UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number 001-34279 GULF ISLAND FABRICATION, INC. (Exact name of registrant as specified in its charter) LOUISIANA 72-1147390 (State or other jurisdi ...

Financial Data and Key Metrics Changes - Consolidated revenue for Q2 2019 was $80.5 million, a sequential increase from $67.6 million in Q1 2019 and a year-over-year increase from $54 million in Q2 2018 [15][16] - The net loss for Q2 2019 was $5.2 million, compared to a net loss of $3 million in Q1 2019 and a net income of $549,000 in Q2 2018 [15][16] - The operating loss for Q2 2019 was impacted by project charges of $2.3 million and legal costs of approximately $1 million [17][18] Business Line Data and Key Metrics Changes - **Fabrication Division**: Revenue increased to $22.4 million in Q2 2019 from $12.6 million in Q1 2019 and $9.5 million in Q2 2018. Operating loss was $1.2 million, an improvement from $1.5 million in Q1 2019 but a decline from operating income of $4.2 million in Q2 2018 [22][24] - **Shipyard Division**: Revenue was $37.6 million in Q2 2019, slightly up from $36.6 million in Q1 2019 and significantly up from $23.6 million in Q2 2018. Operating loss was $3.6 million, worsening from $904,000 in Q1 2019 but slightly better than $3.4 million in Q2 2018 [26][27] - **Services Division**: Revenue rose to $24.1 million in Q2 2019 from $19.6 million in Q1 2019 and $22.2 million in Q2 2018. Operating income was $1.7 million, representing 7.2% of revenue, compared to $1.3 million (6.6%) in Q1 2019 and $2.8 million (12.8%) in Q2 2018 [29][30] Market Data and Key Metrics Changes - Backlog as of June 30, 2019, totaled approximately $476 million, an increase of $142 million from March 2019 and $120 million from year-end 2018 [36] - The backlog by segment included $410 million for the Shipyard division, $54 million for the Fabrication division, and $13 million for the Services division [37] Company Strategy and Development Direction - The company is optimistic about future revenue growth due to increased backlog and bidding activity, particularly in the Fabrication division [43] - The management is cautious about taking on new work without assessing risks, emphasizing a balanced approach to growth [44] - A special committee is evaluating strategic alternatives to enhance shareholder value, with expectations for conclusions by year-end [45] Management's Comments on Operating Environment and Future Outlook - Management noted improvements in facility utilization and expects further enhancements as new contracts ramp up [5][7] - The company is addressing productivity issues through personnel changes and improved management practices [10][62] - There is confidence in achieving EBITDA-positive results in the latter half of the year, particularly in Q4 [50][61] Other Important Information - The company ended the quarter with cash and short-term investments of $76 million, an increase from March 2019 but a decrease from year-end 2018 [38] - Legal disputes are ongoing, with a trial date set for January 2020 regarding a jacket change order dispute [14][99] Q&A Session Summary Question: When might the company turn EBITDA-positive? - Management expects to be EBITDA-positive in the second half of the year, particularly in Q4 [50] Question: What is the status of engineering for the Oregon State University and U.S. Navy vessels? - Engineering is ahead of production, with construction ramping up in Q3 [51][53] Question: What are the margins in the backlog compared to this quarter? - The backlog has a higher margin mix, and the company is pursuing projects with better margins [60][70] Question: What is the status of the legal disputes? - The company is in discovery for ongoing lawsuits, with mediation scheduled for August 26, 2019 [96][102]

Report Information [Filing Information](index=1&type=section&id=Filing%20Information) This report is GULF ISLAND FABRICATION, INC.'s 10-Q quarterly filing for the period ended June 30, 2019, identifying the company as an accelerated filer and smaller reporting company with 15,237,502 common shares outstanding as of August 6, 2019 - The company is an **Accelerated filer** and a **Smaller reporting company**[4](index=4&type=chunk) Company Basic Information | Metric | Information | | :--- | :--- | | Filing Type | 10-Q Quarterly Report | | Quarter End Date | June 30, 2019 | | Registrant Name | GULF ISLAND FABRICATION, INC. | | State or Jurisdiction | LOUISIANA | | Employer Identification Number | 72-1147390 | | Phone Number | (713) 714-6100 | | Trading Symbol | GIFI | | Registered Exchange | NASDAQ | | Common Stock Outstanding (as of August 6, 2019) | 15,237,502 | | All Required Reports Filed | Yes | | All Interactive Data Files Filed | Yes | [GLOSSARY OF TERMS](index=3&type=section&id=GLOSSARY%20OF%20TERMS) This section defines key abbreviations and terms used in the