, |
|
| Favorable (Unfavorable) |
| ||||||
|
| 2023 |
|
| 2022 |
|
| Change |
| |||
New project awards (eliminations) |
| $ | (230 | ) |
| $ | (254 | ) |
| $ | 24 |
|
|
|
|
|
|
|
|
|
| ||||
Revenue (eliminations) |
| $ | (230 | ) |
| $ | (254 | ) |
| $ | 24 |
|
Gross profit |
|
| — |
|
|
| — |
|
|
| — |
|
General and administrative expense |
|
| 2,074 |
|
|
| 2,019 |
|
|
| (55 | ) |
Other (income) expense, net |
|
| (75 | ) |
|
| 444 |
|
|
| 519 |
|
Operating loss |
|
| (1,999 | ) |
|
| (2,463 | ) |
|
| 464 |
|
References below to 2023 and 2022 refer to the three months ended September 30, 2016,2023 and 2022, respectively.
General and administrative expense – General and administrative expense for 2023 and 2022 was $2.1 million and $2.0 million, respectively, representing an increase of 2.7%.
Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was income of $0.1 million and expense of $0.4 million, respectively. Other expense for 2022 was primarily due to an overall decrease in work experienced as a resultimpairment charge of depressed oil and gas prices and$0.5 million associated with the corresponding reduction in customer demand for oil and gas related service projects.
Corporate | Three Months Ended September 30, | Increase or (Decrease) | ||||||||||||
2017 | 2016 | Amount | Percent | |||||||||||
Revenue | $ | — | $ | — | $ | — | —% | |||||||
Gross profit (loss) | (152 | ) | (205 | ) | 53 | 25.9% | ||||||||
Gross profit (loss) percentage | n/a | n/a | ||||||||||||
General and administrative expenses | 2,009 | 1,790 | 219 | 12.2% | ||||||||||
Operating income (loss) | (2,161 | ) | (1,995 | ) |
- General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation32 -
Comparison of the proceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the quarter due to our consolidated operating loss.
Consolidated
|
| Nine Months Ended September 30, |
|
| Favorable |
| ||||||
|
| 2023 |
|
| 2022 |
|
| Change |
| |||
New project awards |
| $ | 113,319 |
|
| $ | 202,302 |
|
| $ | (88,983 | ) |
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | 106,517 |
|
| $ | 104,181 |
|
| $ | 2,336 |
|
Cost of revenue |
|
| 126,881 |
|
|
| 98,709 |
|
|
| (28,172 | ) |
Gross profit (loss) |
|
| (20,364 | ) |
|
| 5,472 |
|
|
| (25,836 | ) |
Gross profit (loss) percentage |
|
| (19.1 | )% |
|
| 5.3 | % |
|
|
| |
General and administrative expense |
|
| 12,883 |
|
|
| 12,965 |
|
|
| 82 |
|
Other (income) expense, net |
|
| (689 | ) |
|
| (3,698 | ) |
|
| (3,009 | ) |
Operating loss |
|
| (32,558 | ) |
|
| (3,795 | ) |
|
| (28,763 | ) |
Interest (expense) income, net |
|
| 1,057 |
|
|
| (104 | ) |
|
| 1,161 |
|
Loss before income taxes |
|
| (31,501 | ) |
|
| (3,899 | ) |
|
| (27,602 | ) |
Income tax (expense) benefit |
|
| 9 |
|
|
| (2 | ) |
|
| 11 |
|
Net loss |
| $ | (31,492 | ) |
| $ | (3,901 | ) |
| $ | (27,591 | ) |
References below to 2023 and 2022 refer to the nine months ended September 30, 2023 and 2022, respectively.
