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

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

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

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

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

The number of shares of the registrant’s common stock, no par value per share, outstanding as of ~~October 31, 2022,~~April 30, 2023, was ~~15,923,199.~~16,149,464.

As used in this report filed on Form 10-Q for the quarter ended ~~September 30, 2022~~March 31, 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.

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Gulf Island Fabrication, Inc. (together with its subsidiaries, “Gulf Island,” “the Company,” “we,” “us” and “our”) is a leading fabricator of complex steel structures and modules and a provider of specialty services, including project management, hookup, commissioning, repair, maintenance, scaffolding, coatings, welding enclosures, civil construction and staffing services to the industrial and energy sectors. Our customers include U.S. and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial and power operators; and EPC companies. We currently operate and manage our business through three operating divisions (“Services”, “Fabrication” and “Shipyard”) and one non-operating division (“Corporate”), which represent our reportable segments. Our corporate headquarters is located in The Woodlands, Texas and our primary operating facilities are located in Houma, Louisiana (“Houma Facilities”). ~~See Note 9 for discussion of our realigned reportable segments.~~

On December 1, 2021, we acquired (“DSS Acquisition”) the services and industrial staffing businesses (“DSS Business”) of Dynamic Industries, Inc. (“Dynamic”). The operating results of the DSS Business are included within our Services Division for the three and nine months ended September 30, 2022. See Note 4 for further discussion of ~~the~~ our MPSV Litigation.

On December 1, 2021, we acquired a services and industrial staffing business (“DSS ~~Acquisition.~~Acquisition”), which increased our skilled workforce, further diversified our customer base and expanded our service offerings for our Services Division.

Basis of Presentation

The accompanying unaudited Consolidated Financial Statements (“Financial Statements”) reflect all wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial statements, the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, the Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2022.~~2023. Our Consolidated Balance Sheet (“Balance Sheet”) at December 31, ~~2021,~~2022, has been derived from the audited financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to ~~the~~our 2022 Financial ~~Statements and related footnotes included in our 2021 Annual Report.~~Statements.

We determined the Shipyard Division assets, liabilities and operations associated with the Shipyard Transaction, and associated with certain previously closed Shipyard Division facilities, to be discontinued operations in the second quarter 2021. Accordingly, such operating results for the nine months ended September 30, 2021 have been classified as discontinued operations on our Consolidated Statements of Operations (“Statement of Operations”). We had no material operating results of discontinued operations for the three and nine months ended September 30, 2022 or the three months ended September 30, 2021, and had no material assets and liabilities of discontinued operations at September 30, 2022 or December 31, 2021. Discontinued operations are not presented separately on our Consolidated Statements of Cash Flows (“Statement of Cash Flows”) or our Consolidated Statements of Changes in Shareholders’ Equity (“Statement of Shareholders’ Equity”). Unless otherwise noted, the amounts presented throughout the notes to our Financial Statements relate to our continuing operations. See Note 3 for further discussion of the Shipyard Transaction and our discontinued operations.

~~Revision of Previously Issued Financial Statements~~

During the fourth quarter 2021, we determined that we had immaterial errors in our previously issued financial statements. The adjustments required to reflect the corrections attributable to our previously issued financial statements for the three and nine months ended September 30, 2021, were summarized in the footnotes to our Financial Statements in our 2021 Annual Report. Our results for the three and nine months ended September 30, 2021 in this Report reflect the aforementioned corrections.

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Operating Cycle

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

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Use of Estimates

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

•

revenue recognition for our long-term contracts, including application of the percentage-of-completion method (“POC"), estimating costs to complete each contract and the recognition of incentives, unapproved change orders, claims (including amounts arising from disputes with customers) and liquidated damages;

•

determination of fair value with respect to acquired tangible and intangible assets;

•

fair value and recoverability assessments that must be periodically performed with respect to long-lived tangible assets, assets held for sale, goodwill and other intangible assets;

•

determination of deferred income tax assets, liabilities and related valuation allowances;

•

reserves for bad debts and credit losses;

•

liabilities related to self-insurance programs;

•

costs and insurance recoveries associated with damage to our Houma Facilities and projects resulting from Hurricane Ida discussed further below;

•

the impacts of volatile oil and gas prices and macroeconomic conditions on our business, estimates and judgments as discussed further below; and

•

assessing the probability of losses related to litigation matters.

•

Revenue recognition for our contracts, including application of the percentage-of-completion method, estimating costs to complete each contract and the recognition of incentives, unapproved change orders, claims and liquidated damages;

•

~~Determination of fair value with respect to acquired tangible and intangible assets;~~

•

~~Fair value and recoverability assessments that must be periodically performed with respect to long-lived tangible assets, assets held for sale, goodwill and other intangible assets;~~

•

~~Determination of deferred income tax assets, liabilities and related valuation allowances;~~

•

~~Reserves for bad debts;~~

•

~~Liabilities related to self-insurance programs;~~

•

~~Costs and insurance recoveries associated with damage to our Houma Facilities resulting from Hurricane Ida discussed further below; and~~

•

The impacts of volatile oil prices, the ongoing global coronavirus pandemic (“COVID-19”) and Russia’s invasion of Ukraine (and the related European energy crisis) on our business, estimates and judgments as discussed further below.

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

~~Volatile~~ Oil ~~Prices, COVID-19~~ and ~~Russia’s Invasion of Ukraine~~ Gas Price Volatility and Macroeconomic Conditions – Since 2008, the ~~price~~prices of oil ~~has~~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 ~~have been~~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, ~~COVID-19~~the global coronavirus pandemic (“COVID-19”) added another layer of pressure and uncertainty on oil and gas prices (with oil prices reaching a twenty-year low and gas prices reaching a four-year low), which further negatively impacted certain of our end markets during ~~2021 and~~ the first quarter 2022. This volatility in oil and gas prices ~~has been~~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 ~~has and may continue to~~ positively ~~impact~~impacted certain of our end ~~markets; however,~~markets. While oil and gas prices have somewhat stabilized, the duration ~~and broader consequences~~ of ~~this conflict are~~such stability is uncertain and difficult to ~~predict at this time.~~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).

The ultimate business and financial impacts of oil and gas price volatility ~~COVID-19~~ and ~~Russia’s invasion of Ukraine~~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; ~~supply chain interruptions;~~ and unanticipated project costs ~~due to project disruptions~~ 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 ~~COVID-19~~ and ~~Russia’s invasion of Ukraine~~macroeconomic conditions on our operations, and our estimates in future periods will be revised for any events and changes in circumstances arising after the date of this Report.

Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing net income or loss by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share reflects the assumed conversion of dilutive securities in periods in which income is reported. See Note 85 for calculations of our basic and diluted income (loss) per share.

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~~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 ~~both September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, we had ~~$1.7~~$1.2 million and $1.6 million of restricted cash, respectively as security for letters of credit issued under our letter of credit facility (“LC Facility”) with ~~Hancock~~ Whitney ~~Bank (“Whitney Bank”).~~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.~~noncurrent. See Note 63 for further discussion of our cash security requirements under our LC Facility.

~~Short-Term~~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,~~March 31, 2023 and December 31, 2022, our short-term investments included U.S. Treasuries with original maturities of four and six ~~months.~~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 new 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 assets for collectability and make provisions for probable uncollectible amounts as necessary. Among the factors considered in our review are the financial condition of our customer and its access to financing, underlying disputes with the customer, the age and value of the receivable balance, company-specific credit ratings, historical company-specific uncollectable amounts and economic conditions in general. See Note 2 for further discussion of our allowance for doubtful accounts.

Stock-Based Compensation

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

~~Assets Held for Sale~~

~~Assets held for sale are measured at the lower of their carrying amount or fair value less cost to sell. See Note 5 for further discussion of our assets held for sale.~~

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.~~years. Ordinary maintenance and repairs, which do not extend the physical or economic lives of the plant or equipment, are charged to expense as incurred. Intangible assets are amortized on a straight-line basis over 7seven years and amortization expense is reflected within general and administrative expense on our Statement of Operations.

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Long-Lived Assets

Goodwill – ~~Our goodwill is associated with the DSS Acquisition.~~ Goodwill is not amortized, but instead is reviewed for impairment at least annually at a reporting unit level, absent any indicators of impairment or when other actions require an impairment assessment (such as a change in reporting units). Our goodwill is included within our Services Division ~~includes one~~and our Services Division represents our only reporting unit ~~associated~~ with ~~our DSS Acquisition.~~goodwill. We perform our annual impairment assessment during the fourth quarter of each year based upon balances as of October 1. In evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is greater than its carrying value. If we determine that it is more likely than not that the carrying value of the reporting unit is greater than its fair value, we perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing it to the carrying value of the reporting unit, and we recognize an impairment charge to the extent its carrying value exceeds its fair value. To determine the fair value of our reporting unit and test for impairment, we utilize an income approach (discounted cash flow method) as we believe this is the most direct approach to incorporate the specific economic attributes and risk profile of our reporting unit into our valuation model. We had no indicators of impairment during the three ~~or nine~~ months ended ~~September 30, 2022.~~March 31, 2023. If, based on future assessments, our goodwill is deemed to be impaired, the impairment would result in a charge to our operating results in the period of impairment. ~~See Note 4 for discussion of the DSS Acquisition and related goodwill.~~

Other Long-Lived Assets –Our property, plant and equipment, lease assets (included within other noncurrent assets), and finite-lived intangible assets ~~(associated with the DSS Acquisition)~~ are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. If a recoverability assessment is required, we compare the estimated future undiscounted cash flow associated with the asset or asset group to its carrying amount to determine if an impairment exists. An asset group constitutes the minimum level for which identifiable cash flows are principally independent of the cash flows of other assets or asset groups. An impairment loss is measured by comparing the fair value of the asset or asset group to its carrying amount and the excess of the carrying amount of the asset or asset group over its fair value is recorded as an impairment charge. Fair value is determined based on discounted cash flows, appraised values or third-party indications of value, as appropriate. We had no indicators of impairment during the three ~~or nine~~ months ended September 30, 2022. See Note 2 for discussion of our long-lived asset impairments associated with Hurricane Ida, Note 3 for discussion of our long-lived asset impairments within discontinued operations, and Note 4 for discussion of the DSS Acquisition and related long-lived assets.March 31, 2023.

Leases

~~Leases~~

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

In the third quarter 2022, we entered into a sublease arrangement with a third-party for the remainder of our corporate office, which will partially recover our lease costs for the facility for the duration of our lease. In connection therewith, we recorded an impairment of $0.5 million associated with the underlying right-of-use asset for the corporate office lease. In addition, we entered into a separate lease arrangement for a smaller and more cost-effective office to accommodate our corporate activities. ~~The impairment is included in other (income) expense, net on our Statement of Operations and is reflected within our Corporate Division.~~

Fair Value Measurements

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

•

Level 1 – inputs are based upon quoted prices for identical instruments traded in active markets.

•

Level 2 – inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the market.

•

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

•

~~Level 1 – inputs are based upon quoted prices for identical instruments traded in active markets.~~

•

~~Level 2 – inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the market.~~

•

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 ~~inventory,~~and long-lived assets ~~and assets held for sale,~~ are non-recurring fair value measurements that fall within Level 3 of the fair value hierarchy. ~~See Note 4 for discussion of the fair value measurements associated with the DSS Acquisition and Note 5 for further discussion of our assets held for sale.~~

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Revenue Recognition

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

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

Long-term Contracts Satisfied Over Time – Revenue for our long-term contracts is recognized using the ~~percentage-of-completion (“POC”)~~POC method based on contract costs incurred to date compared to total estimated contract costs (an input method). Fixed-price contracts, or contracts with a more significant fixed-price component, generally provide us with greater control over project schedule and the timing of when work is performed and costs are incurred, and accordingly, when revenue is recognized. Unit-rate, T&M and cost-reimbursable contracts generally have more variability in the scope of work and provide our customers with greater influence over the timing of when we perform our work, and accordingly, such contracts often result in less predictability with respect to the timing of when revenue is recognized. Contract costs include direct costs, such as materials and labor, and indirect costs attributable to contract activity. Material costs that are significant to a contract and do not reflect an accurate measure of project completion are excluded from the determination of our contract progress. Revenue for such materials is only recognized to the extent of costs incurred. Revenue and gross profit or loss for contracts accounted for using the POC method can be significantly affected by changes in estimated cost to complete such contracts. Significant estimates impacting the cost to complete a contract include: forecast costs of engineering, materials, equipment and subcontracts; forecast costs of labor and labor productivity; schedule durations, including subcontractor and supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. Although our customers retain the right and ability to change, modify or discontinue further work at any stage of a contract, in the event our customers discontinue work, they are required to compensate us for the work performed to date. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on contracts. Due to the various estimates inherent in our contract accounting, actual results could differ from those estimates, which could result in material changes to our Financial Statements and related disclosures. See Note 2 for further discussion of projects with significant changes in estimated margins during the three ~~and nine~~ months ended ~~September 30, 2022~~March 31, 2023 and ~~2021.~~2022.

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

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

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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, 2022~~March 31, 2023 and December 31, ~~2021,~~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.

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 ~~expected~~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, 2022 and 2021, and nine months ended September 30, 2021,~~March 31, 2023, as no federal income tax expense was recorded for our income as it was fully offset by the reversal of valuation allowance on our net deferred tax assets, and for the ~~nine~~three months ended ~~September 30,~~March 31, 2022, as no federal income tax benefit was recorded for our losses as a full valuation allowance was recorded against our ~~federal~~net deferred tax assets generated during the ~~respective periods.~~period. Income taxes recorded for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021 represent~~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 ~~June 2016,~~ the ~~FASB issued~~first quarter 2023, we adopted ASU 2016-13, “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments,” which changes the way ~~companies~~we evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, short-term investments, loans and other instruments, ~~entities will be~~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 ~~resulting~~result in earlier recognition of allowances for losses. The new accounting standard ~~also requires enhanced disclosures, including~~was adopted using the ~~requirement~~cumulative-effect transition method with any cumulative-effect adjustment being recorded to ~~disclose the information used~~accumulated deficit on January 1, 2023. Upon adoption, we recorded a $0.6 million increase to ~~track credit quality by year of origination for most financing receivables. ASU 2016-13 will be effective for us in the first quarter 2023. Early adoption~~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 ~~is permitted; however,~~did not have a material effect on our results of operations or related disclosures.

Business Combinations – In the first quarter 2023, we ~~have not elected~~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 ~~early adopt~~ the ~~standard. The new standard is required to be applied using a cumulative-effect transition method. We do not believe that~~general recognition and measurement principle of ASC 805. Adoption of the new standard ~~will~~did not have a material effect on our financial position, results of operations or related disclosures.

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

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

Disaggregation of Revenue

The following tables summarize revenue for each of our operating segments, disaggregated by contract type and duration, for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in thousands):


	Three Months Ended September 30, 2022											Three Months Ended March 31, 2023
	Services		Fabrication		Shipyard		Eliminations			Total		Services		Fabrication		Shipyard		Eliminations			Total
Fixed-price and unit-rate	$	986	$	11,410	$	1,849	$	(1	)	$	14,244	$	172	$	12,189	$	1,347	$	(8	)	$	13,700
T&M and cost-reimbursable		20,937		2,373		—		—			23,310		20,542		27,473		—		—			48,015
Other		646		1,646		—		(253	)		2,039		873		—		—		(420	)		453
Total	$	22,569	$	15,429	$	1,849	$	(254	)	$	39,593	$	21,587	$	39,662	$	1,347	$	(428	)	$	62,168

Long-term	$	986	$	14,078	$	1,849	$	(1	)	$	16,912	$	172	$	38,708	$	1,347	$	(8	)	$	40,219
Short-term		21,583		1,351		—		(253	)		22,681		21,415		954		—		(420	)		21,949
Total	$	22,569	$	15,429	$	1,849	$	(254	)	$	39,593	$	21,587	$	39,662	$	1,347	$	(428	)	$	62,168


	Three Months Ended March 31, 2022
	Services		Fabrication		Shipyard		Eliminations			Total
Fixed-price and unit-rate	$	1,609	$	5,044	$	2,497	$	(1	)	$	9,149
T&M and cost-reimbursable		18,463		573		—		—			19,036
Other		592		—		—		(91	)		501
Total	$	20,664	$	5,617	$	2,497	$	(92	)	$	28,686

Long-term	$	1,609	$	5,044	$	2,497	$	(1	)	$	9,149
Short-term		19,055		573		—		(91	)		19,537
Total	$	20,664	$	5,617	$	2,497	$	(92	)	$	28,686

Three Months Ended September 30, 2021

Services

Fabrication

Shipyard

Eliminations

Total

Fixed-price and unit-rate

$
275

$
7,913

$
2,202

$
—

$
10,390

T&M and cost-reimbursable

8,221

207

100

(1
)

8,527

Other

809

—

—

(139
)

670

Total

$
9,305

$
8,120

$
2,302

$
(140
)

$
19,587

Long-term

$
275

$
7,913

$
2,202

$
—

$
10,390

Short-term

9,030

207

100

(140
)

9,197

Total

$
9,305

$
8,120

$
2,302

$
(140
)

$
19,587

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

Nine Months Ended September 30, 2021

Services

Fabrication

Shipyard

Eliminations

Total

Fixed-price and unit-rate

$
865

$
29,521

$
10,461

$
(8
)

$
40,839

T&M and cost-reimbursable

22,434

1,577

100

(61
)

24,050

Other

3,790

—

—

(1,039
)

2,751

Total

$
27,089

$
31,098

$
10,561

$
(1,108
)

$
67,640

Long-term

$
865

$
29,521

$
10,461

$
(8
)

$
40,839

Short-term

26,224

1,577

100

(1,100
)

26,801

Total

$
27,089

$
31,098

$
10,561

$
(1,108
)

$
67,640

~~- 11 -~~

Future Performance Obligations

The following table summarizes our remaining performance obligations, disaggregated by operating segment and contract type, at ~~September 30, 2022~~March 31, 2023 (in thousands):


	March 31, 2023
	Services		Fabrication		Shipyard		Total
Fixed-price and unit-rate	$	1,207	$	10,948	$	1,803	$	13,958
T&M and cost-reimbursable(1)		—		76,383		—		76,383
Total(2)	$	1,207	$	87,331	$	1,803	$	90,341

September 30, 2022

Services

Fabrication

Shipyard

Total

Fixed-price and unit-rate

$
1,657

$
7,196

$
4,007

$
12,860

T&M and cost-reimbursable

—

102,215

—

102,215

Total⁽¹⁾

$
1,657

$
109,411

$
4,007

$
115,075

(1)

In February 2023, we received direction from our customer to suspend all activities on our offshore jackets project for our Fabrication Division. No duration of the suspension or timing of potential recommencement of the project has been provided. See “Other Operating and Project Matters” below for further discussion of the impacts of the suspension.