report, including company names, accounting standards, contract-related terms, financial instruments, asset types, and business operating locations, ensuring readers have a clear understanding of professional terminology - The glossary defines key abbreviations and terms used in the report, such as "Gulf Island", "Company", "we", "us", and "our", all referring to Gulf Island Fabrication, Inc. and its consolidated subsidiaries[9](index=9&type=chunk) - It covers accounting standards (ASU, GAAP, Topic 606), contract-related terms (contract assets, contract liabilities, Performance Obligation, T&M), financial instruments (Credit Agreement, LIBOR, Surety), asset types (deck, jacket, modules, piles, platform, pressure vessel, SPAR, subsea templates, TLP), and business operating locations (GOM, inland/inshore, offshore, onshore)[10](index=10&type=chunk)[12](index=12&type=chunk)[14](index=14&type=chunk) PART I FINANCIAL INFORMATION [Item 1. Financial Statements](index=8&type=section&id=Item%201.%20Financial%20Statements) This section presents the company's unaudited consolidated financial statements for the period ended June 30, 2019, including balance sheets, statements of operations, statements of changes in shareholders' equity, and cash flow statements, along with related notes, providing detailed information on the company's financial position and operating performance [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) As of June 30, 2019, the company's total assets were $277.6 million, a 7.5% increase from December 31, 2018, with a significant decrease in cash and cash equivalents offset by substantial increases in short-term investments and contract assets Consolidated Balance Sheet Key Data (in thousands of dollars) | Metric | June 30, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | **Assets** | | | | Cash and cash equivalents | $30,192 | $70,457 | | Short-term investments | $45,791 | $8,720 | | Accounts and retainage receivable, net | $23,343 | $22,505 | | Contract assets | $51,334 | $29,982 | | Inventories | $4,543 | $6,088 | | Assets held for sale | $18,737 | $18,935 | | Total current assets | $177,927 | $159,955 | | Property, plant and equipment, net | $75,862 | $79,930 | | Other noncurrent assets | $23,802 | $18,405 | | **Total Assets** | **$277,591** | **$258,290** | | **Liabilities and Shareholders' Equity** | | | | Accounts payable | $55,238 | $28,969 | | Contract liabilities | $13,823 | $16,845 | | Accrued expenses and other liabilities | $9,719 | $10,287 | | Total current liabilities | $78,780 | $56,101 | | Other noncurrent liabilities | $5,369 | $1,089 | | **Total Liabilities** | **$84,149** | **$57,190** | | Total shareholders' equity | $193,442 | $201,100 | | **Total Liabilities and Shareholders' Equity** | **$277,591** | **$258,290** | - As of June 30, 2019, cash and cash equivalents decreased from **$70.5 million** on December 31, 2018, to **$30.2 million**, while short-term investments increased from **$8.7 million** to **$45.8 million**[18](index=18&type=chunk) - Contract assets increased from **$30.0 million** on December 31, 2018, to **$51.3 million** on June 30, 2019, while contract liabilities decreased from **$16.8 million** to **$13.8 million**[18](index=18&type=chunk) [Consolidated Statements of Operations](index=9&type=section&id=Consolidated%20Statements%20of%20Operations) For the three and six months ended June 30, 2019, the company reported net losses in both periods, primarily due to increased gross and operating losses, indicating a decline in profitability despite revenue growth Consolidated Statements of Operations Key Data (in thousands of dollars, except per share data) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $80,456 | $54,014 | $148,061 | $111,304 | | Cost of sales | $82,054 | $54,713 | $149,106 | $111,324 | | Gross loss | $(1,598) | $(699) | $(1,045) | $(20) | | Selling, general and administrative expenses | $3,987 | $5,092 | $7,821 | $9,801 | | Impairment of assets and (gain) loss on assets held for sale, net | $0 | $(6,579) | $(70) | $(5,829) | | Other (income) expense, net | $(201) | $64 | $(130) | $375 | | Operating (loss) income | $(5,384) | $724 | $(8,666) | $(4,367) | | Interest (expense) income, net | $126 | $(92) | $388 | $(238) | | Net (loss) income before income taxes | $(5,258) | $632 | $(8,278) | $(4,605) | | Income tax (expense) benefit | $10 | $(83) | $(12) | $(142) | | **Net (Loss) Income** | **$(5,248)** | **$549** | **$(8,290)** | **$(4,747)** | | Basic and diluted (loss) income per common share | $(0.34) | $0.04 | $(0.55) | $(0.32) | - For the three months ended June 30, 2019, revenue increased by **49.0%** to **$80.5 million** year-over-year, but gross loss widened from **$0.7 million** to **$1.6 million**, and operating income turned into a **$5.4 million** loss from a **$0.7 million** income[20](index=20&type=chunk) - For