New project awards – New project awards for 2023 and 2022 were $113.3 million and $202.3 million, respectively. New project awards for both periods were primarily related to:
Nine Months Ended September 30, | Increase or (Decrease) | |||||||||||
2017 | 2016 | Amount | Percent | |||||||||
Revenue | $ | 133,745 | $ | 230,864 | $ | (97,119 | ) | (42.1)% | ||||
Cost of revenue | 150,755 | 205,839 | (55,084 | ) | (26.8)% | |||||||
Gross profit (loss) | (17,010 | ) | 25,025 | (42,035 | ) | (168.0)% | ||||||
Gross profit (loss) percentage | (12.7 | )% | 10.8 | % | ||||||||
General and administrative expenses | 12,940 | 14,633 | (1,693 | ) | (11.6)% | |||||||
Asset impairment | 389 | — | 389 | 100.0% | ||||||||
Operating income (loss) | (30,339 | ) | 10,392 | (40,731 | ) | (391.9)% | ||||||
Other income (expense): | ||||||||||||
Interest expense | (262 | ) | (248 | ) | (14 | ) | ||||||
Interest income | 12 | 20 | (8 | ) | ||||||||
Other income (expense), net | (221 | ) | 1,039 | (1,260 | ) | |||||||
Total other income (expense) | (471 | ) | 811 | (1,282 | ) | (158.1)% | ||||||
Net income (loss) before income taxes | (30,810 | ) | 11,203 | (42,013 | ) | (375.0)% | ||||||
Income tax expense (benefit) | (10,322 | ) | 4,134 | (14,456 | ) | (349.7)% | ||||||
Net income (loss) | $ | (20,488 | ) | $ | 7,069 | $ | (27,557 | ) | (389.8)% |
The 2022 period also included an award for the fabrication of jacket foundations for an offshore project (which was cancelled by the customer in July 2023) for our Fabrication Division.
Revenue – Revenue for 2023 and 2022 was $106.5 million and $104.2 million, respectively, representing an increase of 2.2%. The increase was primarily due to:
See Note 4 for further discussion of the resolution of our MPSV Litigation.
- 33 -
Gross profit (loss) – Gross loss for 2023 was $20.4 million (19.1% of revenue) and gross profit for 2022 was $5.5 million (5.3% of revenue). Gross loss for 2023 was primarily impacted by:
The gross loss for 2023 relative to gross profit for 2022 was primarily due to:
See “Operating Segments” below and Note 2 for further discussion of our project impacts and Note 4 for further discussion of the resolution of our MPSV Litigation.
General and administrative expense – General and administrative expense for 2023 and 2022 was $12.9 million and $13.0 million, respectively, representing a decrease of 0.6%. The decrease was primarily due to:
General and administrative expense included legal and advisory fees of $3.1 million and $2.9 million for 2023 and 2022, respectively, associated with our previous MPSV Litigation, which are reflected within our Shipyard Division. See Note 4 for further discussion of the resolution of our MPSV Litigation.
Other (income) expense, net –Other (income) expense, net for 2023 and 2022 was income of $0.7 million and $3.7 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 2023 was primarily due to:
- 34 -
Other income for 2022 was primarily due to:
See Note 2 for further discussion of the impacts of Hurricanes Ida.
Interest (expense) income, net – Interest (expense) income, net for 2023 and 2022 was income of $1.1 million and expense of $0.1 million, respectively. Interest (expense) income, net for both periods included 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 and on our Insurance Finance Arrangements. The income for 2023 relative to expense for 2022 was primarily due to higher interest earned on our cash and short-term investment balances for the 2023 period.
Income tax (expense) benefit – Income tax (expense) benefit for 2023 and 2022 represents state income taxes. No federal income tax benefit was recorded for our losses for either period as a full valuation allowance was recorded against our net deferred tax assets generated during the periods.