(2)

We expect to recognize revenue of $14.4 million for the remainder of 2023 associated with our performance obligations at March 31, 2023 based on our current estimates. Such estimates exclude potential revenue of $75.9 million associated with our performance obligations for our offshore jackets project given the uncertainty with respect to when such amounts will be recognized, if at all. Certain factors and circumstances, including the suspension, could result in changes in the timing of recognition of our performance obligations as revenue and the amounts ultimately recognized.

- 11 -

~~(1)~~

We expect to recognize revenue of approximately $15.4 million and $99.7 million for the remainder of 2022 and 2023, respectively, associated with our remaining performance obligations at September 30, 2022.

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, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, is as follows (in thousands):

September 30,

December 31,

2022

2021

Contract assets⁽¹^{), (}²⁾

$
7,807

$
4,759

Contract liabilities⁽^{3), (4), (5)}

(4,293
)

(6,648
)
Contracts in progress, net

$
3,514

$
(1,889
)


	March 31,			December 31,
	2023			2022
Contract assets(1), (2)	$	5,538		$	4,839
Contract liabilities(3), (4), (5)		(4,388	)		(8,196	)
Contracts in progress, net	$	1,150		$	(3,357	)

(1)

The increase in contract assets compared to December 31, 2022, was primarily due to increased unbilled positions on various projects for our Fabrication Division, offset partially by, decreased unbilled positions for our forty-vehicle ferry projects for our Shipyard Division.

(2)

Contract assets at March 31, 2023 and December 31, 2022, excluded $3.6 million and $3.6 million, respectively, associated with revenue recognized in excess of amounts billed for which we have an unconditional right to the consideration. Such amounts are reflected within contract receivables.

(3)

The decrease in contract liabilities compared to December 31, 2022, was primarily due to a decrease in advance billings on our offshore jackets project for our Fabrication Division and accrued contract losses on our forty-vehicle ferry projects for our Shipyard Division.

(4)

Revenue recognized during the three months ended March 31, 2023 and 2022, related to amounts included in our contract liabilities balance at December 31, 2022 and 2021 was $6.0 million and $2.1 million, respectively.

(5)

Contract liabilities at March 31, 2023 and December 31, 2022, includes accrued contract losses of $1.0 million and $1.6 million, respectively. See “Changes in Project Estimates” below for further discussion of our accrued contract losses.

~~(1)~~

The increase in contract assets compared to December 31, 2021, was primarily due to increased unbilled positions on our seventy-vehicle ferry and two forty-vehicle ferry projects within our Shipyard Division.

~~(2)~~

Contract assets at September 30, 2022 and December 31, 2021, excludes $5.4 million and $2.3 million, respectively, associated with revenue recognized in excess of amounts billed for which we have an unconditional right to the consideration. Such amounts are reflected within contract receivables. The increase compared to December 31, 2021, was primarily due to the DSS Acquisition and a customer within our Services Division.

~~(3)~~

The decrease in contract liabilities compared to December 31, 2021, was primarily due to a decrease in accrued contract losses and the unwind of advance payments on our two forty-vehicle ferry projects within our Shipyard Division.

~~(4)~~

Revenue recognized during the three months ended September 30, 2022 and 2021, related to amounts included in our contract liabilities balance at June 30, 2022 and 2021, was $0.6 million and $1.6 million, respectively. Revenue recognized during the nine months ended September 30, 2022 and 2021, related to amounts included in our contract liabilities balance at December 31, 2021 and 2020, was $2.7 million and $3.2 million, respectively.

~~(5)~~

~~Contract liabilities at September 30, 2022 and December 31, 2021, includes accrued contract losses of $1.6 million and $3.9 million, respectively. See “Changes in Project Estimates”~~ ~~below for further discussion of our accrued contract losses.~~

Allowance for Doubtful Accounts and Credit Losses

Our provision for bad debts and credit losses is included in other (income) expense, net on our Statement of ~~Operations. Our provision for bad debts~~Operations, and for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021, and our~~was not significant. Our allowance for doubtful accounts and credit losses at ~~September 30, 2022~~March 31, 2023 was $0.6 million, and it was not significant at December 31, ~~2021, were not significant.~~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 months ended March 31, 2023 or 2022. See “New Accounting Standards” in Note 1 for further discussion of our adoption of ASU 2016-13.

Variable Consideration

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ we had no material amounts in revenue related to unapproved change orders, claims or incentives. However, at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, certain active projects within our Shipyard Division reflected a reduction to our estimated contract price for liquidated damages of ~~$1.0~~$1.5 million and ~~$1.2~~$1.4 million, respectively.

- 12 -

Changes in Project Estimates

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

~~Changes in Estimates for 2022~~ – For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, individual projects with significant changes in estimated margins did not have a material net impact on our operating results. ~~Other impacts for the three and nine months ended September 30, 2022, were associated with the following:~~The status of our projects in backlog at March 31, 2023, which have previously experienced changes in estimates, is as follows:

Shipyard Division

•

~~Forty-Vehicle Ferry Projects~~•

Seventy-Vehicle Ferry Project – During sea trials in January 2022 for our second forty-vehicle ferry project, one of the propulsion systems unexpectedly shutdown, causing the vessel to veer off course and run aground. We believe the propulsion system shutdown was due to design deficiencies and are the responsibility of the customer (as discussed further below), and during the second quarter 2022, we agreed to a change order with the customer for modifications to the propulsion system. The modifications were completed during the third quarter 2022, and sea trials were successfully completed in October 2022, and we anticipate delivery of the vessel and acceptance trials to be completed in November 2022.

As discussed in our ~~2021 Annual Report,~~2022 Financial Statements, the U.S. Coast Guard determined that the wood consoles (contractually specified by the customer) for our seventy-vehicle ferry project must be replaced or modified with metal consoles, resulting in previous forecast cost increases and liquidated damages and an extension of schedule. During the first quarter 2023, we commenced with the necessary modifications to the consoles.

At March 31, 2023, the project was approximately 98% complete and is forecast to be completed in the second quarter 2023. The project was in a loss position at March 31, 2023 and our reserve for estimated losses was $0.1 million. If future subcontractor availability or costs differ from our current estimates or we are unable to achieve our progress estimates, our schedule is further extended or we incur additional schedule liquidated damages, we experience challenges during ~~2020~~sea trials, commissioning or delivery of the vessel, or we ~~experienced rework~~incur additional costs or delays associated with the console modifications, the project would experience further delays and ~~construction challenges on~~losses.

As discussed in our 2022 Financial Statements, we have experienced rework, construction and commissioning challenges on the two ferries, resulting in ~~increases in~~previous forecast ~~costs~~cost increases and liquidated damages and the need to fabricate a new hull for the first vessel. We believe these impacts are the result of deficiencies in design of the vessels. Further, we believe the impacts of the design deficiencies are the responsibility of the customer, and accordingly,vessel that is still under construction. Accordingly, during 2021 we submitted claims to our customer, and subsequently filed a lawsuit, to extend our project schedules and recover the ~~previous forecast~~ cost ~~increases associated with the~~ impacts of the design deficiencies. ~~However,~~The customer denied all liability. Further, during the fourth quarter 2022 and early 2023, we ~~can provide no assurance~~received correspondence from our customer indicating that the new hull for the remaining ferry under construction is exhibiting deformation issues that are potentially beyond the customer’s desired tolerance levels. Our subsequent evaluation does not support the customer’s conclusions and we ~~will be successful recovering these costs. Our forecasts at September 30, 2022 do not reflect potential future benefits, if any, from the favorable resolution~~are continuing construction of the ~~lawsuit.~~vessel as designed.

At ~~September 30, 2022,~~March 31, 2023, the ~~second vessel~~remaining project under construction was approximately ~~96%~~92% complete and is forecast to be completed in the ~~fourth~~second quarter ~~2022 (previously the third quarter 2022, but delayed due to the timing of completion of the aforementioned modifications to the vessel) and the first vessel~~2023. The project was approximately 87% complete and is forecast to be completed in the first quarter 2023 (previously the fourth quarter 2022, but delayed due to the aforementioned modifications to the second vessel which will similarly be made to the first vessel). The projects were in a loss position at ~~September 30, 2022~~March 31, 2023 and our reserve for estimated losses was ~~$1.2~~$0.8 million. Our forecast costs and ~~schedule~~scheduled completion ~~dates~~date for the ~~vessels~~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 ~~propulsion system (despite the modifications) or other future challenges with the~~ vessel design ~~deficiencies. While we continue to believe such impacts are~~deficiencies, including the ~~responsibility~~final resolution of the ~~customer, we can provide no assurances that we will be successful recovering any future costs incurred associated with the~~aforementioned design ~~deficiencies.~~and deformation issues in dispute. If future craft labor productivity ~~and~~or subcontractor availability or costs differ from our current estimates or we are unable to achieve our progress estimates, our ~~schedules are~~schedule is further extended or we incur additional schedule liquidated damages, we experience challenges during sea trials, commissioning or ~~commissioning~~delivery of the ~~first~~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 ~~we experience challenges during~~the customer rejects delivery and/or final acceptance of either vessel due to the ~~vessels,~~design dispute, the projects would experience further delays and losses. Our forecasts at March 31, 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.

~~Changes in Estimates for 2021~~ – ~~For the three and nine months ended September 30, 2021,~~ significant changes in estimated margins on projects positively impacted operating results for our Fabrication Division by $1.1 million and $3.7 million, respectively, and negatively impacted operating results for our Shipyard Division by $1.3 million and $3.0 million, respectively. The changes in estimates were associated with the following:

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 ~~storm surge causing significant damage and power outages throughout the region, including~~equipment at our Houma Facilities and ~~operations. Our Houma Facilities did not experience significant flood damage; however, the high winds and heavy rain damaged multiple buildings and equipment and resulted~~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 ~~third quarter 2022,~~three months ended March 31, 2023, we received insurance payments of ~~$1.4~~$0.7 million from our insurance carriers associated with interruptions to our operations and damage to ~~our~~buildings and equipment. In addition, ~~during 2021 and the second quarter 2022,~~ we have received ~~insurance~~ payments ~~of $1.0 million and $7.0 million, respectively,~~ from our insurance carriers during other periods subsequent to the storm associated with interruptions to our operations and damage to ~~our buildings.~~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 ~~applicable depreciated value,~~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 ~~received~~ in excess of anticipated repair costs, are reflected within investing activities.

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, ~~following the storm we recorded charges of $3.2 million during 2021, and~~ during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, we recorded gains of ~~$1.3~~$0.2 million (including $0.2 million related to interruptions to our operations) and ~~$4.4~~charges of $0.3 million, ~~respectively.~~respectively, related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida. The ~~charges~~gains and ~~gains~~charges are included in other (income) expense, net on our Statement of ~~Operations.~~Operations and are reflected within our Fabrication Division. In addition, at ~~September 30, 2022,~~March 31, 2023, we had total insurance receivables on our Balance Sheet of ~~$1.5~~$1.3 million. We are continuing to assess ~~the full extent of damage to~~ our ~~buildings,~~restoration plans and ~~applicable insurance coverage amounts, and restoration~~repair efforts are ongoing. We expect to incur future repair costs of approximately ~~$1.0~~$0.5 million to ~~$1.5~~$1.5 million associated with previously received insurance payments for certain ~~buildings.~~buildings and equipment. Further, we expect to incur future repair costs in excess of previously received insurance payments for certain buildings and equipment; however, we believe that recovery of insurance proceeds for such costs is probable.

In addition to damage to our Houma Facilities, the storm resulted in damage to one of our ~~second~~ forty-vehicle ferry ~~project,~~projects, the ~~MPSVs (and~~multi-purpose supply vessels (“MPSVs”) and associated ~~equipment)~~equipment that are in our possession and subject to ~~dispute,~~our MPSV Litigation, and certain bulkheads where the vessels were moored. We ~~have retained advisors~~are continuing to ~~evaluate~~assess the extent of the storm damage and are evaluating the extent to which any damage was the result of third-party vessels that broke free from their mooring during the storm and struck the ferry, MPSVs and bulkheads. During both the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022, we recorded charges of ~~$0.2~~$0.1 million related to ~~actual costs incurred associated with our insurance coverages, without giving consideration to potential recoveries from~~ the ~~third-parties associated with~~impact of damage previously caused by their vessels, as we expect our deductibles will apply absent such recoveries. The charges are included in other (income) expense, net on our Statement of Operations. We are working with our insurance providers and advisors to assess the full extent of damage to the MPSVs and bulkheads and applicable insurance coverage amounts, which may be subject to further deductibles associated with our insurance coverages of approximately $0.5 million.Hurricane Ida. See Note 74 for further discussion of our MPSV ~~dispute.~~

~~Transaction Summary~~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. At March 31, 2023, we had $ On April 19, 2021 (“Transaction Date”), we entered into a definitive agreement and sold our Shipyard Division operating assets and certain construction contracts (“Shipyard Transaction”) to Bollinger Houma Shipyards, L.L.C. and Bollinger Shipyards Lockport, L.L.C. (collectively, “Bollinger”) for approximately $28.6 million (“Transaction Price”) ($26.1 million, net of transaction and other costs). We received $27.715.5 million of the Transaction Price during 2021 ($26.4 million in the second quarter 2021 and $1.3 million in fourth quarter 2021) and the remaining $0.9 million was received in the second quarter 2022, subsequent to Bollinger’s collection of certain customer payments associated with the Divested Shipyard Contracts (defined below). We also received $7.8 million during the second quarter 2021 associated with changes in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Transaction Date (“Working Capital True-Up”).

~~Bollinger offered employment to most of the employees of our Shipyard Division associated with the Divested Shipyard Contracts.~~

~~We retained those employees of our Shipyard Division associated with the Active Retained Shipyard Contracts.~~

~~Impairment and Transaction Loss~~ – During the first quarter 2021, events and changes in circumstances indicated that the carrying amount of our Shipyard Division’s long-lived assets may not be recoverable. These changes in circumstances were primarily attributable to a reassessment of our asset groups within our Shipyard Division as well as revisions to our probability assessment of net future cash flows of the applicable asset group based on the likelihood, that existed as of March 31, 2021, of the Shipyard Transaction occurring. Based on these assessments, we determined that an impairment of our Shipyard Division’s property, plant and equipment had occurred during the first quarter 2021. We measured the impairment by comparing the carrying amount of the applicable asset group at March 31, 2021 to an estimate of its fair value (which represents a Level 3 fair value measurement), resulting in an impairment charge of $22.8 million during the nine months ended September 30, 2021. We based our fair value estimate on the Transaction Price, inclusive of an estimate of the Working Capital True-Up, associated with the Shipyard Transaction. In addition, we incurred transaction and other costs of $2.6 million during the nine months ended September 30, 2021 associated with the Shipyard Transaction.