the six months ended June 30, 2019, revenue increased by **33.0%** to **$148.1 million** year-over-year, gross loss widened from **$20 thousand** to **$1.0 million**, and operating loss increased from **$4.4 million** to **$8.7 million**[20](index=20&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=10&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) As of June 30, 2019, the company's total shareholders' equity decreased to $193.4 million from $201.1 million on December 31, 2018, primarily due to the net loss recorded during the reporting period Consolidated Statements of Changes in Shareholders' Equity Key Data (in thousands of dollars) | Metric | December 31, 2018 | March 31, 2019 | June 30, 2019 | | :--- | :--- | :--- | :--- | | Common stock | $11,021 | $11,006 | $11,085 | | Additional paid-in capital | $102,243 | $102,104 | $102,811 | | Retained earnings | $87,836 | $84,794 | $79,546 | | **Total Shareholders' Equity** | **$201,100** | **$197,904** | **$193,442** | | Net loss (as of March 31) | - | $(3,042) | - | | Net loss (as of June 30) | - | - | $(5,248) | | Restricted stock vesting | - | $(714) | - | | Stock-based compensation expense | - | $560 | $786 | - As of June 30, 2019, retained earnings decreased from **$87.8 million** on December 31, 2018, to **$79.5 million**, reflecting the net loss incurred during the reporting period[23](index=23&type=chunk) [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended June 30, 2019, the company experienced a net cash outflow of $2.9 million from operating activities, $36.6 million from investing activities, and $0.8 million from financing activities, resulting in a net decrease of $40.3 million in cash and cash equivalents Consolidated Statements of Cash Flows Key Data (in thousands of dollars) | Metric | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | | Net cash from operating activities | $(2,884) | $(26,427) | | Net cash from investing activities | $(36,627) | $50,246 | | Net cash from financing activities | $(754) | $(798) | | Net increase (decrease) in cash and cash equivalents | $(40,265) | $23,021 | | Cash and cash equivalents at beginning of period | $70,457 | $8,983 | | Cash and cash equivalents at end of period | $30,192 | $32,004 | - In the first half of 2019, net cash outflow from operating activities significantly decreased from **$26.4 million** in the same period of 2018 to **$2.9 million**[26](index=26&type=chunk) - Cash flow from investing activities shifted from a **$50.2 million** inflow in the first half of 2018 to a **$36.6 million** outflow in the same period of 2019, primarily due to the purchase of short-term investments[26](index=26&type=chunk) [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed notes to the consolidated financial statements, covering key information such as the company's organizational structure, significant accounting policies, revenue recognition, contract assets and liabilities, assets held for sale, credit arrangements, commitments and contingencies, earnings per share calculation, and segment disclosures [1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=12&type=section&id=1.%20ORGANIZATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) The company is a leading fabricator of complex steel structures, modules, and marine vessels, managing its business through three operating divisions: Fabrication, Shipyard, and Services; this note details the company's business nature, basis of accounting, critical accounting estimates, revenue recognition policies, and adoption of new accounting standards - The company primarily engages in the fabrication of complex steel structures, modules, and marine vessels, also providing project management, hook-up, commissioning, repair, maintenance, and civil construction services[28](index=28&type=chunk) - The company manages its business through three operating divisions: Fabrication, Shipyard, and Services, along with a non-operating Corporate division; the former EPC division was merged with the Fabrication division in the first quarter of 2019[28](index=28&type=chunk)[100](index=100&type=chunk) - The company is strategically shifting its focus to petrochemical and industrial facility fabrication, offshore wind opportunities, and diversifying its customer base to address the downturn in the oil and gas industry[32](index=32&type=chunk)[112](index=112&type=chunk) - The company adopted ASU 2016-02 "Leases" in the first quarter of 2019, resulting in the recognition of lease assets of **$6.9 million** and lease liabilities of **$5.1 million** on the balance sheet as of June 30, 2019[61](index=61&type=chunk)[62](index=62&type=chunk) [2. REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS](index=17&type=section&id=2.