Operating Segments
Services Division
|
| Nine Months Ended September 30, |
|
| Favorable (Unfavorable) |
| ||||||
|
| 2023 |
|
| 2022 |
|
| Change |
| |||
New project awards |
| $ | 68,578 |
|
| $ | 64,572 |
|
| $ | 4,006 |
|
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | 69,033 |
|
| $ | 65,413 |
|
| $ | 3,620 |
|
Gross profit |
|
| 10,348 |
|
|
| 8,295 |
|
|
| 2,053 |
|
Gross profit percentage |
|
| 15.0 | % |
|
| 12.7 | % |
|
|
| |
General and administrative expense |
|
| 2,203 |
|
|
| 2,280 |
|
|
| 77 |
|
Other (income) expense, net |
|
| (42 | ) |
|
| 103 |
|
|
| 145 |
|
Operating income |
|
| 8,187 |
|
|
| 5,912 |
|
|
| 2,275 |
|
References below to 2023 and 2022 refer to the nine months ended September 30, 2023 and 2022, respectively.
New project awards – New project awards for 2023 and 2022 were $68.6 million and $64.6 million, respectively, and were primarily related to offshore services work, with the increase due to incremental new project awards associated with our welding enclosures business line (commenced in the third quarter 2022).
Revenue – Revenue for 2023 and 2022 was $69.0 million and $65.4 million, respectively, representing an increase of 5.5%. The increase was primarily due to incremental revenue associated with our welding enclosures business line (commenced in the third quarter 2022).
Gross profit – Gross profit for 2023 and 2022 was $10.3 million (15.0% of revenue) and $8.3 million (12.7% of revenue), respectively. The increase in gross profit for 2023 relative to 2022 was primarily due to:
General and administrative expense – General and administrative expense for 2023 and 2022 was $2.2 million and $2.3 million, respectively, representing a decrease of 3.4%.
Other (income) expense, net – Other (income) expense, net for 2022 was expense of $0.1 million.
- 35 -
Fabrication Division
|
| Nine Months Ended September 30, |
|
| Favorable (Unfavorable) |
| ||||||
|
| 2023 |
|
| 2022 |
|
| Change |
| |||
New project awards |
| $ | 46,733 |
|
| $ | 136,948 |
|
| $ | (90,215 | ) |
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | 69,382 |
|
| $ | 31,885 |
|
| $ | 37,497 |
|
Gross profit (loss) |
|
| 5,243 |
|
|
| (2,064 | ) |
|
| 7,307 |
|
Gross profit (loss) percentage |
|
| 7.6 | % |
|
| (6.5 | )% |
|
|
| |
General and administrative expense |
|
| 1,438 |
|
|
| 1,699 |
|
|
| 261 |
|
Other (income) expense, net |
|
| (638 | ) |
|
| (4,550 | ) |
|
| (3,912 | ) |
Operating income |
|
| 4,443 |
|
|
| 787 |
|
|
| 3,656 |
|
References below to 2023 and 2022 refer to the nine months ended September 30, 2023 and 2022, respectively.
New project awards – New project awards for 2023 and 2022 were $46.7 million and $136.9 million, respectively, and were primarily related to small-scale fabrication work. The 2022 period also included an award for the fabrication of jacket foundations for an offshore project (which was cancelled by the customer in July 2023).
Revenue – Revenue for 2023 and 2022 was $69.4 million and $31.9 million, respectively, representing an increase of 117.6%. The increase was primarily due to:
Gross profit (loss) – Gross profit for 2023 was $5.2 million (7.6% of revenue) and gross loss for 2022 was $2.1 million (6.5% of revenue). Gross profit for 2023 was primarily impacted by:
The gross profit for 2023 relative to the gross loss for 2022 was primarily due to:
The Fabrication Division utilization for 2023 and 2022 benefited by $0.1 million and $0.6 million, respectively, from providing resources and facilities to our Shipyard Division for our seventy-vehicle ferry and forty-vehicle ferry projects. See Note 2 for further discussion of our project impacts.
General and administrative expense – General and administrative expense for 2023 and 2022 was $1.4 million and $1.7 million, respectively, representing a decrease of 15.4%. The decrease was primarily due to various cost savings.
Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was income of $0.6 million and $4.6 million, respectively. Other income for 2023 was primarily due to:
Other income for 2022 was primarily due to gains of $4.4 million related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities.
- 36 -
Shipyard Division
|
| Nine Months Ended September 30, |
|
| Favorable (Unfavorable) |
| ||||||
|
| 2023 |
|
| 2022 |
|
| Change |
| |||
New project awards |
| $ | (1,067 | ) |
| $ | 1,213 |
|
| $ | (2,280 | ) |
|
|
|
|
|
|
|
|
|
| |||
Revenue |
| $ | (30,973 | ) |
| $ | 7,314 |
|
| $ | (38,287 | ) |
Gross loss |
|
| (35,955 | ) |
|
| (759 | ) |
|
| (35,196 | ) |
Gross loss percentage |
| nm |
|
|
| (10.4 | )% |
|
|
| ||
General and administrative expense |
|
| 3,107 |
|
|
| 2,939 |
|
|
| (168 | ) |
Other (income) expense, net |
|
| 206 |
|
|
| 267 |
|
|
| 61 |
|
Operating loss |
|
| (39,268 | ) |
|
| (3,965 | ) |
|
| (35,303 | ) |
References below to 2023 and 2022 refer to the nine months ended September 30, 2023 and 2022, respectively.
New project awards – New project awards for 2023 and 2022 were negative $1.1 million and $1.2 million, respectively. The negative new project awards for 2023 were due to liquidated damages and contract price adjustments for our seventy-vehicle ferry and remaining forty-vehicle ferry project.
Revenue – Revenue for 2023 and 2022 was negative $31.0 million and $7.3 million, respectively. The decrease was primarily due to:
See Note 4 for further discussion of the resolution of our MPSV Litigation and the Note Agreement.
Gross loss –Gross loss for 2023 and 2022 was $36.0 million and $0.8 million (10.4% of revenue), respectively. The gross loss for 2023 was primarily due to:
The increase in gross loss for 2023 relative to 2022 was primarily due to:
See Note 2 for further discussion of our project impacts and Note 4 for further discussion of the resolution of our MPSV Litigation.
General and administrative expense – General and administrative expense for 2023 and 2022 was $3.1 million and $2.9 million, respectively, representing an increase of 5.7%. General and administrative expense relates to legal and advisory fees associated with our previous MPSV Litigation. See Note 4 for further discussion of the resolution of our MPSV Litigation.
- 37 -
Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was expense of $0.2 million and $0.3 million, respectively. Other expense for 2023 was primarily due to:
Other expense for 2022 was primarily due to charges of $0.2 million associated with damage previously caused by Hurricane Ida to bulkheads and the MPSVs which are in our possession and were subject to our previous MPSV Litigation.
Corporate Division
|
| Nine Months Ended September 30, |
|
| Favorable (Unfavorable) |
| ||||||
|
| 2023 |
|
| 2022 |
|
| Change |
| |||
New project awards (eliminations) |
| $ | (925 | ) |
| $ | (431 | ) |
| $ | (494 | ) |
|
|
|
|
|
|
|
|
| ||||
Revenue (eliminations) |
| $ | (925 | ) |
| $ | (431 | ) |
| $ | (494 | ) |
Gross profit |
|
| — |
|
|
| — |
|
|
| — |
|
General and administrative expense |
|
| 6,135 |
|
|
| 6,047 |
|
|
| (88 | ) |
Other (income) expense, net |
|
| (215 | ) |
|
| 482 |
|
|
| 697 |
|
Operating loss |
|
| (5,920 | ) |
|
| (6,529 | ) |
|
| 609 |
|
References below to 2023 and 2022 refer to the nine months ended September 30, 2023 and 2022, respectively.
General and administrative expense – General and administrative expense for 2023 and 2022 was $6.1 million and $6.0 million, respectively, representing an increase of 1.5%.
Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was income of $0.2 million and expense of $0.5 million, respectively. Other expense for 2022 was primarily due to an impairment charge of $0.5 million associated with the underlying right-of-use asset for our corporate office lease, resulting from a sublease arrangement with a third-party.
- 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, 2023, our cash, cash equivalents, short-term investments and restricted cash totaled $41.8 million, as follows (in thousands):
|
| September 30, |
| |
Cash and cash equivalents |
| $ | 25,125 |
|
Short-term investments(1) |
|
| 15,437 |
|
Available cash, cash equivalents and short-term investments |
|
| 40,562 |
|
Restricted cash, current |
|
| 1,197 |
|
Total cash, cash equivalents, short-term investments and restricted cash |
| $ | 41,759 |
|
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, 2023, our working capital was $59.2 million and included $41.8 million of cash, cash equivalents, short-term investments and restricted cash. Excluding cash, cash equivalents, short-term investments and restricted cash, our working capital at September 30, 2023 was $17.5 million, and consisted of: net contract assets and contract liabilities of $0.8 million; contract receivables and retainage of $35.7 million; inventory, prepaid expenses and other current assets of $5.8 million; and accounts payable, accrued expenses and other current liabilities of $24.8 million. The components of our working capital (excluding cash, cash equivalents, short-term investments and restricted cash) at September 30, 2023 and December 31, 2022, and changes in such amounts during the nine months ended September 30, 2023, were as follows (in thousands):
|
| September 30, |
|
| December 31, |
|
| Change(3) |
| |||
Contract assets |
| $ | 4,305 |
|
| $ | 4,839 |
|
| $ | (534 | ) |
Contract liabilities(1) |
|
| (3,534 | ) |
|
| (8,196 | ) |
|
| 4,662 |
|
Contracts in progress, net(2) |
|
| 771 |
|
|
| (3,357 | ) |
|
| 4,128 |
|
Contract receivables and retainage, net |
|
| 35,684 |
|
|
| 29,427 |
|
|
| 6,257 |
|
Prepaid expenses, inventory and other current assets |
|
| 5,778 |
|
|
| 8,074 |
|
|
| (2,296 | ) |
Accounts payable, accrued expenses and other current liabilities |
|
| (24,762 | ) |
|
| (22,593 | ) |
|
| (2,169 | ) |
Total |
| $ | 17,471 |
|
| $ | 11,551 |
|
| $ | 5,920 |
|
- 39 -
Cash Flow Activity(in thousands)
|
| Nine Months Ended September 30, |
| |||||
|
| 2023 |
|
| 2022 |
| ||
Net cash used in operating activities |
| $ | (172 | ) |
| $ | (18,825 | ) |
Net cash used in investing activities |
|
| (6,591 | ) |
|
| (6,720 | ) |
Net cash used in financing activities |
|
| (1,739 | ) |
|
| (1,084 | ) |
Operating Activities – Cash used in operating activities for the nine months ended September 30, 20172023 and 2016,2022 was $133.7$0.2 million and $230.9$18.8 million, respectively, representing a decrease of 42.1%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions as well as the completion of a vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements. Pass-through costs as a percentage of revenue were 45.3% and 35.0% for the nine months ended September 30, 2017 and 2016, respectively. Pass-through costs, as described in Note 3 of the Notes to Consolidated Financial Statements, are included in revenue but have no impact on the gross profit recognized on a project for a particular period.Gross profit (loss) - Our gross loss for the nine months ended September 30, 2017, was $17.0 million compared to a gross profit of $25.0 million for the nine months ended September 30, 2016. The decrease was primarily due to $12.7 million of losses incurred by our Shipyards division related to cost overruns and re-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to our South Texas assets of $3.6 million and lower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for our South Texas assets and Prospect shipyard during the nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented by management for the period.General and administrative expenses - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016. The decrease in general and administrative expenses for the nine months ended September 30, 2017, is primarily due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses accrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the period.Asset Impairment - During the nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.Other income (expense), net - Other expense was $221,000 for the nine months ended September 30, 2017, compared to other income of $1.0 million for the nine months ended September 30, 2016. Other expense for the period was primarily due to losses on sales of two drydocks from our Shipyards division. Other income for the prior period was primarily due to gains on sales of assets from our Fabrication division recorded during 2016.Income tax expense (benefit) - Our effective income tax rate for the nine months ended September 30, 2017, was 33.5%, compared to an effective tax rate of 36.9% for the comparable period during 2016. The decrease in the effective tax rate is the result of limitations on the deductibility of executive compensation.Operating SegmentsAs discussed above and in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three and nine months ended September 30, 2017. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).Fabrication Nine Months Ended September 30, Increase or (Decrease) 2017 2016 Amount Percent Revenue $ 42,517 $ 70,436 $ (27,919 ) (39.6)% Gross profit (loss) 216 4,564 (4,348 ) (95.3)% Gross profit (loss) percentage 0.5 % 6.5 % (6.0)% General and administrative expenses 2,432 2,821 (389 ) (13.8)% Operating income (loss) (2,216 ) 1,743 Revenue - Revenue from our Fabrication division decreased $27.9 million for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016. The decrease is attributable to an overall decrease in work experienced in our fabrication yards as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore fabrication projects. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed or transferred to our Houma fabrication yard.Gross profit (loss) - Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to a gross profit of $4.6 million for the nine months ended September 30, 2016. The decrease was due to lower revenuefrom decreased fabrication work as discussed above and approximately $3.6 million of holding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for the period.General and administrative expenses - General and administrative expenses for our Fabrication division decreased $389,000 for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016. The decrease is primarily due to decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to market our South Texas assets for sale and payment of termination benefits during the first quarter of 2017 as we reduced its workforce and completed those operations.Shipyards Nine Months Ended September 30, Increase or (Decrease) 2017 2016 Amount Percent $ 51,798 $ 86,553 $ (34,755 ) (40.2)% (19,061 ) 9,742 (28,803 ) (295.7)% Gross profit (loss) percentage (36.8 )% 11.3 % (48.1)% General and administrative expenses 2,835 4,218 (1,383 ) (32.8)% Asset impairment 389 — 389 100.0% (22,285 ) 5,524 ___________(1)Revenue for the nine months ended September 30, 2017, and 2016, includes $2.4 million and $4.1 million of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction, respectively.Revenue - Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, due to the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.Gross profit (loss) - Gross loss from our Shipyards division was $19.1 million for the nine months ended September 30, 2017, compared to a gross profit of $9.7 million for the nine months ended September 30, 2016. The decrease was due to:$12.7 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility;Holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by our customer alleging certain technical deficiencies (see also Note 9 of the Notes to Consolidated Financial Statements); andOverall decreases in work under other various contracts.General and administrative expenses - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of our consolidated operating loss and cost minimization efforts implemented by management for the period.Asset Impairment - During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.Services Nine Months Ended September 30, Increase or (Decrease) 2017 2016 Amount Percent Revenue $ 43,758 $ 76,179 $ (32,421 ) (42.6)% Gross profit (loss) 2,335 11,158 (8,823 ) (79.1)% Gross profit (loss) percentage 5.3 % 14.6 % (9.3)% General and administrative expenses 2,008 2,462 (454 ) (18.4)% Operating income (loss) 327 8,696 Revenue - Revenue from our Services division decreased $32.4 million for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the corresponding reduction in customer demand for oil and gas related service projects.Gross profit - Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, due to decreased revenue discussed above and lower margins on new work performed during 2017.General and administrative expenses - General and administrative expenses for our Services division decreased $0.5 million for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss.Corporate Nine Months Ended September 30, Increase or (Decrease) 2017 2016 Amount Percent Revenue $ — $ — $ — —% Gross profit (loss) (500 ) (439 ) (61 ) (13.9)% Gross profit (loss) percentage n/a n/a General and administrative expenses 5,665 5,132 533 10.4% Operating income (loss) (6,165 ) (5,571 ) (594 ) Gross profit (loss) - Gross loss from our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.General and administrative expenses - General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the proceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss.Liquidity and Capital ResourcesHistorically, we have funded our business activities through cash generated from operations. At September 30, 2017, we had no amounts outstanding under our credit facility, $4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $17.8 million compared to $51.2 million at December 31, 2016. Working capital was $164.0 million and our ratio of current assets to current liabilities was 4.59 to 1 at September 30, 2017, compared to $78.0 million and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primary use of cash during the nine months ended September 30, 2017, is referenced in the Cash Flow Activities section below.At September 30, 2017, our contracts receivable balance was $25.5 million of which we have subsequently collected $8.3 million through October 31, 2017.On June 9, 