~~Other~~ – ~~At September 30, 2022 and December 31, 2021, the net operating liabilities~~ on our Balance Sheet related to the project, primarily associated with ~~the Retained Shipyard Contracts and other retained Shipyard Division operations totaled~~obligations incurred by us for procurement activities. Subsequent to March 31, 2023, we received payments of $~~1.2~~3.1 million related to such accounts receivable and ~~$8.7 million, respectively.~~ We are completing construction of the Active Retained Shipyard Contracts within our Houma Facilities and are winding down our Shipyard Division operations, which is anticipated to occur by the first quarter 2023 (previously the fourth quarter 2022, but delayedwe have received a payment guarantee bond as ~~further discussed in Note 2). The wind down of our Shipyard Division operations does not include our contracts~~security for ~~the construction of the MPSVs that are subject to dispute. See Note 7 for further discussion of our MPSV dispute.~~

The Shipyard Transaction (which included, among other things, our owned Shipyard Facility, Divested Shipyard Contracts and drydocks), and the fourth quarter 2020 closures of our leased Lake Charles Facility and Jennings Facility, represented the disposal and closure of a substantial portion of ~~our Shipyard Division operations and~~ the ~~culmination of a strategic shift that will~~remaining accounts receivable amounts. Although such amounts are not in dispute, we have a major effect on our ongoing operations and financial results. Therefore, we determined the assets, liabilities and operations associated with the Shipyard Transaction, and associated with the previously closed Shipyard Division facilities, to be discontinued operations in the second quarter 2021. Accordingly, such operating results for the nine months ended September 30, 2021 have been classified as discontinued operations on our Statement of Operations. We had no material operating results of discontinued operations for the three or nine months ended September 30, 2022 or the three months ended September 30, 2021, and no material assets and liabilities of discontinued operations at September 30, 2022 or December 31, 2021. The assets, liabilities and operating results attributable to the Retained Shipyard Contracts and remaining assets and liabilities of our Shipyard Division operations that were excludedreceived indications from the ~~Shipyard Transaction, and are~~customer that we may not ~~associated with the previously closed facilities, represent our Shipyard Division and are classified as continuing operations on our Balance Sheet and Statement of Operations.Discontinued operations are presented separately from continuing operations on our Balance Sheet and Statement of Operations; however, they are not presented separately on our Statement of Cash Flows.~~

~~A summary of the operating results and cash flows from discontinued operations for the nine months ended September 30, 2021, is as follows (in thousands):~~

~~Acquisition Summary~~ – On December 1, 2021 (“Acquisition Date”), we entered into a definitive agreement and acquired (“DSS Acquisition”) the services and industrial staffing businesses (“DSS Business”) of Dynamic Industries, Inc. (“Dynamic”) for $7.6 million (“Purchase Price”). We also hired substantially all of the employees of the DSS Business.

~~Preliminary Purchase Price Allocation~~ – The Purchase Price was allocated to the major categories of assets and liabilities acquired based upon preliminary estimates of their fair values at the Acquisition Date, which were based, in part, upon outside appraisals for certain assets, including property, machinery and equipment and specifically-identifiable intangible assets. The excess of the Purchase Price over the estimated fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The factors contributing to the goodwill (which is all deductible for tax purposes) include the acquired established workforce, estimated future cost savings and revenue synergies associated with the DSS Business.

~~The following table summarizes our preliminary purchase price allocation at the Acquisition Date:~~

~~Supplemental Pro Forma Financial Information~~ – The following unaudited pro forma condensed combined financial information (“Pro Forma Information”) gives effect to the DSS Acquisition, accounted for as a business combination using the purchase method of accounting. The Pro Forma Information reflects the DSS Acquisition and related events as if they occurred on January 1, 2020 (the earliest period presented in our 2021 Annual Report), and gives effect to pro forma events that are directly attributable to the DSS Acquisition, factually supportable and expected to have a continuing impact on the combined results of the Company and the DSS Business following the DSS Acquisition. The Pro Forma Information for the three and nine months ended September 30, 2021, reflects adjustments to include: (1) incremental intangibles amortization and depreciation expense ~~of $0.1 and $0.2~~ million, respectively, associated with fair value adjustments related to the DSS Acquisition, and (2) the historical results of the DSS Business for the periods. Revenue attributable to the DSS Business for the three and nine months ended September 30, 2021 was $12.1 million and $35.7 million, respectively, and net income was $0.6 million and $1.3 million, respectively. The Pro Forma Information has been presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on the dates indicated. Further, the Pro Forma Information does not purport to project the future operating results of the combined Company following the DSS Acquisition.

At December 31, 2021, our assets held for sale consisted of one large crawler crane within our Fabrication Division. As a result of the significant increase in our performance obligations for the Fabrication Division duringreceive material additional payments until the third quarter ~~2022,~~2023.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is provided to assist readers in understanding our financial performance during the periods presented and significant trends that may impact our future performance. This discussion should be read in conjunction with our Financial Statements and the related notes thereto. References to “Notes” relate to the Notes to our Financial Statements in Item 1. Certain terms are defined in the “Glossary of Terms” beginning on page ii.

This Report contains forward-looking statements in which we discuss our potential future performance. Forward-looking statements, within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, are all statements other than statements of historical facts, such as projections or expectations relating to timing of delivery of vessels related to the Active Retained Shipyard Contracts and subsequent wind down of our Shipyard Division ~~operations,~~operations; expected exposure in the event of an adverse outcome in the MPSV Litigation; diversification and entry into new end ~~markets,~~markets; improvement of risk ~~profile,~~profile; industry ~~outlook,~~outlook; oil and gas ~~prices,~~prices; timing of investment decisions and new project ~~awards,~~awards; cash flows and cash ~~balance,~~balance; capital ~~expenditures, liquidity~~expenditures; liquidity; and tax rates. 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.

We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include: supply chain disruptions (including global shipping and logistics challenges), inflationary pressures, economic slowdowns and recessions, banking industry disruptions, natural disasters, public health crises (such as COVID-19), labor costs and geopolitical conflicts (such as the conflict in Ukraine), and the related volatility in oil and gas prices and other factors impacting the global economy; the cyclical nature of the oil and gas industry; outcome of the MPSV Litigation and our ability to resolve any other 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, and the resumption of our suspended offshore jackets project; our ability to maintain and further improve project execution; nature of our contract terms and customer adherence to such terms; suspension or termination of projects; changes in contract estimates; customer or subcontractor disputes; operating dangers, weather events and limits on insurance coverage; the operability and adequacy of our major equipment; the final assessment of damage at our Houma Facilities and the related recovery of any insurance proceeds; the duration and scope of, and uncertainties associated with, the ongoing global pandemic caused by COVID-19 (including new and emerging strains and variants) as well as the war in Ukraine (and the related European energy crisis) and the corresponding volatility in oil prices and the impact thereof on our business; timing and our ability to secure 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; our inability to realize the expected financial benefits of the Shipyard Transaction; the ability to successfully integrate the DSS Acquisition; the cyclical nature of the oil and gas industry; competition; consolidation of our customers; reliance on significant customers; financial ability and credit worthiness of our customers; nature of our contract terms; competitive pricing and cost overruns on our projects; adjustments to previously reported profits or losses under the percentage-of-completion method; weather impacts to operations; changes in contract estimates; suspension or termination of projects; 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; ~~any future asset impairments; utilization of facilities or closure or consolidation of facilities; customer or subcontractor disputes;~~ our ability to ~~resolve~~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 dispute with a customer relating to the purported terminations of contracts to build two MPSVs and any other material legal proceedings; operating dangers, weather events and limits on insurance coverage; barriers to entry into new lines of business;percentage-of-completion method; our ability to employ a skilled workforce; loss of key personnel; ~~performance~~utilization of ~~subcontractors and dependence on suppliers;~~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, including in response to Russia’s invasion of Ukraine;~~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 ~~2021~~2022 Annual Report and as may be further updated by subsequent filings with the SEC.

Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the date the forward-looking statements are made, which we cannot control. Further, we may make changes to our business plans that could affect our results. We caution investors that we undertake no obligation to publicly update or revise any forward-looking statements, which speak only as of the date made, for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise, and notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes.

We are a leading fabricator of complex steel structures and modules and provider of specialty services, including project management, hookup, commissioning, repair, maintenance, scaffolding, coatings, welding enclosures, civil construction and staffing services to the industrial and energy sectors. Our customers include U.S. and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial and power operators; and EPC companies. ~~Our corporate headquarters is located in The Woodlands, Texas, and our primary operating facilities are located in Houma, Louisiana (“Houma Facilities”).~~

During 2021, we operated and managed our business through two operating divisions (“Fabrication & Services” and “Shipyard”) and one non-operating division (“Corporate”), which represented our reportable segments. In the first quarter 2022, we realigned our operating divisions due to the DSS Acquisition (discussed below) and related changes in our management structure and oversight of our various lines of business. As a result, weWe currently operate and manage our business through three operating divisions (“Services”, “Fabrication” and “Shipyard”) and one non-operating division (“Corporate”), which represent our reportable segments. ~~Accordingly, financial information (including the effects of eliminations)~~Our corporate headquarters is located in The Woodlands, Texas, and our primary operating facilities are located in Houma, Louisiana (“Houma Facilities”). See Note 6 for ~~our Fabrication & Services Division for the three and nine months ended September 30, 2021 has been recast to conform to the presentation~~further discussion of our reportable ~~segments for the three and nine months ended September 30, 2022. See Note 9 of our Financial Statements for discussion of our realigned reportable~~ segments.

On April 19, 2021, we sold our Shipyard Division operating assets and certain construction contracts (“Shipyard Transaction”) and intend to wind down our remaining Shipyard Division operations (which exclude the projects that are subject to our MPSV Litigation) by the ~~first~~second quarter 2023 ~~(previously~~(subject to the ~~fourth quarter 2022, but delayed as further~~potential schedule impacts discussed in Note 2). We determined the Shipyard Division operations associated with the Shipyard Transaction, and associated with certain previously closed Shipyard Division facilities, to be discontinued operations in the second quarter 2021. Accordingly, financial information for the nine months ended September 30, 2021 reflect discontinued operations presentation. See Note 31 for further discussion of the Shipyard Transaction and ~~our discontinued operations and~~ Note 74 for discussion of our MPSV ~~dispute.~~Litigation.

On December 1, 2021, we acquired ~~(“DSS Acquisition”) the~~a services and industrial staffing ~~businesses~~business (“DSS ~~Business”~~Acquisition,”) ~~of Dynamic Industries, Inc. (“Dynamic”). The operating results of the DSS Business are included within~~which increased our skilled workforce, further diversified our customer base and expanded our service offerings for our Services ~~Division for the three and nine months ended September 30, 2022.~~Division. See Note 41 for further discussion of the DSS Acquisition.

Impacts ~~to Operations from~~of Oil and Gas Price Volatility ~~COVID-19~~ and ~~Russia’s Invasion of Ukraine~~Macroeconomic Conditions on Operations

Since 2008, the ~~price~~prices of oil ~~has~~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 ~~have been~~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, ~~COVID-19~~the global coronavirus pandemic (“COVID-19”) added another layer of pressure and uncertainty on oil and gas prices (with oil prices reaching a twenty-year low and gas prices reaching a four-year low), which further negatively impacted certain of our end markets during ~~2021 and~~ the first quarter 2022. This volatility in oil and gas prices ~~has been~~was compounded by Russia’s invasion of Ukraine in February 2022 (and the related European energy crisis) ~~in February 2022,~~, 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 ~~has and may continue to~~ positively ~~impact~~impacted certain of our end ~~markets; however,~~markets. While oil and gas prices have somewhat stabilized, the duration ~~and broader consequences~~ of ~~this conflict are~~such stability is uncertain and difficult to ~~predict at this time.~~predict.

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 previous cost increases on our seventy-vehicle ferry project and two forty-vehicle ferry projects. See Note 2 for further discussion of our project impacts.

~~Phase One~~ ~~– During 2020, we~~We previously outlined a strategy to address our operational, market and economic challenges and position the Company to ~~pursue~~generate stable, profitable growth. Underpinning ~~this strategy~~the first phase of our strategic transformation was a focus on the following initiatives:

~~Phase Two~~ ~~– During 2021,~~With the significant progress achieved on these objectives, we ~~continued~~have shifted our focus to ~~advance these initiatives, which have provided a foundation for our future success, and commenced~~ 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:

Efforts to mitigate the impacts of COVID-19 on our operations and workforce – We ~~are continuing~~continue to take actions to mitigate the impacts of COVID-19 on our operations ~~while ensuring the safety~~ and ~~well-being of~~maintain a safe work environment for our ~~workforce.~~ 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 ~~the Divested Shipyard Contracts~~certain construction contracts that represented approximately 90% of our backlog with durations that extended through 2024. ~~Further, the wind down of the Shipyard Division operations after completion~~We are completing construction of the Active Retained Shipyard Contracts ~~will~~within our Houma Facilities and are winding down our Shipyard Division operations, which is currently anticipated to occur by the second quarter 2023 (subject to the potential schedule impacts further ~~reduce~~discussed in Note 2). The wind down of our ~~risk profile as it will position us~~Shipyard Division operations does not include our contracts and related obligations for ~~profitable growth in existing and new higher-margin markets associated with~~the projects that are subject to our ~~other operating divisions.~~MPSV Litigation. See ~~“Operating Segments”~~ ~~below~~Note 1 for further discussion of the Shipyard Transaction and Note 24 for further discussion of our ~~project impacts.~~MPSV Litigation.

Efforts to preserve and improve our liquidity – We continue to take actions to preserve and improve our liquidity, ~~and at September 30, 2022, our cash and short-term investments balance totaled $37.8 million. To preserve our liquidity position, we have undertaken~~including cost reduction initiatives, ~~monetized~~monetization of under-utilized assets and facilities, ~~(including the sale of our Harvey Option in the third quarter 2022),~~ and ~~are maintaining~~ an ongoing focus on project cash flow management. In addition, as a result of the Shipyard Transaction and anticipated wind down of ~~the~~our Shipyard Division operations (which exclude the projects that are subject to our MPSV Litigation), our bonding, letters of credit and working capital requirements ~~related to the Divested Shipyard Contracts and ongoing~~for our remaining Shipyard Division operations ~~have been~~were significantly reduced. See Note 41 for further discussion of ~~our Harvey Option and~~the Shipyard Transaction, Note 73 for further discussion of our outstanding bonds and letters of ~~credit.~~credit and Note 4 for further discussion of our MPSV Litigation.

Efforts to improve our resource utilization and centralize key project resources – We have improved our resource utilization and centralized key project resources through the rationalization and integration of our facilities and operations.

Efforts to improve our competitiveness, ~~and~~ project execution and bidding discipline – We have taken, and continue to take, 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.

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 provides a safe environment for welding, cutting and burning without the need to shut down operations. We are also pursuing opportunities to partner with original equipment manufacturers to provide critical services to our customers along the Gulf Coast and strategic partnership opportunities with engineering companies to provide turnkey solutions. See “Overview” above and Note 1 for further discussion of the DSS Acquisition.

Efforts to pursue opportunities in our traditional offshore fabrication markets – We continue to fabricate structures associated with our traditional offshore markets, including subsea and associated structures. During the third quarter 2022, we were awarded a large contract for the fabrication of jacket foundations for an offshore project (which is currently suspended). See “New Project Awards and Backlog” below and Note 2 for further discussion of the suspension of our offshore jackets project.

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 – ~~We are pursuing initiatives to reduce our reliance on the offshore oil and gas construction sector and grow and diversify our business, while continuing~~While we continue to pursue opportunities in our traditional offshore ~~markets.~~markets, we are pursuing initiatives to grow our business and diversify our revenue mix.

Our focus remains on securing profitable new project awards and backlog ~~in the near-term~~ and generating operating income and cash flows, ~~in the longer-term,~~ 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 Division will be impacted by the ~~delay in~~ timing of new project awards and their execution, and the suspension of our offshore jackets project, and our operations may continue to be impacted by inefficiencies and disruptions associated with ~~COVID-19 related health and safety mitigation measures,~~ employee ~~absenteeism and~~ turnover, craft labor hiring challenges, engineering delays, and supplier and subcontractor disruptions. Our results may also be adversely affected by (i) costs associated with the retention of certain personnel that may be temporarily under-utilized as we evaluate our resource requirements to support our future operations, ~~in light of the Shipyard Transaction and DSS Acquisition,~~ (ii) investments in key personnel and process improvement efforts to support our aforementioned initiatives, and (iii) higher costs and availability of craft labor due to industry labor constraints. See Note 1 for further discussion of the impacts of oil and gas price volatility ~~COVID-19~~ and ~~Russia’s invasion of Ukraine,~~ ~~and~~macroeconomic conditions, “Results of Operations” below and Note 2 for further discussion of our project ~~impacts.~~impacts, and “New Project Awards and Backlog” below and Note 2 for further discussion of the project suspension.

For a discussion of critical accounting policies and estimates used in the preparation of our Financial Statements, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 included in our ~~2021~~2022 Annual Report. There have been no changes to our critical accounting policies and estimates since December 31, ~~2021.~~2022.