%20REVENUE,%20CONTRACT%20ASSETS%20AND%20LIABILITIES%20AND%20OTHER%20CONTRACT%20MATTERS) This note details the company's revenue by contract type and operating segment, as well as changes in contract assets and liabilities; as of June 30, 2019, the company's total remaining performance obligations were $454.5 million, expected to be recognized as revenue over the next several years Revenue by Contract Type and Division (in thousands of dollars) | Division/Contract Type | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | **Fabrication Division** | | | | | | Fixed-price and unit-rate | $22,415 | $9,472 | $35,046 | $26,815 | | T&M | $0 | $0 | $0 | $0 | | Other | $0 | $0 | $0 | $0 | | **Shipyard Division** | | | | | | Fixed-price and unit-rate | $36,607 | $21,259 | $70,233 | $38,481 | | T&M | $960 | $2,361 | $3,921 | $3,704 | | Other | $0 | $0 | $0 | $0 | | **Services Division** | | | | | | Fixed-price and unit-rate | $12,668 | $10,576 | $18,899 | $20,866 | | T&M | $8,187 | $10,486 | $18,809 | $21,071 | | Other | $3,210 | $1,143 | $5,959 | $2,138 | | **Total** | **$80,456** | **$54,014** | **$148,061** | **$111,304** | Remaining Performance Obligations (in thousands of dollars) | Period | Performance Obligations | | :--- | :--- | | Remainder of 2019 | $146,150 | | 2020 | $205,651 | | 2021 | $96,481 | | Thereafter | $6,240 | | **Total** | **$454,522** | Contract Assets and Liabilities (in thousands of dollars) | Metric | June 30, 2019 | December 31, 2018 | | :--- | :--- | :--- | | Contract assets | $51,334 | $29,982 | | Contract liabilities | $(13,823) | $(16,845) | | **Contracts in progress, net** | **$37,511** | **$13,137** | - As of June 30, 2019, the Shipyard division's remaining performance obligations do not include approximately **$21.9 million** related to two MPSV construction contracts in dispute due to customer termination notices[70](index=70&type=chunk) - In the first half of 2019, the allowance for doubtful accounts was **$0.1 million**, compared to **$8 thousand** in the same period of 2018; as of June 30, 2019, the allowance for doubtful accounts was **$0.1 million**[74](index=74&type=chunk) - In the first half of 2019, operating loss increased by **$2.0 million** due to increased cost estimates for the port tug and ice-class tug projects[76](index=76&type=chunk)[79](index=79&type=chunk) [3. ASSETS HELD FOR SALE](index=19&type=section&id=3.%20ASSETS%20HELD%20FOR%20SALE) As of June 30, 2019, the company held $18.7 million in assets for sale, primarily including machinery and equipment from the Fabrication division and a dry dock from the Shipyard division, with the aim of optimizing asset allocation and improving liquidity Assets Held for Sale Summary (in thousands of dollars) | Asset | Fabrication Division | Shipyard Division | Consolidated Total | | :--- | :--- | :--- | :--- | | Machinery and equipment | $25,684 | $1,222 | $26,906 | | Accumulated depreciation | $(7,871) | $(298) | $(8,169) | | **Total** | **$17,813** | **$924** | **$18,737** | - The Fabrication division's assets held for sale primarily include three **660-ton crawler cranes**, one deck barge, two plate bending rolls, and panel line equipment, which have been relocated to the Houma, Louisiana fabrication facility[81](index=81&type=chunk) - The Shipyard division's assets held for sale include a **2,500-ton dry dock**[85](index=85&type=chunk) - In the first half of 2018, the company recognized a **$3.9 million** gain from the sale of its South Texas facility and a **$3.6 million** gain from the settlement of Hurricane Harvey insurance claims[80](index=80&type=chunk)[86](index=86&type=chunk) [4. CREDIT FACILITIES](index=20&type=section&id=4.%20CREDIT%20FACILITIES) The company has a $40.0 million revolving credit agreement with Hancock Whitney Bank, amended on May 1, 2019, extending the maturity date to June 9, 2021; as of June 30, 2019, the company had no outstanding borrowings and $29.3 million available under the facility - The company has a **$40.0 million** revolving credit agreement available for borrowings or letters of credit[86](index=86&type=chunk) - The credit agreement was amended on May 1, 2019, extending the maturity date to **June 9, 2021**, and revising financial covenants[86](index=86&type=chunk) Credit Agreement Financial Covenants (as of June 30, 2019) | Covenant | Requirement | | :--- | :--- | | Current assets to current liabilities ratio | Not less than 2.00:1.00 | | Minimum tangible net worth | At least $170.0 million, plus 100% of net proceeds from stock issuance or other equity | | Interest-bearing debt to tangible net worth ratio | Not more than 0.50:1.00 | - As of June 30, 2019, the company had no outstanding borrowings, **$10.7 million** in outstanding letters of credit, and **$29.3 million** available under the facility[89](index=89&type=chunk) - As of June 30, 2019, the company was in compliance with all financial covenants, with a tangible net worth of **$191.3 million**, a current assets to current liabilities ratio of **2.26:1.0**, and an interest-bearing debt to tangible net worth ratio of **0.06:1.0**[89](index=89&type=chunk) - As of June 30, 2019, the company had **$375.9 million** in outstanding surety bonds[90](index=90&type=chunk) [5. COMMITMENTS AND CONTINGENCIES](index=21&type=section&id=5.