2017, we entered into a $40.0 million credit agreement with Whitney Bank, as lender. The credit facility matures June 9, 2019 and may be used for issuing letters of credit and/or general corporate and working capital purposes. We believe thatthe new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.Interest on drawings under the credit facility may be designated, at our option, as either Base Rate (as defined in the credit facility) or LIBOR plus 2.0% per annum. Unused commitment fees on the undrawn portion of the facility are 0.4% per annum, and interest on undrawn stated amounts under letters of credit issued by the lenders is 2.0% per annum. The credit facility is secured by substantially all of our assets (other than the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).We must comply with the following financial covenants each quarter during the term of the facility:i.Ratio of current assets to current liabilities of not less than 1.25:1.00;ii.Minimum tangible net worth requirement of at least the sum of:a)$230.0 million, plusb)An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plusc)100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; andiii.Ratio of funded debt to tangible net worth of not more than 0.50:1.00.Concurrent with our execution of the credit facility, we terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the time of the termination, there was approximately $4.6 million of letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for future, additional letters of credit and borrowings is $35.4 million. As of September 30, 2017, we were in compliance with all of our covenants.Our primary liquidity requirements are for the costs associated with fabrication projects, capital expenditures and payment of dividends to our shareholders. We do not anticipate significant capital expenditures for the remainder of 2017.On October 21, 2016, a customer of our Shipyards division announced it was in noncompliance with certain financial covenants included in the customer’s debt agreements and stated that, while it had received limited waivers from its lenders, its debt agreements would require further negotiation and amendment. This same customer rejected delivery of the first vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is included in our arbitration proceedings. We disagree with our customer concerning these alleged technical deficiencies and have put the customer in default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the United States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.On August 25, 2017, our South Texas facilities were impacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and equipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and we expect to incur additional future repair costs in excess of our deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this time and that insurance proceeds will at a minimum be sufficient to reimburse us for all damages and repair costs. Our finalassessment of the loss incurred to our South Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled and such differences could be material.In event of one or more sales of our South Texas assets, we expect to use all or a portion of the sales proceeds to invest in our operating liquidity in order to facilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.On October 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 24, 2017, to shareholders of record on November 10, 2017.We believe our cash and cash equivalents generated by our future operating activities, proceeds to be received from insurance underwriters, availability under our line of credit and proceeds to be received from future assets sales will be sufficient to fund our capital expenditures and meet our working capital needs for next twelve months to continue to operate, satisfy our contractual operations and pay dividends to our shareholders.Cash Flow ActivitiesFor the nine months ended September 30, 2017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities of $19.4 million for the nine months ended September 30, 2016. The use of cash in operations during the period was primarily due to the net impacts of the following:
2023 Activity
2022 Activity
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Investing Activities – Cash used in investing activities for the nine months ended September 30, 2017,2023 and 2022 was $2.4$6.6 million compared to cash provided byand $6.7 million, respectively. Cash used in investing activities of $2.0 million for the nine months ended September 30, 2016. The change in cash provided by investing activities is2023 was primarily due to cash receivednet purchases of short-term investments of $5.5 million and capital expenditures of $1.7 million, offset partially by recoveries from insurance claims of $0.2 million, and proceeds from the sale of three cranes at our Texas facilityfixed assets of $0.4 million. Cash used in investing activities for $5.82022 was primarily due to net purchases of short-term investments of $9.8 million and $1.6capital expenditures of $1.0 million, offset partially by proceeds from the Shipyard Transaction of cash acquired in$0.9 million, recoveries from insurance claims of $1.2 million, and proceeds from the LEEVAC transaction during 2016 partially offset by decreases in capital expenditures.