New project awards represent expected revenue values of commitments received during a given period, including scope growth on existing commitments. A commitment represents authorization from our customer to begin work or purchase materials pursuant to a written agreement, letter of intent or other form of authorization. Backlog represents the unrecognized revenue for our new project awards and at ~~September 30, 2022,~~March 31, 2023, was consistent with the value of remaining performance obligations for our contracts required to be disclosed under Topic 606 and presented in Note 2. In general, a performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. We believe that backlog, a non-GAAP financial measure, provides useful information to investors as it represents work that we are obligated to perform under our current contracts. New project awards and backlog may vary significantly each reporting period based on the timing of our major new contract commitments.

Projects in our backlog are generally subject to delay, suspension, termination, or an increase or decrease in scope at the option of the customer; however, the customer is required to pay us for work performed and materials purchased through the date of termination, suspension, or decrease in scope. Depending on the size of the project, the delay, suspension, termination or increase or decrease in scope of any one contract could significantly impact our backlog and change the expected amount and timing of revenue recognized.

New project awards by ~~Division~~operating segment for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ are as follows (in thousands):

Backlog by Division at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, is as follows (in thousands):

Comparison of the Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (in thousands in each table, except for percentages):

References below to ~~2022~~2023 and ~~2021~~2022 refer to the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

New project awards – New project awards for 2023 and 2022 ~~and 2021~~ were ~~$139.2~~$37.6 million and ~~$15.2~~$27.6 million, respectively. New project awards for 2023 and 2022 were primarily related to:

~~New project awards for 2021 were primarily related to offshore~~ services work for our Services ~~Division and small-scale fabrication work for our Fabrication~~ Division.

Revenue – Revenue for 2023 and 2022 ~~and 2021~~ was ~~$39.6~~$62.2 million and ~~$19.6~~$28.7 million, respectively, representing an increase of ~~102.1%~~116.7%. The increase was primarily due to:

Gross profit (loss) – Gross profit for ~~2022~~2023 was ~~$4.2~~$5.0 million ~~(10.7%~~(8.1% of revenue) and gross loss for ~~2021~~2022 was ~~$0.1~~$0.4 million ~~(0.7%~~(1.5% of revenue), respectively. Gross profit for ~~2022~~2023 was primarily impacted by:

The gross profit for ~~2022~~2023 relative to the gross loss for ~~2021~~2022 was primarily due to:

•

~~Project charges of $1.3 million~~ ~~for 2021 for our Shipyard Division, offset partially by,~~

•

A lower margin mix relative to 2022 for our Fabrication Division.

•

~~An increase in the under-recovery of overhead costs for our Fabrication Division and, to a lesser extent, our Shipyard Division, and~~

•

~~Project improvements of $1.1 million for 2021 for our Fabrication Division.~~

See “Operating Segments” below and Note 2 for further discussion of our project impacts.

General and administrative expense – General and administrative expense for 2023 and 2022 ~~and 2021~~ was ~~$4.5~~$5.1 million and ~~$3.2~~$4.1 million, respectively, representing an increase of ~~40.5%~~23.3%. The increase was primarily due ~~to:~~to higher legal and advisory fees associated with our MPSV Litigation for our Shipyard Division.

•

~~Higher legal and advisory fees associated with our MPSV dispute for our Shipyard Division,~~

•

~~Higher incentive plan costs for our Corporate Division, and~~

•

~~Incremental administrative costs associated with the DSS Business, including amortization of intangible assets, for our Services Division.~~

General and administrative expense included legal and advisory fees of ~~$1.2~~$1.7 million and ~~$0.2~~$0.7 million for ~~2022~~2023 and ~~2021,~~2022, respectively, associated with our MPSV ~~dispute,~~Litigation, which are reflected within our Shipyard Division. See Note 74 for further discussion of our MPSV ~~dispute.~~Litigation.

Other (income) expense, net –Other (income) expense, net for ~~2022~~2023 and ~~2021~~2022 was income of ~~$0.9~~$0.4 million and expense of ~~$0.3~~$0.5 million, respectively. Other (income) expense, net generally represents recoveries or provisions for bad debts, 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 and expense for 2022 was primarily due ~~to:~~

•

~~Gains~~to gains of $0.2 million and charges of $0.3 million, respectively, related to the net impact of ~~$1.3 million from~~ insurance recoveries and costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities ~~for our Fabrication Division, offset partially by,~~

•

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 for our Corporate Division.

~~Other expense~~ for ~~2021 was primarily due to:~~

•

~~Charges associated with damage caused by Hurricane Ida to our second forty-vehicle ferry project and to the MPSVs which are in our possession and subject to dispute for our Shipyard Division, and~~

•

~~Carry costs associated with our leased Jennings Facility and Lake Charles Facility (which were closed in the fourth quarter 2020) for our Shipyard Division, offset partially by,~~

•

~~Gains on the sales of equipment and scrap materials for our Fabrication Division.~~

our Fabrication Division. See Note 2 for further discussion of the impacts of Hurricanes Ida.

~~- 32 -~~

~~Gain from extinguishment of debt~~ ~~– Gain from extinguishment of debt for 2021 was $9.1 million and was related to the SBA’s forgiveness of $8.9 million of our PPP Loan, plus accrued interest. See Note 6 and~~ ~~“Liquidity and Capital Resources”~~ ~~below for further discussion of our PPP Loan.~~

Interest (expense) income, net – Interest (expense) income, net for 2023 and 2022 was income of $0.3 million and ~~2021 was~~ expense of less than ~~$0.1 million and~~ $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 ~~offset partially by~~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. The 2022 period also included interest incurred on our Insurance Finance Arrangement, and~~balances for the ~~2021 period included interest incurred on our former PPP Loan. See Note 6 for further discussion of our Insurance Finance Arrangement, LC Facility and PPP Loan.~~2023 period.

Income tax (expense) benefit – Income tax (expense) benefit for 2023 and 2022 ~~and 2021~~ represents state income taxes. No federal income tax expense was recorded for our income for ~~either period~~2023 as it was fully offset by the reversal of valuation ~~allowance.~~

~~Operating Segments~~

~~Services Division~~

Three Months Ended September 30,

Favorable (Unfavorable)

2022

2021

Change

New project awards

$
22,110

$
8,943

$
13,167

Revenue

$
22,569

$
9,305

$
13,264

Gross profit

3,163

1,462

1,701

Gross profit percentage

14.0
%

15.7
%

General and administrative expense

791

338

(453
)
Other (income) expense, net

(18
)

224

242

Operating income

2,390

900

1,490

~~Operating results~~allowance on our net deferred tax assets, and no federal income tax benefit was recorded for our ~~Services Division~~losses for 2022 ~~include~~as a full valuation allowance was recorded against our net deferred tax assets generated during the ~~results of the DSS Business. See Note 4 for further discussion of the DSS Acquisition.~~ period.

Operating Segments

Services Division


	Three Months Ended March 31,						Favorable (Unfavorable)
	2023			2022			Change
New project awards	$	21,472		$	19,402		$	2,070

Revenue	$	21,587		$	20,664		$	923
Gross profit		2,987			1,928			1,059
Gross profit percentage		13.8	%		9.3	%
General and administrative expense		710			729			19
Other (income) expense, net		(64	)		12			76
Operating income		2,341			1,187			1,154

References below to ~~2022~~2023 and ~~2021~~2022 refer to the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

New project awards – New project awards for 2023 and 2022 ~~and 2021~~ were ~~$22.1~~$21.5 million and ~~$8.9~~$19.4 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 ~~DSS Business and increased offshore services activity.~~third quarter 2022).

Revenue – Revenue for 2023 and 2022 ~~and 2021~~ was ~~$22.6~~$21.6 million and ~~$9.3~~$20.7 million, respectively, representing an increase of ~~142.5%~~4.5%. The increase was primarily due ~~to:~~to incremental revenue associated with our welding enclosures business line (commenced in the third quarter 2022).

- 27 -

•

~~Incremental revenue associated with the DSS Business, and~~

•

~~Increased offshore services activity.~~

Gross profit – Gross profit for 2023 and 2022 ~~and 2021~~ was ~~$3.2~~$3.0 million ~~(14.0%~~(13.8% of revenue) and ~~$1.5~~$1.9 million ~~(15.7%~~(9.3% of revenue), respectively. The increase in gross profit for ~~2022~~2023 relative to ~~2021~~2022 was primarily due to:

•

Higher revenue, and

•

A higher margin mix relative to 2022 (including the benefit of our welding enclosures business line).

•

~~Higher revenue (including incremental revenue associated with the DSS Business), and~~

•

~~A higher margin mix relative to 2021 (excluding the DSS Business).~~

General and administrative expense – General and administrative expense for 2023 and 2022 ~~and 2021~~ was ~~$0.8~~$0.7 million and ~~$0.3~~$0.7 million, respectively, representing a decrease of 2.6%.

Fabrication Division


	Three Months Ended March 31,						Favorable (Unfavorable)
	2023			2022			Change
New project awards	$	16,706		$	8,296		$	8,410

Revenue	$	39,662		$	5,617		$	34,045
Gross profit (loss)		2,462			(2,021	)		4,483
Gross profit (loss) percentage		6.2	%		(36.0	)%
General and administrative expense		520			625			105
Other (income) expense, net		(302	)		287			589
Operating income (loss)		2,244			(2,933	)		5,177

References below to 2023 and 2022 refer to the three months ended March 31, 2023 and 2022, respectively.

New project awards – New project awards for 2023 and 2022 were $16.7 million and $8.3 million, respectively, and were primarily related to small-scale fabrication work.

Revenue – Revenue for 2023 and 2022 was $39.7 million and $5.6 million, respectively, representing an increase of ~~134.0%. The increase was primarily due to incremental administrative costs associated with the DSS Business, including amortization of intangible assets~~.

~~Other (income) expense, net~~– ~~Other (income) expense, net for 2021 was expense of $0.2 million.~~

~~- 33 -~~

~~Fabrication Division~~

Three Months Ended September 30,

Favorable (Unfavorable)

2022

2021

Change

New project awards

$
116,926

$
6,397

$
110,529

Revenue

$
15,429

$
8,120

$
7,309

Gross profit (loss)

1,326

(302
)

1,628

Gross profit (loss) percentage

8.6
%

(3.7
)%

General and administrative expense

507

547

40

Other (income) expense, net

(1,301
)

(376
)

925

Operating income (loss)

2,120

(473
)

2,593

~~References below to 2022 and 2021 refer to the three months ended September 30, 2022 and 2021, respectively.~~

~~New project awards~~ ~~– New project awards for 2022 and 2021 were $116.9 million and $6.4 million, respectively, and were primarily related~~ ~~to the fabrication of jacket foundations for an offshore project and~~ ~~small-scale fabrication work.~~

~~Revenue~~ ~~– Revenue for 2022 and 2021 was $15.4 million and $8.1 million, respectively, representing an increase of 90.0%~~606.1%. The increase was primarily due to:

•

Revenue for our offshore jackets project prior to its suspension (primarily related to procurement activities), and

•

Higher small-scale fabrication project activity.

•

~~Increased small-scale fabrication project activity, and~~

•

~~Facility fees to reserve fabrication capacity for our offshore jackets project, offset partially by,~~

•

~~No revenue for our material supply, marine docking structures and subsea structures projects, which were completed in 2021.~~

Gross profit (loss) – Gross profit for ~~2022~~2023 was ~~$1.3~~$2.5 million ~~(8.6%~~(6.2% of revenue) and gross loss for ~~2021~~2022 was ~~$0.3~~$2.0 million ~~(3.7%~~(36.0% of revenue). Gross profit for ~~2022~~2023 was primarily impacted by:

•

Low margin associated with procurement activities for our offshore jackets project prior to its suspension, and

•

The partial under-recovery of overhead costs due to the under-utilization of our facilities and resources due to low work hours.

•

~~Low revenue due to low backlog levels, and~~

•

~~The partial under-recovery of overhead costs due to the under-utilization of our facilities and resources due to low work hours, offset partially by,~~

•

~~The benefit of the aforementioned facility fees.~~

The gross profit for ~~2022~~2023 relative to the gross loss for ~~2021~~2022 was primarily due to:

•

Higher revenue,

•

A decrease in the under-recovery of overhead costs due an increase in work hours associated with our small-scale fabrication work and recoveries associated with our offshore jackets project prior to its suspension, offset partially by higher property and equipment insurance costs, and

•

A lower margin mix relative to 2022 associated with our small-scale fabrication work.

•

~~Higher revenue,~~

•

~~A higher margin mix relative to 2021, and~~

•

~~The benefit of the aforementioned facility fees for 2022, offset partially by,~~

•

An increase in the under-recovery of overhead costs due to higher property insurance costs and a decrease in work hours associated with our large fabrication activity, offset partially by an increase in work hours associated with small-scale fabrication activity, and

•

~~Project improvements of $1.1 million for 2021 on our marine docking structures and material supply projects.~~

The Fabrication Division utilization for ~~2022~~2023 and ~~2021~~2022 benefited by $0.1 million and $0.2 million, respectively, from providing resources and facilities to our Shipyard Division for our seventy-vehicle ferry and two forty-vehicle ferry projects. See Note 2 for further discussion of our project impacts.

General and administrative expense – General and administrative expense for ~~2022~~2023 and ~~2021~~2022 was $0.5 million and ~~$0.5~~$0.6 million, respectively, representing a decrease of ~~7.3%~~16.8%. The decrease was primarily due to various cost savings.

Other (income) expense, net – Other (income) expense, net for ~~2022~~2023 and ~~2021~~2022 was income of ~~$1.3~~$0.3 million and ~~$0.4~~expense of $0.3 million, respectively. Other income for 2023 and expense for 2022 was primarily due to gains of ~~$1.3~~$0.2 million ~~from~~and charges of $0.3 million, respectively, 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. ~~Other income for 2021 was primarily due to gains on the sales of equipment and scrap materials. See Note 2 for further discussion of the impacts of Hurricane Ida.~~

- 3428 -

Shipyard Division


	Three Months Ended March 31,						Favorable (Unfavorable)
	2023			2022			Change
New project awards	$	(122	)	$	—		$	(122	)

Revenue	$	1,347		$	2,497		$	(1,150	)
Gross loss		(415	)		(327	)		(88	)
Gross loss percentage		(30.8	)%		(13.1	)%
General and administrative expense		1,713			746			(967	)
Other (income) expense, net		75			115			40
Operating loss		(2,203	)		(1,188	)		(1,015	)

Three Months Ended September 30,

Favorable (Unfavorable)

2022

2021

Change

New project awards

$
380

$
—

$
380

Revenue

$
1,849

$
2,302

$
(453
)
Gross loss

(269
)

(1,237
)

968

Gross loss percentage

(14.5
)%

(53.7
)%

General and administrative expense

1,193

232

(961
)
Other (income) expense, net

(69
)

412

481

Operating loss

(1,393
)

(1,881
)

488

References below to ~~2022~~2023 and ~~2021~~2022 refer to the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

New project awards – New project awards for ~~2022~~2023 were ~~$0.4~~negative $0.1 million and were due to ~~the net impact of change orders and~~ liquidated damages for our seventy-vehicle ferry and ~~two~~ forty-vehicle ferry projects.

Revenue – Revenue for 2023 and 2022 ~~and 2021~~ was ~~$1.8~~$1.3 million and ~~$2.3~~$2.5 million, respectively, representing a decrease of ~~19.7%~~46.1%. The decrease was primarily due ~~to lower~~to:

•

Lower revenue for our forty-vehicle ferry project that was substantially completed in the fourth quarter 2022,

•

Lower revenue for our remaining forty-vehicle ferry project, which is nearing completion, and

•

Lower revenue for our seventy-vehicle ferry ~~and two forty-vehicle ferry projects,~~project, which ~~are~~is nearing completion.

Gross loss –Gross loss for 2023 and 2022 ~~and 2021~~ was ~~$0.3~~$0.4 million ~~(14.5%~~(30.8% of revenue) and ~~$1.2~~$0.3 million ~~(53.7%~~(13.1% of revenue), respectively. The gross loss for ~~2022~~2023 was primarily due to:

•

~~Holding costs of $0.2 million related to the two MPSVs that remain in our possession~~ ~~and are subject to dispute, and~~

•

Holding costs of $0.2 million related to the two MPSVs that remain in our possession and are subject to our MPSV Litigation, and

•

~~The partial under-recovery of overhead costs due to the under-utilization of our resources due to low work hours.~~

•

The partial under-recovery of overhead costs due to the under-utilization of our resources due to low work hours as our remaining projects are nearing completion.