%20COMMITMENTS%20AND%20CONTINGENCIES) The company faces various routine legal proceedings, primarily involving commercial disputes, workers' compensation, and personal injury claims; a dispute with a customer regarding the termination of two MPSV construction contracts is ongoing, and the company has filed a lawsuit to protect its rights - The company faces an ongoing customer dispute related to the termination of two MPSV construction contracts, having filed a lawsuit on **October 2, 2018**, with the customer filing counterclaims; the court denied the customer's request for possession of the vessels on **May 28, 2019**[92](index=92&type=chunk)[118](index=118&type=chunk) - As of June 30, 2019, other noncurrent assets on the balance sheet included **$12.5 million** in net contract assets related to the MPSV project[93](index=93&type=chunk)[119](index=119&type=chunk) Future Operating Lease Payments (in thousands of dollars) | Period | Payment Amount | | :--- | :--- | | Remainder of 2019 | $326 | | 2020 | $659 | | 2021 | $668 | | 2022 | $677 | | 2023 | $676 | | Thereafter | $6,173 | | **Total Lease Payments** | **$9,179** | | Less interest | $(4,084) | | **Present Value of Lease Liabilities** | **$5,095** | - As of June 30, 2019, the weighted-average remaining lease term was approximately **16.0 years**, and the weighted-average discount rate used to calculate lease liabilities was **7.5%**[97](index=97&type=chunk) [6. INCOME (LOSS) PER COMMON SHARE](index=23&type=section&id=6.%20INCOME%20(LOSS)%20PER%20COMMON%20SHARE) For the three and six months ended June 30, 2019, the company reported basic and diluted losses per common share of $0.34 and $0.55, respectively, compared to earnings of $0.04 and a loss of $0.32 in the corresponding periods of 2018 Income (Loss) Per Common Share Calculation (in thousands of dollars, except per share data) | Metric | Three Months Ended June 30, 2019 | Three Months Ended June 30, 2018 | Six Months Ended June 30, 2019 | Six Months Ended June 30, 2018 | | :--- | :--- | :--- | :--- | :--- | | Net (loss) income attributable to common shareholders | $(5,248) | $549 | $(8,290) | $(4,747) | | Weighted-average shares outstanding | 15,236 | 15,043 | 15,194 | 15,004 | | **Basic and Diluted (Loss) Income Per Common Share** | **$(0.34)** | **$0.04** | **$(0.55)** | **$(0.32)** | - The company has no dilutive securities, thus basic and diluted earnings per share are the same[99](index=99&type=chunk) [7. SEGMENT DISCLOSURES](index=23&type=section&id=7.%20SEGMENT%20DISCLOSURES) The company currently manages its business through three operating divisions: Fabrication, Shipyard, and Services, along with a non-operating Corporate division; the former EPC division was merged with the Fabrication division in the first quarter of 2019, and financial information for each segment is evaluated based on revenue, gross profit (loss), and operating profit (loss) - The Fabrication division focuses on fabricating petrochemical and industrial facility modules, alternative energy foundations, and offshore oil and gas structures[100](index=100&type=chunk) - The Shipyard division engages in new vessel construction, including OSVs, MPSVs, research vessels, tugs, and vessel repair activities[101](index=101&type=chunk) - The Services division provides offshore platform and inland structure interconnect piping services, field construction and maintenance activities, as well as skid unit fabrication and municipal projects[102](index=102&type=chunk) Revenue and Operating (Loss) Income by Segment (in thousands of dollars) | Division | Three Months Ended June 30, 2019 Revenue | Three Months Ended June 30, 2019 Operating (Loss) Income | Six Months Ended June 30, 2019 Revenue | Six Months Ended June 30, 2019 Operating (Loss) Income | | :--- | :--- | :--- | :--- | :--- | | Fabrication | $22,415 | $(1,211) | $35,046 | $(2,751) | | Shipyard | $37,567 | $(3,564) | $74,154 | $(4,468) | | Services | $24,065 | $1,728 | $43,667 | $3,017 | | Corporate | $(3,591) | $(2,337) | $(4,806) | $(4,464) | | **Consolidated Total** | **$80,456** | **$(5,384)** | **$148,061** | **$(8,666)** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=25&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's detailed analysis of the company's financial condition and operating performance, including cautionary statements on forward-looking information, business overview, asset divestitures, backlog growth strategies, review of alternative strategies, operating outlook, safety culture, critical accounting policies, new awards and backlog, segment operating