Financing Activities – Cash used in financing activities for the nine months ended September 30, 20172023 and 2016,2022 was $1.4$1.7 million and $603,000,$1.1 million, respectively. The increase in cashCash used in financing activities isfor 2023 and 2022 was primarily due to the cashpayments on our Insurance Finance Arrangements of $1.3 million and $1.0 million, respectively, and tax payments made to taxing authorities on behalf of employees from vested stock withholdings. See Note 3 for their vestingfurther discussion of common stock. Duringour Insurance Finance Arrangements.
Credit Facilities
See Note 3 for discussion of our LC Facility, Surety Bonds, Insurance Finance Arrangements, Mortgage Agreement and Restrictive Covenant Agreement and Note 4 for discussion of our Note Agreement.
Registration Statement
We have a shelf registration statement that is effective with the nine months endedSEC 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 2023 and the foreseeable future are to fund:
We anticipate capital expenditures of approximately $2.0 million for the remainder of 2023, excluding any future expenditures for deductibles and uninsured losses, if any, associated with damage caused by Hurricane Ida, that may be determined to be capital items. Further investments in facilities may be required to win and execute potential new project awards, which are not included in these estimates.
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We believe that our cash, cash equivalents and short-term investments at September 30, 2017 we received $2.0 million from borrowings under2023, will be sufficient to enable us to fund our new line of credit which were immediately repaid.
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, been no material changes from the information included ina current or future effect on our Annual Report on Form 10-K for the year ended December 31, 2016.
Item 4. Controls and Procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it fileswe file or submitssubmit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is communicated to the Company’s management, including itsour Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management,Management, with the participation of the Company’sour Chief Executive Officer and Chief Financial Officer, havehas evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934)Act) as of the end of the period covered by this report.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 2023, there were no changes during the fiscal quarter ended September 30, 2017, in the Company’sour internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’sour internal control over financial reporting.
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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, inincluding the normal conductresolution of its business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
Item 1A. Risk Factors.
There have been no material changes from the information includedto our risk factors previously disclosed in Part I, Item 1A1A. “Risk Factors” included inof our 2022 Annual Report, except as disclosed in Part II, Item 1A. “Risk Factors” of our quarterly report on Form 10-K10-Q for the yearquarter ended June 30, 2023.
Item 5. Other Information.
On November 6, 2023 we entered into the Note Agreement in the principal amount of $20.0 million. The Note Agreement bears interest at a fixed rate of 3.0% per annum commencing on January 1, 2024, with principal and interest payable in 15 equal annual installments of approximately $1.7 million, beginning on December 31, 2016.
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Item 6. Exhibits.
Exhibit Number | Description of Exhibit | ||
3.1 | |||
3.2 | |||
10.1 | |||
10.2 | |||
10.3 | |||
31.1 | CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. * | ||
31.2 | |||
32 | |||
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. * | ||
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. * | ||
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. * | ||
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. * | ||
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. * | ||
104 | The cover page for the | ||
* 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 reportReport to be signed on its behalf by the undersigned thereunto duly authorized.
GULF ISLAND FABRICATION, INC. | |
BY: | /s/ |
Westley S. | |
Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and |
Date: October 31, 2017
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