The ~~decrease~~increase in gross loss for ~~2022~~2023 relative to ~~2021~~2022 was primarily due ~~to:~~

•

~~Project charges of $1.7 million for 2021 on our seventy-vehicle ferry project, offset partially by,~~

•

~~Project improvements of $0.4 million for 2021 on our two forty-vehicle ferry projects, and~~

•

~~An increase in the under-recovery of overhead costs due to a decrease in work hours.~~

to an increase in the under-recovery of overhead costs due to a decrease in work hours as our remaining projects are nearing completion. See Note 2 for ~~further~~ discussion of the status of our ~~project impacts~~ferry projects and Note 74 for further discussion of our MPSV ~~dispute.~~Litigation.

General and administrative expense – General and administrative expense for 2023 and 2022 ~~and 2021~~ was ~~$1.2~~$1.7 million and ~~$0.2~~$0.7 million, respectively, representing an increase of ~~414.2%~~129.6%. General and administrative expense relates to legal and advisory fees associated with our MPSV ~~dispute.~~Litigation. See Note 74 for further discussion of our MPSV ~~dispute.~~Litigation.

Other (income) expense, net – Other (income) expense, net for 2023 and 2022 ~~and 2021~~ was ~~income~~expense of $0.1 million and ~~expense of $0.4~~$0.1 million, respectively. ~~Other expense for 2021 was primarily due to:~~

•

~~Charges associated with damage caused by Hurricane Ida to our second forty-vehicle ferry project and to the MPSVs which are in our possession and subject to dispute, and~~

•

~~Carry costs associated with our leased Jennings Facility and Lake Charles Facility (which were closed in the fourth quarter 2020).~~

~~- 35 -~~

Corporate Division


	Three Months Ended September 30,						Favorable (Unfavorable)			Three Months Ended March 31,						Favorable (Unfavorable)
	2022			2021			Change			2023			2022			Change
New project awards (eliminations)	$	(254	)	$	(140	)	$	(114	)	$	(428	)	$	(92	)	$	(336	)

Revenue (eliminations)	$	(254	)	$	(140	)	$	(114	)	$	(428	)	$	(92	)	$	(336	)
Gross loss		—			(58	)		58
Gross profit											—			—			—
General and administrative expense		2,019			2,094			75			2,124			2,010			(114	)
Other (income) expense, net		444			—			(444	)		(70	)		38			108
Operating loss		(2,463	)		(2,152	)		(311	)		(2,054	)		(2,048	)		(6	)

References below to ~~2022~~2023 and ~~2021~~2022 refer to the three months ended ~~September 30,~~March 31, 2023 and 2022, ~~and 2021,~~ respectively.

~~Gross loss~~– ~~Gross loss for 2021 was $0.1 million and was primarily due to certain operating division support costs that are reflected within our Services Division and Fabrication Division for 2022.~~

General and administrative expense– ~~General and administrative expense~~ ~~for 2022 and 2021 was $2.0 million and $2.1 million, respectively, representing a decrease of 3.6% The decrease was~~ ~~primarily due to:~~

•

~~Various cost savings, offset partially by,~~

•

~~Higher incentive plan costs.~~

~~Other (income) expense, net –~~ Other (income) expense, net for 2022 was expense of $0.4 million and 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.

~~Discontinued Operations~~

~~Our Shipyard Transaction was completed in April 2021. There were no operating results from discontinued operations for the three months ended September 30, 2022 or 2021.~~

~~Comparison of the Nine Months Ended September 30, 2022 and 2021~~ ~~(in thousands in each table, except for percentages):~~

~~Consolidated~~

Nine Months Ended September 30,

Favorable
(Unfavorable)

2022

2021

Change

New project awards

$
202,302

$
44,939

$
157,363

Revenue

$
104,181

$
67,640

$
36,541

Cost of revenue

98,709

66,529

(32,180
)
Gross profit

5,472

1,111

4,361

Gross profit percentage

5.3
%

1.6
%

General and administrative expense

12,965

9,086

(3,879
)
Other (income) expense, net

(3,698
)

(649
)

3,049

Operating loss

(3,795
)

(7,326
)

3,531

Gain on extinguishment of debt

—

9,061

(9,061
)
Interest (expense) income, net

(104
)

(347
)

243

Income (loss) before income taxes

(3,899
)

1,388

(5,287
)
Income tax (expense) benefit

(2
)

6

(8
)
Income (loss) from continuing operations

(3,901
)

1,394

(5,295
)
Loss from discontinued operations, net of taxes

—

(17,372
)

17,372

Net loss

$
(3,901
)

$
(15,978
)

$
12,077

~~References below to 2022 and 2021 refer to the nine months ended September 30, 2022 and 2021, respectively.~~

~~- 36 -~~

~~New project awards~~ ~~– New project awards for 2022 and 2021 were $202.3 million and $44.9 million, respectively.~~ ~~New project awards for 2022~~ ~~were primarily related to:~~

•

~~The fabrication of jacket foundations for an offshore project and small-scale fabrication work for our Fabrication Division, and~~

•

~~Offshore services work for our Services Division.~~

~~New project awards for 2021 were primarily related to offshore services work for our Services Division and small-scale fabrication work for our Fabrication Division.~~

~~Revenue~~ ~~– Revenue for 2022 and 2021 was $104.2 million and $67.6 million, respectively, representing an increase of 54.0%. The increase was primarily due to:~~

•

~~Higher revenue for our Services Division of $38.3 million, primarily attributable to:~~

−

~~Incremental revenue associated with the DSS Business, and~~

−

~~Increased offshore services activity, and~~

•

~~Higher revenue for our Fabrication Division of $0.8 million, primarily attributable to:~~

−

~~Increased small-scale fabrication project activity, and~~

−

~~Facility fees to reserve fabrication capacity for our offshore jackets project, offset partially by,~~

−

~~No revenue for our material supply, marine docking structures, offshore modules and subsea structures projects, which were completed in 2021, offset partially by,~~

•

~~Lower revenue for our Shipyard Division of $3.2 million, primarily attributable to:~~

−

~~Lower revenue for our seventy-vehicle ferry and second forty-vehicle ferry projects, which are nearing completion, offset partially by,~~

−

~~Higher revenue for our first forty-vehicle ferry project, which is nearing completion.~~

~~Gross profit~~ ~~– Gross profit for 2022 and 2021 was $5.5 million (5.3% of revenue) and $1.1 million (1.6% of revenue), respectively. Gross profit for 2022 was primarily impacted by:~~

•

~~A strong market and demand for the services provided by our Services Division, and~~

•

~~The benefit of the aforementioned facility fees for our Fabrication Division, offset partially by,~~

•

~~Low revenue due to low backlog levels for our Fabrication Division,~~

•

The partial under-recovery of overhead costs associated with the under-utilization of our facilities and resources for our Fabrication Division and, to a lesser extent, our resources for our Shipyard Division, and

•

~~Holding costs of $0.6 million related to the two MPSVs that remain in our possession and are subject to dispute for our Shipyard Division.~~

~~The increase in gross profit for 2022 relative to 2021 was primarily due to:~~

•

~~Higher revenue for our Services Division (including incremental revenue associated with the DSS Business) and Fabrication Division,~~

•

~~A higher margin mix relative to 2021 for our Services Division (excluding the DSS Business),~~

•

~~The benefit of the aforementioned facility fees for 2022 for our Fabrication Division, and~~

•

~~Project charges of $3.0 million for 2021 for our Shipyard Division, offset partially by,~~

•

~~An increase in the under-recovery of overhead costs for our Fabrication Division, and to a lesser extent, our Shipyard Division, and~~

•

~~Project improvements of $3.7 million for 2021 for our Fabrication Division.~~

~~See~~ ~~“Operating Segments”~~ ~~below and Note 2 of our Financial Statements in Item 1 for further discussion of our project impacts.~~

~~- 37 -~~

~~General and administrative expense~~ – General and administrative expense for 2023 and 2022 ~~and 2021~~ was ~~$13.0~~$2.1 million and ~~$9.1~~$2.1 million, respectively, representing an increase of ~~42.7%~~5.7%. ~~The increase was primarily due to:~~

•

~~Higher legal and advisory fees associated with our MPSV dispute for our Shipyard Division,~~

•

~~Incremental administrative costs associated with the DSS Business, including amortization of intangible assets, for our Services Division,~~

•

~~Higher incentive plan costs for our Corporate Division, and~~

•

~~Higher costs associated with initiatives to diversify and enhance our business for our Corporate Division.~~

General and administrative expense included legal and advisory fees of $2.9 million and $0.7 million for 2022 and 2021, respectively, associated with our MPSV dispute, which are reflected within our Shipyard Division. See Note 7 for further discussion of our MPSV dispute.

~~Other (income) expense, net~~ – Other (income) expense, net for 2022 and 2021 was income of $3.7 million and $0.6 million, respectively. Other (income) expense, net generally represents recoveries or provisions for bad debts, 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 2022 was primarily due to:~~

•

Gains of $4.4 million from insurance recoveries associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities for our Fabrication Division, offset partially by,

•

~~Charges of $0.2 million associated with damage previously caused by Hurricane Ida to bulkheads and the MPSVs which are in our possession and subject to dispute for our Shipyard Division, and~~

•

~~Carry costs associated with our leased Jennings Facility and Lake Charles Facility (which were closed in the fourth quarter 2020) for our Shipyard Division.~~

~~Other income for 2021 was primarily due to:~~

•

~~Gains from insurance recoveries associated with property damage to our Lake Charles Facility previously caused by Hurricane Laura for our Shipyard Division,~~

•

~~A gain of $0.4 million associated with the settlement of a property tax dispute for our Fabrication Division, and~~

•

~~Gains on the sales of equipment and scrap materials for our Fabrication Division, offset partially by,~~

•

~~Charges associated with damage caused by Hurricane Ida to our second forty-vehicle ferry project and to the MPSVs which are in our possession and subject to dispute for our Shipyard Division, and~~

•

~~Carry costs associated with our leased Jennings Facility and Lake Charles Facility for our Shipyard Division.~~

~~See Note 1 for further discussion of the impacts of Hurricane Ida.~~

~~Interest (expense) income, net~~ – Interest (expense) income, net for 2022 and 2021 was expense of $0.1 million and $0.3 million, respectively. Interest (expense) income, net for both periods included interest incurred on the unused portion of our LC Facility, offset partially by interest earned on our cash and short-term investment balances. The 2022 period also included interest incurred on our Insurance Finance Arrangement, and the 2021 period included interest incurred on our PPP Loan and the write-off of deferred financing costs in connection with an amendment to our LC Facility. The decrease in expense for 2022 relative to 2021 was primarily due to the additional expense items for the 2021 period. See Note 6 for further discussion of our Insurance Finance Arrangement, LC Facility and PPP Loan.

~~Income tax (expense) benefit~~ – Income tax (expense) benefit for 2022 and 2021 represents state income taxes. No federal income tax benefit was recorded for our loss for 2022 as a full valuation allowance was recorded against our net deferred tax assets generated during the period. No federal income tax expense was recorded for our income for 2021 as it was fully offset by the reversal of valuation allowance.

- 3829 -

~~Operating Segments~~

~~Services Division~~

Nine Months Ended September 30,

Favorable (Unfavorable)

2022

2021

Change

New project awards

$
64,572

$
24,170

$
40,402

Revenue

$
65,413

$
27,089

$
38,324

Gross profit

8,295

3,624

4,671

Gross profit percentage

12.7
%

13.4
%

General and administrative expense

2,280

925

(1,355
)
Other (income) expense, net

103

234

131

Operating income

5,912

2,465

3,447

~~References below to 2022 and 2021 refer to the nine months ended September 30, 2022 and 2021, respectively.~~

~~New project awards~~ ~~– New project awards for~~ ~~2022~~ ~~and 2021~~ were $64.6 million and $24.2 million, respectively, and were primarily related to offshore services work, with the increase due to incremental new project awards associated with the DSS Business and increased offshore services activity.

~~Revenue~~ ~~– Revenue for~~ ~~2022~~ ~~and 2021~~ ~~was $65.4 million and $27.1 million, respectively, representing an increase of 141.5%. The increase was primarily due to:~~

•

~~Incremental revenue associated with the DSS Business, and~~

•

~~Increased offshore services activity.~~

~~Gross profit~~ ~~– Gross profit for~~ ~~2022~~ ~~and 2021~~ ~~was $8.3 million (12.7% of revenue) and $3.6 million (13.4% of revenue), respectively. The increase in gross profit for 2022 relative to 2021 was primarily due to:~~

•

~~Higher revenue (including incremental revenue associated with the DSS Business), and~~

•

~~A higher margin mix relative to 2021 (excluding the DSS Business).~~

~~General and administrative expense~~ ~~– General and administrative expense for~~ ~~2022~~ ~~and 2021~~ was $2.3 million and $0.9 million, respectively, representing an increase of 146.5%. The increase was primarily due to incremental administrative costs associated with the DSS Business, including amortization of intangible assets.

~~Other (income) expense, net –~~ ~~Other (income) expense, net for 2022 and~~ ~~2021~~ ~~was expense of $0.1 million and $0.2 million, respectively.~~

~~- 39 -~~

~~Fabrication Division~~

Nine Months Ended September 30,

Favorable (Unfavorable)

2022

2021

Change

New project awards

$
136,948

$
21,877

$
115,071

Revenue

$
31,885

$
31,098

$
787

Gross profit (loss)

(2,064
)

885

(2,949
)
Gross profit (loss) percentage

(6.5
)%

2.8
%

General and administrative expense

1,699

1,453

(246
)
Other (income) expense, net

(4,550
)

(1,168
)

3,382

Operating income

787

600

187

~~References below to 2022 and 2021 refer to the nine months ended September 30, 2022 and 2021, respectively.~~

~~New project awards~~ ~~– New project awards for 2022 and 2021 were $136.9 million and $21.9 million, respectively, and were primarily related~~ ~~to the fabrication of jacket foundations for an offshore project and~~ ~~small-scale fabrication work.~~

~~Revenue~~ ~~– Revenue for 2022 and 2021 was $31.9 million and $31.1 million, respectively, representing an increase of 2.5%. The increase was primarily due to:~~

•

~~Increased small-scale fabrication project activity, and~~

•

~~Facility fees to reserve fabrication capacity for our offshore jackets project, offset partially by,~~

•

~~No revenue for our material supply, marine docking structures, offshore modules and subsea structures projects, which were completed in 2021.~~

~~Gross profit (loss)~~ ~~– Gross loss for 2022 was $2.1 million (6.5% of revenue) and gross profit for 2021 was $0.9 million (2.8% of revenue). The gross loss for 2022 was primarily due to:~~

•

~~Low revenue due to low backlog levels, and~~

•

~~The partial under-recovery of overhead costs due to the under-utilization of our facilities and resources due to low work hours, offset partially by,~~

•

~~The benefit of the aforementioned facility fees.~~

~~The gross loss for 2022 relative to gross profit for 2021 was primarily due to:~~

•

~~Project improvements of $3.7 million for 2021 on our offshore modules, material supply, marine docking structures and subsea structures project, offset partially by,~~

•

~~Higher revenue, and~~

•

~~The benefit of the aforementioned facility fees for 2022.~~

The Fabrication Division utilization for 2022 and 2021 benefited by $0.6 million and $0.8 million, respectively, from providing resources and facilities to our Shipyard Division for our seventy-vehicle ferry and two forty-vehicle ferry projects. See Note 2 for further discussion of our project impacts.

~~General and administrative expense~~ – General and administrative expense for 2022 and 2021 was $1.7 million and $1.5 million, respectively, representing an increase of 16.9%. The increase was primarily due to higher business development costs.