results, and liquidity and capital resources [Cautionary Statement on Forward-Looking Information](index=25&type=section&id=Cautionary%20Statement%20on%20Forward-Looking%20Information) This report contains forward-looking statements regarding the company's future performance, such as oil and gas prices, operating cash flow, and capital expenditures; these statements are not guarantees of future performance, and actual results may differ materially due to various factors including oil and gas industry cyclicality, competition, contract terms, weather conditions, and project terminations - Forward-looking statements include projections or expectations regarding oil and gas prices, operating cash flow, capital expenditures, liquidity, and tax rates[106](index=106&type=chunk) - Actual results may differ materially due to factors such as oil and gas industry cyclicality, competition, customer consolidation, timing of new contract awards, customer financial capability, contract terms, project cost overruns, weather conditions, changes in backlog estimates, and project suspensions or terminations[107](index=107&type=chunk) - The company does not intend to update forward-looking statements frequently, even if assumptions, business plans, or actual experience change[108](index=108&type=chunk) [Overview](index=26&type=section&id=Overview) The company is a leading fabricator of steel structures, modules, and marine vessels, serving the energy, petrochemical, industrial, power, alternative energy, and marine sectors; in response to the oil and gas industry downturn, the company is actively transforming its business, focusing on petrochemical and industrial facilities, offshore wind projects, and diversifying its customer base, while also improving liquidity through cost reductions and asset sales - The company is a leading fabricator of complex steel structures, modules, and marine vessels, serving the energy, petrochemical, industrial facilities, power, alternative energy, and marine industries[110](index=110&type=chunk) - In the first quarter of 2019, the former EPC division was merged with the Fabrication division, and the company now manages its business through three operating divisions: Fabrication, Shipyard, and Services[111](index=111&type=chunk) - In response to the sustained decline in oil and gas prices since late 2014, the company has implemented cost reduction measures and divested underutilized assets, strategically shifting its focus to petrochemical and industrial facilities, offshore wind opportunities, and diversifying its customer base[112](index=112&type=chunk) [Ongoing Effort to Divest of Underutilized Assets](index=26&type=section&id=Ongoing%20Effort%20to%20Divest%20of%20Underutilized%20Assets) The company continues to divest underutilized assets to improve liquidity, having completed the sale of its South Texas and North Texas facilities in 2018; as of June 30, 2019, the Fabrication division still held $17.8 million in assets for sale, and the Shipyard division had a $0.9 million dry dock for sale - In the second and fourth quarters of 2018, the company completed the sales of its South Texas and North Texas facilities, respectively[113](index=113&type=chunk) - As of June 30, 2019, the Fabrication division still held **$17.8 million** in assets for sale (Fabrication AHFS), primarily including three **660-ton crawler cranes**, one deck barge, two plate bending rolls, and panel line equipment[113](index=113&type=chunk) - As of June 30, 2019, the Shipyard division had **$0.9 million** in assets held for sale (Shipyard AHFS), including a **2,500-ton dry dock**[114](index=114&type=chunk) [Ongoing Efforts to Increase Our Backlog, Diversify Our Customer Base and Resolve Customer Dispute](index=26&type=section&id=Ongoing%20Efforts%20to%20Increase%20Our%20Backlog,%20Diversify%20Our%20Customer%20Base%20and%20Resolve%20Customer%20Dispute) The company is actively pursuing petrochemical and industrial fabrication and offshore wind projects, successfully partnering with Smulders to expand into the offshore wind market; concurrently, the company has increased its non-oil and gas backlog in the Shipyard and Services divisions and continues to address a customer dispute related to the termination of two MPSV construction contracts - The company continues to focus its business development efforts on petrochemical and industrial fabrication opportunities, with increasing bidding activity[115](index=115&type=chunk) - The company signed a cooperation agreement with Smulders, a Belgian company, to jointly pursue US offshore wind opportunities, aiming for a strategic position in this emerging market[116](index=116&type=chunk) - The Shipyard division's backlog increased with non-oil and gas customers, including contracts to build three Towing, Salvage, and Rescue ships for the US Navy, three Regional Class Research Vessels, and six Port Tugboats[119](index=119&type=chunk) - The Fabrication division's backlog increased with traditional and non-traditional fabrication work, including the construction of offshore jackets and decks, the expansion of a paddlewheel riverboat, and the construction of two ferries[119](index=119&type=chunk) - Demand for offshore hook-up, upgrade, and maintenance services remains strong in the Services division, with plans to pursue service opportunities in the West Texas shale basin[118](index=118&type=chunk) - The company is addressing a customer dispute regarding the termination of two MPSV construction contracts, having filed a lawsuit, and the court denied the customer's request for possession of the vessels on **May 28, 2019**[118](index=118&type=chunk) [Review of Alternative Strategies](index=28&type=section&id=Review%20of%20Alternative%20Strategies) On May 6, 2019, the company's Board of Directors formed a special committee to initiate a review of alternative strategies aimed at enhancing shareholder value; there is currently no assurance that this review will result in any transaction or other strategic changes - The company's Board of Directors has formed a special committee to explore alternative strategies aimed at enhancing shareholder value[120](index=120&type=chunk) [Operating Outlook](index=28&type=section&id=Operating%20Outlook) The company is committed to maintaining liquidity, securing new project awards and backlog, and generating operating income and cash flow in the long term; while the Fabrication division may be negatively impacted by underutilized facilities in the short term, and the Shipyard division faces similar challenges, the company expects strong performance from the Services division and an increase in the Shipyard division's backlog - The company will continue to focus on maintaining liquidity, securing meaningful new project awards and backlog in the near term, and generating operating income and cash flow in the long term[121](index=121&type=chunk) - The Fabrication division will be negatively impacted by underutilized facilities in the short term, and the Shipyard division will experience similar impacts until major project construction activities commence[121](index=121&type=chunk) - The Shipyard division's port tug project is operating at a loss and will generate revenue with no gross profit in the future[121](index=121&type=chunk) [Safety](index=28&type=section&id=Safety) The company is committed to the safety and health of its employees and subcontractors, ensuring a safe workplace and compliance with all applicable federal and state safety regulations through rigorous safety assurance programs, continuous safety education and training, and a zero-tolerance drug and alcohol policy - The company is committed to the safety and health of its employees and subcontractors, believing a strong safety culture is critical to success[122](index=122&type=chunk) - The company implements rigorous safety assurance programs, provides continuous safety education and training, and maintains a zero-tolerance policy for drug and alcohol use in the workplace[122](index=122&type=chunk) [Critical Accounting Policies](index=28&type=section&id=Critical%20Accounting%20Policies) The company's financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), requiring management to make estimates and judgments; there have been no changes to the company's critical accounting policies since December 31, 2018 - The company's financial statements are prepared in accordance with U.S. Generally Accepted Accounting Principles (GAAP), requiring management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosures of contingent assets and liabilities[123](index=123&type=chunk) - There have been no changes to the company's critical accounting policies since December 31, 2018[124](index=124&type=chunk) [New Awards and Backlog](index=29&type=section&id=New%20Awards%20and%20Backlog) As of June 30, 2019, the company's total backlog was $476.4 million, a significant increase from December 31, 2018; the Shipyard division contributed the most to this backlog, which also includes customer options for additional vessel construction that could further increase the backlog - Backlog represents the unrecognized value of new project awards and may differ from the value of remaining performance obligations disclosed under Topic 606[125](index=125&type=chunk) Backlog vs. Remaining Performance Obligations (in thousands of dollars) | Metric | Fabrication Division | Shipyard Division | Services Division | Consolidated Total | | :--- | :--- | :--- | :--- | :--- | | Remaining performance obligations under Topic 606 | $53,496 | $388,239 | $12,787 | $454,522 | | Contracts in dispute | $0 | $21,888 | $0 | $21,888 | | **Total Backlog** | **$53,496** | **$410,127** | **$12,787** | **$476,410** | Backlog by