~~Other (income) expense, net –~~ Other (income) expense, net for 2022 and 2021 was income of $4.6 million and $1.2 million, respectively. Other income for 2022 was primarily due to gains of $4.4 million from insurance recoveries associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities. Other income for 2021 was primarily due to:

•

~~A gain of $0.4 million associated with the settlement of a property tax dispute, and~~

•

~~Gains on the sales of equipment and scrap materials.~~

~~See Note 2 for further discussion of the impacts of Hurricane Ida.~~

~~- 40 -~~

~~Shipyard Division~~

Nine Months Ended September 30,

Favorable (Unfavorable)

2022

2021

Change

New project awards

$
1,213

$
—

$
1,213

Revenue

$
7,314

$
10,561

$
(3,247
)
Gross loss

(759
)

(3,174
)

2,415

Gross loss percentage

(10.4
)%

(30.1
)%

General and administrative expense

2,939

691

(2,248
)
Other (income) expense, net

267

285

18

Operating loss

(3,965
)

(4,150
)

185

~~References below to 2022 and 2021 refer to the nine months ended September 30, 2022 and 2021, respectively.~~

~~New project awards~~ ~~– New project awards for 2022 were $1.2 million and were due to the net impact of change orders and liquidated damages for our seventy-vehicle ferry and two forty-vehicle ferry projects.~~

~~Revenue~~ ~~– Revenue for~~ ~~2022~~ ~~and 2021~~ ~~was $7.3 million and $10.6 million, respectively, representing a decrease of 30.7%. The decrease was primarily due to:~~

•

~~Lower revenue for our seventy-vehicle ferry and second forty-vehicle ferry projects, which are nearing completion, offset partially by,~~

•

~~Higher revenue for our first forty-vehicle ferry project, which is nearing completion.~~

~~Gross loss~~ ~~– Gross loss for~~ ~~2022~~ ~~and 2021~~ ~~was $0.8 million (10.4% of revenue) and $3.2 million (30.1% of revenue), respectively. The gross loss for 2022 was primarily due to:~~

•

~~Holding costs of $0.6 million related to the two MPSVs that remain in our possession and are subject to dispute, and~~

•

~~The partial under-recovery of overhead costs due to the under-utilization of our resources due to low work hours.~~

~~The decrease in gross loss for 2022 relative to 2021 was primarily due to:~~

•

~~Project charges of $3.3 million for 2021 on our seventy-vehicle ferry project, offset partially by,~~

•

~~Project improvements of $0.3 million for 2021 on our two forty-vehicle ferry projects, and~~

•

~~An increase in the under-recovery of overhead costs due to a decrease in work hours.~~

~~See Note 2 for further discussion of our project impacts.~~

~~General and administrative expense~~ ~~– General and administrative expense for~~ ~~2022~~ ~~and 2021~~ ~~was $2.9 million and $0.7 million, respectively, representing an increase of 325.3%. General and administrative expense relates to legal and advisory fees associated with our MPSV dispute. See Note 7 for further discussion of our MPSV dispute.~~

~~Other (income) expense, net –~~ ~~Other (income) expense, net for 2022 and 2021 was expense of $0.3 million and $0.3 million, respectively. 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 subject to dispute, and~~

•

~~Carry costs associated with our leased Jennings Facility and Lake Charles Facility (which were closed in the fourth quarter 2020).~~

~~Other expense for 2021 was primarily due to:~~

•

~~Charges associated with damage caused by Hurricane Ida to our second forty-vehicle ferry project and to the MPSVs which are in our possession and subject to dispute, and~~

•

~~Carry costs associated with our leased Jennings Facility and Lake Charles Facility, offset partially by,~~

•

~~Gains from insurance recoveries associated with property damage to our Lake Charles Facility previously caused by Hurricane Laura.~~

~~- 41 -~~

~~Corporate Division~~

Nine Months Ended September 30,

Favorable (Unfavorable)

2022

2021

Change

New project awards (eliminations)

$
(431
)

$
(1,108
)

$
677

Revenue (eliminations)

$
(431
)

$
(1,108
)

$
677

Gross loss

—

(224
)

224

General and administrative expense

6,047

6,017

(30
)
Other (income) expense, net

482

—

(482
)
Operating loss

(6,529
)

(6,241
)

(288
)

~~References below to 2022 and 2021 refer to the nine months ended September 30, 2022 and 2021, respectively.~~

~~Gross loss~~ ~~– Gross loss for~~ ~~2021~~ ~~was $0.2 million and was primarily due to certain operating division support costs that are reflected within our Services Division and Fabrication Division for 2022.~~

~~General and administrative expense~~– ~~General and administrative expense for 2022 and 2021 was $6.0 million and $6.0 million, respectively, representing an increase of 0.5%. The increase was primarily due to:~~

•

~~Higher incentive plan costs (due in part to the graded vesting method for the recognition of compensation~~ ~~expense for performance-based restricted stock unit awards, which results in the accelerated amortization of compensation expense over the vesting period), and~~

•

~~Higher costs associated with initiatives to diversify and enhance our business, offset partially by,~~

•

~~Various cost savings~~.

~~Other (income) expense, net –~~ Other (income) expense, net for 2022 was expense of $0.5 million and 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.

~~Discontinued Operations~~

Nine Months Ended September 30,

Favorable
(Unfavorable)

2022

2021

Change

Revenue

$
—

$
41,637

$
(41,637
)
Gross profit

—

7,725

(7,725
)
Gross profit percentage

—

18.6
%

General and administrative expense

—

413

413

Impairments and (gain) loss on assets held for sale, net

—

25,331

25,331

Other (income) expense, net

—

(647
)

(647
)
Operating loss

—

(17,372
)

17,372

Our Shipyard Transaction was completed in April 2021. There were no operating results from discontinued operations for the nine months ended September 30, 2022. References below to 2021 refer to the nine months ended September 30, 2021.

~~Revenue~~ ~~– Revenue for 2021 was $41.6 million and was primarily related to:~~

•

~~Our harbor tug projects which were completed in the first quarter 2021, and~~

•

~~Our research vessel projects and towing, salvage and rescue ship projects that were sold in connection with the Shipyard Transaction.~~

~~- 42 -~~

~~Gross profit~~ ~~– Gross profit for 2021 was $7.7 million (18.6% of revenue) and was primarily impacted by:~~

•

Project improvements of $8.4 million related to the cumulative effect of a change order (offset partially by forecast cost increases) on our towing, salvage and rescue ship projects, offset partially by,

•

~~A backlog for our discontinued operations that was generally at, or near, break-even or in a loss position, and accordingly, resulted in revenue with low or no gross profit, and~~

•

~~The partial under-recovery of overhead costs associated with the under-utilization of our facilities and resources.~~

~~See Note 3 for further discussion of our project impacts attributable to discontinued operations.~~

~~General and administrative expense~~ ~~– General and administrative expense for 2021 was $0.4 million~~.

~~Impairments and (gain) loss on assets held for sale, net –~~ ~~Impairments and (gain) loss on assets held for sale, net for 2021 was a loss of $25.3 million, of which~~ ~~$22.8 million related to the impairment of our Shipyard Division’s long-lived assets and $2.6 million related to transaction and other costs associated with the Shipyard Transaction.~~ ~~See Note 3 for further discussion of the Shipyard Transaction.~~

~~Other (income) expense, net –~~ Other (income) expense, net for 2021 was income of $0.6 million and was primarily due to a gain from insurance recoveries associated with damage previously caused by Hurricane Laura to a drydock that was sold in connection with the Shipyard Transaction.

Liquidity and Capital Resources

Available Liquidity

Our primary sources of liquidity are our cash, cash equivalents ~~restricted cash~~ and scheduled maturities of our short-term investments. At ~~September 30, 2022,~~March 31, 2023, our cash, cash equivalents, short-term investments and restricted cash ~~and short-term investments~~ totaled ~~$37.8~~$44.7 million as follows (in thousands):


	March 31, 2023
Cash and cash equivalents	$	28,520
Short-term investments(1)		14,989
Available cash, cash equivalents and short-term investments		43,509
Restricted cash, current		1,197
Total cash, cash equivalents, restricted cash and short-term investments	$	44,706

September 30,
2022

Cash and cash equivalents

$
26,257

Short-term investments⁽¹⁾

9,809

Available cash, cash equivalents and short-term investments

36,066

Restricted cash, current

1,703

Total cash, cash equivalents, restricted cash and short-term investments

$
37,769

(1)

Includes U.S. Treasuries with original maturities of four months.

~~(1)~~

~~Includes U.S. Treasuries with original maturities of six months.~~

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.

~~- 43 -~~

At ~~September 30, 2022,~~March 31, 2023, our working capital was ~~$55.5~~$57.4 million and included ~~$37.8~~$44.7 million of cash, cash equivalents, short-term investments and restricted ~~cash and short-term investments.~~cash. Excluding cash, cash equivalents, short-term investments and restricted cash, ~~and short-term investments,~~ our working capital at ~~September 30, 2022~~March 31, 2023 was ~~$17.7~~$12.7 million, and consisted of: net contract assets and contract liabilities of ~~$3.5~~$1.2 million; contract receivables and retainage of ~~$33.0~~$43.5 million; inventory, prepaid expenses and other current assets of ~~$9.1~~$8.5 million; and accounts payable, accrued expenses and other current liabilities of ~~$27.9~~$40.4 million. The components of our working capital (excluding cash, cash equivalents, short-term investments and restricted ~~cash and short-term investments)~~cash) at ~~September 30, 2022~~March 31, 2023 and December 31, ~~2021,~~2022, and changes in such amounts during the ~~nine~~three months ended ~~September 30, 2022,~~March 31, 2023, were as follows (in thousands):


	March 31, 2023			December 31, 2022			Change(4)
Contract assets	$	5,538		$	4,839		$	699
Contract liabilities(1)		(4,388	)		(8,196	)		3,808
Contracts in progress, net(2)		1,150			(3,357	)		4,507
Contract receivables and retainage, net(3)		43,545			29,427			14,118
Prepaid expenses, inventory and other current assets		8,460			8,074			386
Accounts payable, accrued expenses and other current liabilities(3)		(40,443	)		(22,593	)		(17,850	)
Total	$	12,712		$	11,551		$	1,161

September 30,
2022

December 31,
2021

Change⁽³⁾

Contract assets

$
7,807

$
4,759

$
3,048

Contract liabilities⁽¹⁾

(4,293
)

(6,648
)

2,355

Contracts in progress, net⁽²⁾

3,514

(1,889
)

5,403

Contract receivables and retainage, net

33,012

15,986

17,026

Prepaid expenses, inventory and other current assets

9,096

8,750

346

Accounts payable, accrued expenses and other current liabilities

(27,908
)

(23,306
)

(4,602
)
Total

$
17,714

$
(459
)

$
18,173

(1)

Contract liabilities at March 31, 2023 and December 31, 2022, includes accrued contract losses of $1.0 million and $1.6 million, respectively, associated primarily with the Active Retained Shipyard Contracts.

(2)

Represents our cash position relative to revenue recognized on projects, with contract assets representing unbilled amounts that reflect future cash inflows on projects, and contract liabilities representing (i) advance payments that reflect future cash expenditures and non-cash earnings on projects and (ii) accrued contract losses that represent future cash expenditures on projects.

(3)

Contract receivables and retainage, net and accounts payable at March 31, 2023, include $15.5 million and $12.1 million, respectively, related to our suspended offshore jackets project for our Fabrication Division. See “New Project Awards and Backlog” above and Note 2 for further discussion of the project suspension.

(4)

Changes referenced in the “Cash Flow Activity” section below may differ from the changes in this table due to non-cash reclassifications and due to certain changes in balance sheet accounts being reflected within other line items on the Statement of Cash Flows, including bad debt expense, gains and losses on sales of fixed assets and other assets, and accruals for capital expenditures.

- 30 -

~~(1)~~

Contract liabilities at September 30, 2022 and December 31, 2021, includes accrued contract losses of $1.6 million and $3.9 million, respectively, associated primarily with the Active Retained Shipyard Contracts.

~~(2)~~

~~(3)~~

~~Changes referenced in the~~ ~~“Cash Flow Activity”~~ section below may differ from the changes in this table due to non-cash reclassifications and due to certain changes in balance sheet accounts being reflected within other line items on the Statement of Cash Flows, including bad debt expense, gains and losses on sales of fixed assets and other assets, and accruals for capital expenditures.

Cash Flow Activity (in thousands)

Nine Months Ended September 30,

2022

2021

Net cash used in operating activities

$
(18,825
)

$
(11,228
)
Net cash provided by (used in) investing activities

(6,720
)

43,036

Net cash used in financing activities

(1,084
)

(1,158
)


	Three Months Ended March 31,
	2023			2022
Net cash provided by (used in) operating activities	$	1,296		$	(11,351	)
Net cash used in investing activities		(5,219	)		(415	)
Net cash used in financing activities		(1,184	)		(59	)

Operating Activities – Cash provided by operating activities for the three months ended March 31, 2023 was $1.3 million and cash used in operating activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2022 ~~and 2021~~ was ~~$18.8~~$11.4 million, ~~and $11.2 million, respectively,~~ and was primarily due to the net impacts of the following:

2023 Activity

•

Net loss adjusted for depreciation and amortization of $1.3 million, gain on insurance recoveries of $0.2 million, gain on the sale of fixed assets of $0.1 million, and stock-based compensation expense of $0.5 million;

•

Increase in contract assets of $0.7 million related to the timing of billings on projects, primarily due to increased unbilled positions on various projects for our Fabrication Division, offset partially by decreased unbilled positions for our forty-vehicle ferry projects for our Shipyard Division;

•

Decrease in contract liabilities of $3.8 million, primarily due to a decrease in advance billings on our offshore jackets project (which has been suspended) for our Fabrication Division and accrued contract losses on our forty-vehicle ferry projects for our Shipyard Division;

•

Increase in contract receivables and retainage of $14.5 million related to the timing of billings and collections on projects, primarily due to increased receivable positions on our offshore jackets project (which has been suspended) and various other projects for our Fabrication Division;

•

Decrease in prepaid expenses, inventory and other assets of $0.1 million, primarily due to prepaid expenses and the associated timing of certain prepayments. The change differs from the table above primarily due to the Insurance Finance Arrangements discussed further in Note 3;

•

Increase in accounts payable, accrued expenses and other current liabilities of $18.2 million, primarily due to the timing of payments and increased accounts payable positions on our offshore jackets project (which has been suspended) and various other projects for our Fabrication Division. The change differs from the table above primarily due to the Insurance Finance Arrangements discussed further in Note 3; and

•

Change in noncurrent assets and liabilities, net of $0.2 million.

2022 Activity

•

Operating loss adjusted for depreciation and amortization of $1.3 million and stock-based compensation expense of $0.6 million;

•

Decrease in contract assets of $2.1 million related to the timing of billings on projects, primarily due to decreased unbilled positions on various projects for our Fabrication Division;

•

Decrease in contract liabilities of $2.5 million, primarily due to a decrease in accrued contract losses and the unwind of advance payments on our forty-vehicle ferry projects for our Shipyard Division;

•

Increase in contract receivables and retainage of $7.7 million related to the timing of billings and collections on projects, primarily due to increased receivable positions on various projects for our Services Division;

•

Increase in prepaid expenses, inventory and other assets of $2.1 million, primarily due to prepaid expenses and the associated timing of certain prepayments and insurance receivables related to Hurricane Ida;

•

Increase in accounts payable, accrued expenses and other current liabilities of $2.1 million, primarily due to the timing of payments and increased accounts payable positions on various projects for our Services Division and Fabrication Division; and

•

Change in noncurrent assets and liabilities, net of $0.1 million.

•

Net loss adjusted for depreciation and amortization of $3.8 million, non-cash asset impairments of $0.5 million, gain on insurance recoveries of $1.2 million, and stock-based compensation expense of $1.5 million;

•

Increase in contract assets of $3.0 million related to the timing of billings on projects, primarily due to increased unbilled positions on our seventy-vehicle ferry and two forty-vehicle ferry projects within our Shipyard Division;

•

Decrease in contract liabilities of $2.4 million, primarily due to a decrease in accrued contract losses and the unwind of advance payments on our two forty-vehicle ferry projects within our Shipyard Division;

•

Increase in contract receivables and retainage of $17.0 million related to the timing of billings and collections on projects, primarily due to increased receivable positions on various projects within our Services Division (including projects associated with the DSS Business) and Fabrication Division;

•

Increase in prepaid expenses, inventory and other assets of $1.2 million, primarily due to prepaid expenses and the associated timing of certain prepayments. The change differs from the table above primarily due to the collection of the remainder of the Transaction Price discussed further in Note 3 and the Insurance Finance Arrangement discussed further in Note 6;

•

Increase in accounts payable, accrued expenses and other current liabilities of $2.5 million, primarily due to the timing of payments and increased accounts payable positions for various projects within our Services Division and Fabrication Division. The change differs from the table above primarily due to the Insurance Finance Arrangement discussed further in Note 6; and

•

~~Change in noncurrent assets and liabilities, net of $0.7 million.~~

~~- 44 -~~

~~2021 Activity~~

•

Net loss adjusted for depreciation and amortization of $4.3 million, non-cash asset impairments of $22.8 million, loss on the Shipyard Transaction of $2.6 million, gain on extinguishment of debt of $9.1 million, and stock-based compensation expense of $1.2 million;

•

Increase in contract assets of $4.4 million related to the timing of billings on projects, primarily due to increased unbilled positions on our Divested Shipyard Contracts, offset partially by decreased unbilled positions on our seventy-vehicle ferry project within our Shipyard Division;

•

Decrease in contract liabilities of $6.3 million, primarily due to a decrease in advance payments on our Divested Shipyard Contracts and our two forty-vehicle ferry projects within our Shipyard Division;

•

Decrease in contract receivables and retainage of $7.2 million related to the timing of billings and collections on projects, primarily due to collections on our Divested Shipyard Contracts and various projects within our Fabrication Division;

•

Increase in prepaid expenses, inventory and other assets of $0.5 million, primarily due to prepaid expenses and the associated timing of certain prepayments, insurance receivables related to Hurricane Ida and the unpaid portion of the Transaction Price associated with the Shipyard Transaction;

•

Decrease in accounts payable, accrued expenses and other current liabilities of $12.4 million, primarily due to the timing of payments and decreased accounts payable positions on our Divested Shipyard Contracts, our seventy-vehicle ferry project within our Shipyard Division, and various projects within our Fabrication Division; and

•

~~Change in noncurrent assets and liabilities, net of $0.6 million.~~

Investing Activities – Cash used in investing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 was ~~$6.7~~$5.2 million and ~~cash provided by~~$0.4 million, respectively. Cash used in investing activities for 2023 was primarily due to net purchases of short-term investments of $5.1 million and capital expenditures of $0.5 million, offset partially by recoveries from insurance claims and proceeds from the ~~nine months ended September 30, 2021 was $43.0 million.~~sale of fixed assets. Cash used in investing activities for 2022 was primarily due to ~~purchases of short-term investments of $9.8 million and~~ capital expenditures of $1.0 million, offset partially by proceeds from the Shipyard Transaction of $0.9 million, recoveries from insurance claims of $1.2 million, and the sale of assets of $2.0 million. Cash provided by investing activities for 2021 was primarily due to net proceeds from the Shipyard Transaction of $31.7 million, proceeds from the sale of assets of $4.4 million, and net maturities of short-term investments of $8.0 million, offset partially by capital expenditures of $1.1$0.4 million.

- 31 -

Financing Activities – Cash used in financing activities for the ~~nine~~three months ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ was ~~$1.1~~$1.2 million and ~~$1.2~~$0.1 million, respectively. Cash used in financing activities for ~~2022~~2023 was primarily due to payments on our Insurance Finance ~~Arrangement~~Arrangements of $1.0 million. ~~Cash used in financing activities for 2021 was primarily due to the repayment of $1.1 million of the PPP Loan.~~ See Note ~~6 and~~ ~~“Loan Agreement”~~ ~~and~~ ~~“Insurance Finance Arrangement”~~ ~~below for further discussion of the Insurance Finance Arrangement and PPP Loan.~~

~~Credit Facilities and Debt~~

~~LC Facility –~~ We have a letter of credit facility with Hancock Whitney Bank (“Whitney Bank”) that provides for up to $20.0 million of letters of credit (“LC Facility”), subject to our cash securitization of the letters of credit, with a maturity date of June 30, 2023. 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, 2022, we had $1.7 million of letters of credit outstanding under the LC Facility. See Note 6 for further discussion of our LC Facility.

~~Surety Bonds~~ – We issue surety bonds in the ordinary course of business to support our projects. At September 30, 2022, we had $121.1 million of outstanding surety bonds, of which $50.0 million relates to our MPSV projects that are subject to dispute, $55.8 million relates to our Active Retained Shipyard Contracts, and $15.3 million relates to our Fabrication Division contracts and certain of our insurance coverages. It has been increasingly difficult to obtain additional bonding capacity and identify potential financing sources, due to, among other things, losses from our operations in recent years, including recent project charges attributable to our Shipyard Division operations. We can provide no assurances that necessary bonding capacity will be available to support our future bonding requirements. See Note 6 and ~~“Mortgage Agreement and Restrictive Covenant Agreement”~~ ~~below for discussion of our entry into agreements with one of our Sureties relating to the Retained Shipyard Contracts and Note 7 for further discussion of our surety bonds and MPSV dispute.~~

~~Insurance Finance Arrangement~~–During the second quarter 2022, we renewed our property and equipment insurance coverages, and in connection therewith, entered into a short-term premium finance arrangement (“Insurance Finance Arrangement”) totaling $2.4 million, payable in ten equal monthly installments and accruing interest at a fixed rate of 4.3% per annum. We consider the transaction to be a non-cash financing activity, with the initial financed amount reflected within accrued expenses and other liabilities on our Balance Sheet, and a corresponding asset reflected within prepaid expenses and other assets on our Balance Sheet. We have reflected principal repayments of $1.0 million for the nine months ended September 30, 2022, as a financing activity on our Statement of Cash Flows, and

~~- 45 -~~

~~at September 30, 2022, our remaining principal balance was $1.5 million. See Note 6~~3 for further discussion of our Insurance Finance ~~Arrangement.~~Arrangements.

~~Loan Agreement~~Credit Facilities

–On April 17, 2020, we entered into an unsecured loan in the aggregate amount of $10.0 million (“PPP Loan”) with Whitney Bank pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act, as amended (“CARES Act”). The PPP Loan, and accrued interest, were eligible to be forgiven partially or in full, if certain conditions were met. Following the approval of our application for forgiveness by the Small Business Administration (“SBA”), on July 28, 2021, Whitney Bank received $9.1 million from the SBA, which was the amount of loan forgiveness requested, plus accrued interest. The forgiveness of the PPP Loan and accrued interest resulted in a gain of $9.1 million during both the three and nine months ended September 30, 2021. On July 29, 2021, we repaid Whitney Bank the remaining balance of the PPP Loan, together with accrued interest. Because the amount borrowed exceeded $2.0 million, we are required by the SBA to retain all records relating to the PPP Loan for six years from the date the loan was forgiven and permit authorized representatives of the SBA to access such records upon request. While we believe we are a qualifying business and have met the eligibility requirements for the PPP Loan, and believe we have used the loan proceeds only for expenses which may be paid using proceeds from the PPP Loan, we can provide no assurances that any potential SBA review or audit will verify the amount forgiven, in whole or in part, and we could be required to repay all or part of the forgiven amount. See Note 63 for ~~further discussion of the PPP Loan.~~

~~Mortgage Agreement and Restrictive Covenant Agreement~~ – On April 19, 2021, and in connection with the receipt of a consent for the Shipyard Transaction from one of our Sureties, we entered into a multiple indebtedness mortgage (the “Mortgage Agreement”) and a restrictive covenant arrangement (the “Restrictive Covenant Agreement”) with such Surety to secure our obligations and liabilities under our general indemnity agreement with the Surety associated with its outstanding surety bond obligations for our MPSV projects and two forty-vehicle ferry projects. The Mortgage Agreement encumbers the real estate associated with our Houma Facilities and includes certain covenants and events of default. Further, the Restrictive Covenant Agreement precludes us from paying dividends or repurchasing shares of our common stock. The Mortgage Agreement and Restrictive Covenant Agreement will terminate when the obligations and liabilities of the Surety associated with the outstanding surety bonds are discharged, or any judgment against us or the Surety arising out of litigation related to such contracts is satisfied by us. See Note 6 for further discussion of our LC Facility, Surety Bonds, Insurance Finance Arrangements, Mortgage Agreement and Restrictive Covenant Agreement.

Registration Statement

We have a shelf registration statement that is effective with the SEC that expires on November 27, 2023. 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

~~As discussed above, we continue to focus on securing profitable new project awards and backlog in the near-term and generating operating income and cash flows in the longer-term.~~ 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, an improved overall cash flow position on our projects in backlog and the completion of the Shipyard Transaction. The primary uses of our liquidity for ~~2022~~the remainder of 2023 and the foreseeable future are to fund:

•

Overhead costs associated with the under-utilization of our facilities and resources within our Fabrication Division until we secure and begin to execute sufficient backlog to fully recover our overhead costs;

•

Overhead costs associated with the under-utilization of our facilities and resources for our Fabrication Division until we secure and begin to execute sufficient backlog to fully recover our overhead costs;

•

~~Capital expenditures;~~

•

Capital expenditures, including expenditures to maintain, upgrade and replace aged equipment;

•

~~Accrued contract losses for the Active Retained Shipyard Contracts;~~

•

Accrued contract losses for the Active Retained Shipyard Contracts;

•

~~Working capital requirements for our projects, including the unwind of advance payments on projects;~~

•

Working capital requirements for our projects, including the unwind of advance payments on projects and the payment of vendor obligations prior to receipt of payment from our customer for our suspended offshore jackets project. See “New Project Awards and Backlog” above and Note 2 for further discussion of the project suspension;

•

~~Remaining liabilities of the Shipyard Division operations that were excluded from the Shipyard Transaction;~~

•

Remaining liabilities of the Shipyard Division operations that were excluded from the Shipyard Transaction;

•

~~Legal and other costs associated with our MPSV dispute;~~

•

Legal and other costs associated with our MPSV Litigation, including losses, if any, resulting from the ultimate resolution of the litigation. An unfavorable outcome could have a material adverse effect on our financial condition, results of operations and liquidity. In the event of an unfavorable outcome, we believe, after consultation with external legal counsel, that our ultimate exposure is unlikely to exceed our indemnification obligations under the Performance Bonds; however, we can provide no assurance that any such exposure will be limited to our indemnification obligations. See Note 4 for further discussion of our MPSV Litigation;

•

Corporate administrative expenses (including the temporary under-utilization of personnel as we evaluate our resource requirements to support our future operations in light of the Shipyard Transaction and DSS Acquisition);

•

Corporate administrative expenses (including the temporary under-utilization of personnel as we evaluate our resource requirements to support our future operations);

•

~~Initiatives to diversify and enhance our business; and~~

•

Initiatives to diversify and enhance our business; and

•

Costs associated with the impacts of Hurricane Ida, including insurance deductibles and uninsured losses, if any, as well as repair costs for buildings and equipment for which insurance payments have previously been received from our insurance carriers.

~~- 46 -~~

We anticipate capital expenditures of ~~approximately $1.5~~$3.5 million to ~~$2.0~~$4.0 million for the ~~fourth quarter 2022,~~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, ~~and execute our backlog,~~ which are not included in these estimates.

We believe that our cash, cash equivalents and short-term investments at ~~September 30, 2022,~~March 31, 2023, will be sufficient to enable us to fund our operating expenses, meet our working capital and capital expenditure requirements, and satisfy any debt service obligations or other funding requirements, for at least twelve months from the date of this Report. Our evaluation of the sufficiency of our cash and liquidity is primarily based on our financial forecast for ~~2022~~2023 and ~~2023,~~2024, which is impacted by our existing backlog and estimates of future new project awards and may be further impacted by the ongoing effects of oil and gas price volatility ~~COVID-19,~~ and ~~Russia’s invasion~~macroeconomic conditions, as well as the outcome of ~~Ukraine~~our MPSV Litigation and any related indemnification obligations to the ~~U.S. and other countries actions in response.~~Surety. We can provide no assurances that our financial forecast will be achieved or that we will have sufficient cash and short-term investments to meet planned operating expenses and unforeseen cash requirements. Accordingly, we may be required to obtain new or additional credit facilities, sell additional assets or conduct equity or debt offerings at a time when it is not beneficial to do so.

We are not a party to any contract or other obligation not included on our Balance Sheet that has, or is reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures were effective as of the end of the period covered by this Report.

During the ~~third~~first quarter ~~2022,~~2023, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

See Note 74 of our Financial Statements in Part I, Item 1 for discussion of our legal proceedings, including our MPSV ~~dispute,~~Litigation, which is incorporated herein by reference.

There have been no material changes from the information included under “Risk Factors” in Part I, Item 1A of our ~~2021~~2022 Annual ~~Report~~Report..

On May 5, 2023, we amended our LC Facility 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. See Note 3 of our Financial Statements in Part I, Item 1 for further discussion of our amendment. A copy of the amendment is filed with this Report as Exhibit 10.1.

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

~~Louisiana~~		~~72-1147390~~
Louisiana		72-1147390
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
		(I.R.S. Employer Identification No.)


2170 Buckthorne Place, Suite 420 The woodlands, Texas		77380
2170 Buckthorne Place, Suite 420 The woodlands, Texas		77380
(Address of principal executive offices)		(Zip Code)


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	Gifi	Nasdaq


		Page

PART I	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Consolidated Balance Sheets at ~~September 30, 2022~~March 31, 2023 (unaudited) and December 31, ~~2021~~2022	1
	Consolidated Statements of Operations for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited)	2
	Consolidated Statements of Changes in Shareholders' Equity for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited)	3
	Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2023 and 2022 ~~and 2021~~ (unaudited)	4
	Notes to Consolidated Financial Statements (unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2419
Item 4.	Controls and Procedures	4733

PART II	Other Information	4733
Item 1.	Legal Proceedings	4733
Item 1A.	Risk Factors	4733
Item 6.5.	Other Information	33
Item 6.	Exhibits	4834
Signatures		4935


~~2021~~2022 Annual Report	Our annual report for the year ended December 31, ~~2021,~~2022, filed with the SEC on Form 10-K on March ~~22, 2022.~~28, 2023.

~~Acquisition Date~~2022 Financial Statements	~~The closing date of~~Our Financial Statements for the ~~DSS Acquisition of~~year ended December ~~1, 2021.~~31, 2022 and related notes, included in our 2022 Annual Report.

Active Retained Shipyard Contracts	Contracts and related obligations for our seventy-vehicle ferry and two forty-vehicle ferry projects that ~~are~~were under construction as of the date of the Shipyard Transaction, which were excluded from the Shipyard Transaction. The Active Retained Shipyard Contracts do not include the contracts and related obligations for the two MPSV projects that are subject to ~~dispute.~~our MPSV Litigation (which were retained but are not active contracts).

ASC	Accounting Standards Codification.

ASU	Accounting Standards Update.

Balance Sheet	Our Consolidated Balance Sheets, as filed in this Report.

~~Bollinger~~contract assets	~~Bollinger Houma Shipyards, L.L.C. and Bollinger Shipyards Lockport, L.L.C.~~

~~CARES Act~~	~~The Coronavirus Aid, Relief and Economic Security Act, as amended.~~

~~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 ~~ongoing~~ 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.

~~Divested Shipyard Contracts~~DSS Acquisition	~~Contracts and related obligations for our three research vessel projects and five towing, salvage and rescue ship projects, which were included in the Shipyard Transaction.~~

~~DSS Acquisition~~	The acquisition of ~~the DSS Business from Dynamic~~a services and industrial staffing business on December 1, 2021.

~~DSS Business~~DTA(s)	~~The services and industrial staffing businesses of Dynamic, which were acquired in connection with the DSS Acquisition.~~Deferred Tax Asset(s).
	��
~~DTA(s)~~EPC	~~Deferred Tax Asset(s).~~

~~Dynamic~~	~~Dynamic Industries, Inc.~~

~~EPC~~	Engineering, Procurement and Construction.

Exchange Act	Securities Exchange Act of 1934, as amended.

Fabrication Division	Our Fabrication reportable segment.

Facilities	Our Houma Facilities ~~Ingleside Facility~~ and other facilities that support our operations.

~~FASB~~Financial Statements	~~Financial Accounting Standards Board.~~

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

GAAP	Generally Accepted Accounting Principles in the U.S.


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


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

~~GOM~~	~~Gulf of Mexico.~~
GIS	Gulf Island Shipyards, LLC.
~~Gulf Coast~~
Gulf Coast	Along the coast of the Gulf of Mexico.

~~Harvey Facility~~Hornbeck	~~Our leased facility located in Harvey, Louisiana assumed in connection with the DSS Acquisition that was subject to the Harvey Option.~~Hornbeck Offshore Services, LLC.

~~Harvey Option~~Houma Facilities	Purchase option entered into in connection with the DSS Acquisition that enabled us to buy the Harvey Facility prior to December 2, 2022 for a nominal amount. The option was sold to a third-party in the third quarter 2022.

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

~~Ingleside Facility~~inland	~~Our owned facility located in Ingleside, Texas that supports our Services Division, which was acquired in connection with the DSS Acquisition.~~

~~inland~~	Typically, bays, lakes and marshy areas.


Insurance Finance ~~Arrangement~~Arrangements	Short-term finance ~~arrangement~~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.

~~Jennings Facility~~labor hours	Our leased facility located near Jennings, Louisiana that previously supported our Shipyard Division and was closed in the fourth quarter 2020, which has been subleased to a third-party for the duration of the lease.

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

~~Lake Charles~~LC Facility	Our ~~leased facility located near Lake Charles, Louisiana that previously supported our Shipyard Division and was closed in the fourth quarter 2020. The lease was terminated in the third quarter 2022.~~

~~LC Facility~~	~~Our $20.0~~$10.0 million letter of credit facility with Whitney Bank maturing June 30, ~~2023,~~2024, as amended.

LNG	~~Liquified~~Liquefied Natural Gas.

Mortgage Agreement	Multiple indebtedness mortgage arrangement with one of our Sureties, to secure our obligations and liabilities under our general indemnity agreement with ~~the~~such Surety associated with outstanding surety bonds for certain contracts, which 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).

~~NOL(s)~~MPSV Litigation	~~Net operating loss(es) that are available to offset future taxable income, subject to certain limitations.~~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.

offshore	In unprotected waters outside coastlines.

onshore	Inside the coastline on land.

~~performance obligation~~Performance Bonds	The performance bonds issued by the Surety in connection with the construction of two MPSVs that are subject to our MPSV Litigation, for which the face amount of the bonds total $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.

~~PPP~~	~~Paycheck Protection Program administered by the SBA under the CARES Act.~~

~~PPP Loan~~	~~Our $10.0 million loan from Whitney Bank issued pursuant to the PPP.~~

~~Pro Forma Information~~Restrictive Covenant Agreement	~~The condensed combined financial information that gives effect to the DSS Acquisition as if it had occurred on January 1, 2020 (the earliest period presented in our 2021 Annual Report).~~

~~Purchase Price~~	~~The purchase price of $7.6 million associated with the DSS Acquisition.~~

~~Restrictive Covenant Agreement~~	Restrictive covenant arrangement with one of our Sureties, to secure our obligations and liabilities under our general indemnity agreement with ~~the~~such Surety associated with its outstanding surety bonds for certain contracts, which precludes us from paying dividends or repurchasing shares of our common stock.

~~Retained Shipyard Contracts~~SEC	~~Contracts and related obligations for the Active Retained Shipyard Contracts and two MPSV projects that are subject to dispute, which were excluded from the Shipyard Transaction.~~

~~SAB~~	~~Staff Accounting Bulletin.~~

~~SBA~~	~~Small Business Administration.~~

~~SEC~~	U.S. Securities and Exchange Commission.

Services Division	Our Services reportable segment.

Shipyard Division	Our Shipyard reportable segment.

Shipyard ~~Facility~~Transaction	~~Our owned facility located in Houma, Louisiana that previously supported our Shipyard Division, which was sold in connection with the Shipyard Transaction.~~

~~Shipyard Transaction~~	The sale of our Shipyard Division’s operating assets and certain construction contracts on April 19, ~~2021, which included the Divested Shipyard Contracts and our Shipyard Facility.~~2021.

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

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

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

Surety or Sureties	A financial institution that issues bonds to customers on behalf of the Company for the purpose of providing third-party financial assurance related to the performance of our contracts. Payments by 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.

~~Transaction Date~~U.S.	~~The closing date of the Shipyard Transaction of April 19, 2021.~~

~~Transaction Price~~	~~The base sales price of $28.6 million associated with the Shipyard Transaction.~~

~~U.S.~~	The United States of America.

~~Whitney Bank~~USL&H	~~Hancock Whitney Bank.~~United States Longshoreman and Harbor Workers Act.

~~Working Capital True-Up~~VA(s)	The $7.8 million received in the second quarter 2021 in connection with the Shipyard Transaction associated with changes in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Transaction Date.Valuation Allowance(s).

Whitney Bank	Hancock Whitney Bank.


	September 30, 2022			December 31, 2021			March 31, 2023			December 31, 2022
	(Unaudited)						(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	26,257		$	52,886		$	28,520		$	33,221
Restricted cash, current		1,703			1,297			1,197			1,603
Short-term investments		9,809			—			14,989			9,905
Contract receivables and retainage, net		33,012			15,986			43,545			29,427
Contract assets		7,807			4,759			5,538			4,839
Prepaid expenses and other assets		7,435			6,971			5,917			6,475
Inventory		1,661			1,779			2,543			1,599
Assets held for sale		—			1,800
Total current assets		87,684			85,478			102,249			87,069
Restricted cash, noncurrent		—			406
Property, plant and equipment, net		30,868			32,866			30,501			31,154
Goodwill		2,217			2,217			2,217			2,217
Other intangibles, net		877			984			806			842
Other noncurrent assets		13,093			13,322			13,277			13,584
Total assets	$	134,739		$	135,273		$	149,050		$	134,866
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	12,664		$	9,280		$	26,547		$	8,310
Contract liabilities		4,293			6,648			4,388			8,196
Accrued expenses and other liabilities		15,244			14,026			13,896			14,283
Total current liabilities		32,201			29,954			44,831			30,789
Other noncurrent liabilities		1,188			1,411			1,258			1,453
Total liabilities		33,389			31,365			46,089			32,242
Shareholders’ equity:
Preferred stock, no par value, 5,000 shares authorized, no shares issued and outstanding		—			—			—			—
Common stock, no par value, 30,000 shares authorized, 15,923 shares issued and outstanding at September 30, 2022 and 15,622 at December 31, 2021		11,518			11,384
Common stock, no par value, 30,000 shares authorized, 16,055 shares issued and outstanding at March 31, 2023 and 15,973 at December 31, 2022								11,624			11,591
Additional paid-in capital		106,720			105,511			107,667			107,372
Accumulated deficit		(16,888	)		(12,987	)		(16,330	)		(16,339	)
Total shareholders’ equity		101,350			103,908			102,961			102,624
Total liabilities and shareholders’ equity	$	134,739		$	135,273		$	149,050		$	134,866


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2022			2021			2023			2022
Revenue	$	39,593		$	19,587		$	104,181		$	67,640		$	62,168		$	28,686
Cost of revenue		35,373			19,722			98,709			66,529			57,134			29,106
Gross profit (loss)		4,220			(135	)		5,472			1,111			5,034			(420	)
General and administrative expense		4,510			3,211			12,965			9,086			5,067			4,110
Other (income) expense, net		(944	)		260			(3,698	)		(649	)		(361	)		452
Operating income (loss)		654			(3,606	)		(3,795	)		(7,326	)		328			(4,982	)
Gain on extinguishment of debt		—			9,061			—			9,061
Interest (expense) income, net		(46	)		(58	)		(104	)		(347	)		320			(40	)
Income (loss) before income taxes		608			5,397			(3,899	)		1,388			648			(5,022	)
Income tax (expense) benefit		(10	)		(9	)		(2	)		6			(7	)		(5	)
Income (loss) from continuing operations		598			5,388			(3,901	)		1,394
Loss from discontinued operations, net of taxes		—			—			—			(17,372	)
Net income (loss)	$	598		$	5,388		$	(3,901	)	$	(15,978	)	$	641		$	(5,027	)

Per share data:
Basic and diluted income (loss) from continuing operations	$	0.04		$	0.35		$	(0.25	)	$	0.09
Basic and diluted loss from discontinued operations		—			—			—			(1.12	)
Basic and diluted income (loss) per share	$	0.04		$	0.35		$	(0.25	)	$	(1.03	)	$	0.04		$	(0.32	)

	Common Stock					Additional Paid-In			Retained Earnings (Accumulated			Total Shareholders’
	Shares		Amount			Capital			Deficit)			Equity			Common Stock					Additional Paid-In			Accumulated			Total Shareholders’
Balance at December 31, 2020		15,359	$	11,223		$	104,072		$	9,181		$	124,476
															Shares		Amount			Capital			Deficit			Equity
Balance at December 31, 2021																15,622	$	11,384		$	105,511		$	(12,987	)	$	103,908
Net loss		—		—			—			(18,537	)		(18,537	)		—		—			—			(5,027	)		(5,027	)
Vesting of restricted stock		158		(9	)		(91	)		—			(100	)		153		(6	)		(53	)		—			(59	)
Stock-based compensation expense		—		31			282			—			313			—		57			514			—			571
Balance at March 31, 2021		15,517		11,245			104,263			(9,356	)		106,152
Net loss		—		—			—			(2,829	)		(2,829	)
Vesting of restricted stock		18		(1	)		(7	)		—			(8	)
Stock-based compensation expense		—		37			327			—			364
Balance at June 30, 2021		15,535		11,281			104,583			(12,185	)		103,679
Net income		—		—			—			5,388			5,388
Vesting of restricted stock		17		—			—			—			—
Stock-based compensation expense		—		50			453			—			503
Balance at September 30, 2021		15,552	$	11,331		$	105,036		$	(6,797	)	$	109,570
Balance at March 31, 2022																15,775	$	11,435		$	105,972		$	(18,014	)	$	99,393


	Nine Months Ended September 30,						Three Months Ended March 31,
	2022			2021			2023			2022
Cash flows from operating activities:
Net loss	$	(3,901	)	$	(15,978	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net income (loss)							$	641		$	(5,027	)
Adjustments to reconcile net income (loss) to net cash provided by (used in) in operating activities:
Depreciation and amortization		3,764			4,282			1,333			1,251
Asset impairments		484			22,750
Loss on Shipyard Transaction		—			2,581
(Gain) loss on sale of fixed assets, net		(79	)		60
Gain on extinguishment of debt		—			(9,061	)
Gain on sale or disposal of fixed assets, net								(64	)		(25	)
Gain on insurance recoveries		(1,200	)		—			(245	)		—
Stock-based compensation expense		1,464			1,180			509			571
Changes in operating assets and liabilities:
Contract receivables and retainage, net		(17,026	)		7,164			(14,540	)		(7,657	)
Contract assets		(3,048	)		(4,436	)		(699	)		2,065
Prepaid expenses, inventory and other current assets		1,203			(471	)		147			(2,070	)
Accounts payable		2,811			(13,261	)		18,135			346
Contract liabilities		(2,355	)		(6,342	)		(3,808	)		(2,450	)
Accrued expenses and other current liabilities		(288	)		904			62			1,792
Noncurrent assets and liabilities, net		(654	)		(600	)		(175	)		(147	)
Net cash used in operating activities		(18,825	)		(11,228	)
Net cash provided by (used in) operating activities								1,296			(11,351	)
Cash flows from investing activities:
Capital expenditures		(1,032	)		(1,080	)		(487	)		(440	)
Proceeds from Shipyard Transaction, net of transaction costs		886			31,677
Proceeds from sale of property and equipment		2,035			4,439			106			25
Recoveries from insurance claims		1,200			—			245			—
Purchases of short-term investments		(9,809	)		—			(15,083	)		—
Maturities of short-term investments		—			8,000			10,000			—
Net cash provided by (used in) investing activities		(6,720	)		43,036
Net cash used in investing activities								(5,219	)		(415	)
Cash flows from financing activities:
Repayment of borrowings		—			(1,050	)
Payments on Insurance Finance Arrangement		(963	)		—
Payments on Insurance Finance Arrangements								(1,003	)		—
Tax payments for vested stock withholdings		(121	)		(108	)		(181	)		(59	)
Net cash used in financing activities		(1,084	)		(1,158	)		(1,184	)		(59	)
Net increase (decrease) in cash, cash equivalents and restricted cash		(26,629	)		30,650
Net decrease in cash, cash equivalents and restricted cash								(5,107	)		(11,825	)
Cash, cash equivalents and restricted cash, beginning of period		54,589			43,159			34,824			54,589
Cash, cash equivalents and restricted cash, end of period	$	27,960		$	73,809		$	29,717		$	42,764
Supplemental cash flow information:
Forgiveness of principal and interest of PPP Loan	$	—		$	9,061

	Three Months Ended September 30, 2021
	Services		Fabrication		Shipyard		Eliminations			Total
Fixed-price and unit-rate	$	275	$	7,913	$	2,202	$	—		$	10,390
T&M and cost-reimbursable		8,221		207		100		(1	)		8,527
Other		809		—		—		(139	)		670
Total	$	9,305	$	8,120	$	2,302	$	(140	)	$	19,587

Long-term	$	275	$	7,913	$	2,202	$	—		$	10,390
Short-term		9,030		207		100		(140	)		9,197
Total	$	9,305	$	8,120	$	2,302	$	(140	)	$	19,587

	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

	Nine Months Ended September 30, 2021
	Services		Fabrication		Shipyard		Eliminations			Total
Fixed-price and unit-rate	$	865	$	29,521	$	10,461	$	(8	)	$	40,839
T&M and cost-reimbursable		22,434		1,577		100		(61	)		24,050
Other		3,790		—		—		(1,039	)		2,751
Total	$	27,089	$	31,098	$	10,561	$	(1,108	)	$	67,640

Long-term	$	865	$	29,521	$	10,461	$	(8	)	$	40,839
Short-term		26,224		1,577		100		(1,100	)		26,801
Total	$	27,089	$	31,098	$	10,561	$	(1,108	)	$	67,640

	September 30, 2022
	Services		Fabrication		Shipyard		Total
Fixed-price and unit-rate	$	1,657	$	7,196	$	4,007	$	12,860
T&M and cost-reimbursable		—		102,215		—		102,215
Total⁽¹⁾	$	1,657	$	109,411	$	4,007	$	115,075

	September 30,			December 31,
	2022			2021
Contract assets⁽¹^{), (}²⁾	$	7,807		$	4,759
Contract liabilities⁽^{3), (4), (5)}		(4,293	)		(6,648	)
Contracts in progress, net	$	3,514		$	(1,889	)

	Nine Months Ended September 30, 2021
Revenue	$	41,637
Cost of revenue		33,912
Gross profit⁽¹⁾		7,725
General and administrative expense		413
Impairments and (gain) loss on assets held for sale, net⁽²⁾		25,331
Other (income) expense, net		(647	)
Operating loss		(17,372	)
Income tax (expense) benefit⁽³⁾		—
Loss from discontinued operations, net of taxes	$	(17,372	)

	Nine Months Ended September 30, 2021
Operating cash flows from discontinued operations	$	(9,067	)
Investing cash flows from discontinued operations	$	31,424

Tangible assets and liabilities:
Land and buildings⁽¹⁾	$	475
Machinery and equipment⁽²⁾		2,557
Right-of-use asset⁽³⁾		2,000
Accrued expenses and other liabilities		(672	)
Net tangible assets and liabilities		4,360
Intangible assets - customer relationships⁽⁴⁾		996
Goodwill		2,217
Purchase Price⁽⁵⁾	$	7,573

	Three Months Ended September 30, 2021		Nine Months Ended September 30, 2021
Pro forma revenue from continuing operations	$	31,663	$	103,299
Pro forma net income from continuing operations		5,970		2,650
Per share data:
Basic and diluted income from continuing operations	$	0.38	$	0.17

	December 31, 2021
Machinery and equipment	$	4,587
Accumulated depreciation		(2,787	)
Total	$	1,800


	March 31, 2023				December 31, 2022
	Amount		Labor Hours		Amount		Labor Hours
Services	$	1,207		18	$	1,322		20
Fabrication		87,331		588		110,287		613
Shipyard		1,803		9		3,272		22
Total(1),(2)	$	90,341		615	$	114,881		655

	September 30, 2022				December 31, 2021
	Amount		Labor Hours		Amount		Labor Hours
Services	$	1,657		20	$	2,499		32
Fabrication		109,411		616		4,348		41
Shipyard		4,007		20		10,223		106
Total⁽^1),(2)	$	115,075		656	$	17,070		179


	Three Months Ended September 30,						Favorable (Unfavorable)			Three Months Ended March 31,						Favorable (Unfavorable)
	2022			2021			Change			2023			2022			Change
New project awards	$	139,162		$	15,200		$	123,962		$	37,628		$	27,606		$	10,022

Revenue	$	39,593		$	19,587		$	20,006		$	62,168		$	28,686		$	33,482
Cost of revenue		35,373			19,722			(15,651	)		57,134			29,106			(28,028	)
Gross profit (loss)		4,220			(135	)		4,355			5,034			(420	)		5,454
Gross profit (loss) percentage		10.7	%		(0.7	)%					8.1	%		(1.5	)%
General and administrative expense		4,510			3,211			(1,299	)		5,067			4,110			(957	)
Other (income) expense, net		(944	)		260			1,204			(361	)		452			813
Operating income (loss)		654			(3,606	)		4,260			328			(4,982	)		5,310
Gain on extinguishment of debt		—			9,061			(9,061	)
Interest (expense) income, net		(46	)		(58	)		12			320			(40	)		360
Income before income taxes		608			5,397			(4,789	)
Income (loss) before income taxes											648			(5,022	)		5,670
Income tax (expense) benefit		(10	)		(9	)		(1	)		(7	)		(5	)		(2	)
Income from continuing operations		598			5,388			(4,790	)
Loss from discontinued operations, net of taxes		—			—			—
Net income	$	598		$	5,388		$	(4,790	)
Net income (loss)										$	641		$	(5,027	)	$	5,668

	September 30, 2022			December 31, 2021			Change⁽³⁾
Contract assets	$	7,807		$	4,759		$	3,048
Contract liabilities⁽¹⁾		(4,293	)		(6,648	)		2,355
Contracts in progress, net⁽²⁾		3,514			(1,889	)		5,403
Contract receivables and retainage, net		33,012			15,986			17,026
Prepaid expenses, inventory and other current assets		9,096			8,750			346
Accounts payable, accrued expenses and other current liabilities		(27,908	)		(23,306	)		(4,602	)
Total	$	17,714		$	(459	)	$	18,173


Exhibit Number		Description of Exhibit

3.1		Amended and Restated Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed with the SEC on May 22, 2020 (SEC File No. 001-34279).
3.2		Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed with the SEC on November 10, 2020 (SEC File No. 001-34279).
~~31.1~~10.1		Ninth Amendment to the credit agreement dated May 5, 2023. *
31.1		CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. * *
31.2		CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. * *
32		Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350. * *
101.INS		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. *
101.SCH		Inline XBRL Taxonomy Extension Schema Linkbase Document. *
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 Company’s Quarterly Report on Form 10-Q for the quarter ended ~~September 30, 2022,~~March 31, 2023, has been formatted in Inline XBRL and is contained in Exhibit 101. *


GULF ISLAND FABRICATION, INC.

BY:	/s/ Westley S. Stockton
	Westley S. Stockton
	Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and Principal Accounting Officer)

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging Growth Company