Segment (in thousands of dollars) | Division | June 30, 2019 Amount | December 31, 2018 Amount | | :--- | :--- | :--- | | Fabrication | $53,496 | $63,883 | | Shipyard | $410,127 | $281,531 | | Services | $12,787 | $11,046 | | **Total Backlog** | **$476,410** | **$356,460** | - As of June 30, 2019, seven customers accounted for approximately **92%** of the company's backlog[131](index=131&type=chunk) - The company's contract to build three Towing, Salvage, and Rescue ships includes customer options that, if fully exercised, would increase the backlog by approximately **$333.0 million**[129](index=129&type=chunk) [Results of Operations (Consolidated)](index=31&type=section&id=Results%20of%20Operations%20(Consolidated)) This section provides a detailed analysis of the company's consolidated operating results for the three and six months ended June 30, 2019; despite revenue growth, both gross and operating losses expanded, primarily due to increased project costs, underutilized facilities, and specific project expenses [Three Months Ended June 30, 2019 and 2018](index=31&type=section&id=Three%20Months%20Ended%20June%2030,%202019%20and%202018) For the three months ended June 30, 2019, the company's revenue increased by 49.0% to $80.5 million year-over-year, but gross loss widened from $0.7 million to $1.6 million, operating income turned into a $5.4 million loss from a $0.7 million income, and net loss was $5.2 million Consolidated Operating Results Comparison (in thousands of dollars, percentage) | Metric | June 30, 2019 | June 30, 2018 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Revenue | $80,456 | $54,014 | $26,442 | 49.0% | | Cost of sales | $82,054 | $54,713 | $(27,341) | (50.0)% | | Gross loss | $(1,598) | $(699) | $(899) | (128.6)% | | Gross loss percentage | (2.0)% | (1.3)% | | | | Selling, general and administrative expenses | $3,987 | $5,092 | $1,105 | 21.7% | | Impairment of assets and (gain) loss on assets held for sale, net | $0 | $(6,579) | $(6,579) | (100.0)% | | Other (income) expense, net | $(201) | $64 | $265 | nm | | Operating (loss) income | $(5,384) | $724 | $(6,108) | nm | | Interest (expense) income, net | $126 | $(92) | $218 | nm | | Net (loss) income before income taxes | $(5,258) | $632 | $(5,890) | nm | | Income tax (expense) benefit | $10 | $(83) | $93 | nm | | **Net (Loss) Income** | **$(5,248)** | **$549** | **$(5,797)** | **nm** | - Revenue growth was primarily driven by increased revenue from the Shipyard division (**$13.9 million**) and Fabrication division (**$12.9 million**), as well as a **$1.9 million** increase in Services division revenue[133](index=133&type=chunk) - The increase in gross loss was mainly due to under-recovery of indirect costs from underutilized facilities in the Fabrication division, holding costs for MPSV vessels (**$0.6 million**), and increased cost estimates for the port tug project (**$1.4 million**) and ice-class tug project (**$0.9 million**)[134](index=134&type=chunk) - Selling, general and administrative expenses decreased by **21.7%** to **$4.0 million**, primarily due to lower incentive plan costs, board compensation, and legal consulting fees related to customer disputes, partially offset by increased professional fees related to strategic review and business diversification[135](index=135&type=chunk) [Six Months Ended June 30, 2019 and 2018](index=36&type=section&id=Six%20Months%20Ended%20June%2030,%202019%20and%202018) For the six months ended June 30, 2019, the company's revenue increased by 33.0% to $148.1 million year-over-year, gross loss widened from $20 thousand to $1.0 million, operating loss increased from $4.4 million to $8.7 million, and net loss was $8.3 million Consolidated Operating Results Comparison (in thousands of dollars, percentage) | Metric | June 30, 2019 | June 30, 2018 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Revenue | $148,061 | $111,304 | $36,757 | 33.0% | | Cost of sales | $149,106 | $111,324 | $(37,782) | (33.9)% | | Gross loss | $(1,045) | $(20) | $(1,025) | nm | | Gross loss percentage | (0.7)% | 0.0% | | | | Selling, general and administrative expenses | $7,821 | $9,801 | $1,980 | 20.2% | | Impairment of assets and (gain) loss on assets held for sale, net | $(70) | $(5,829) | $(5,759) | (98.8)% | | Other (income) expense, net | $(130) | $375 | $505 | nm | | Operating loss | $(8,666) | $(4,367) | $(4,299) | (98.4)% | | Interest (expense) income, net | $388 | $(238) | $626 | nm | | Net loss before income taxes | $(8,278) | $(4,605) | $(3,673) | (79.8)% | | Income tax (expense) benefit | $(12) | $(142) | $130 | 91.5% | | **Net Loss** | **$(8,290)** | **$(4,747)** | **$(3,543)** | **(74.6)%** | - Revenue growth was primarily driven by increased revenue from the Shipyard division (**$32.0 million**) and Fabrication division (**$8.2 million**)[157](index=157&type=chunk) - The increase in gross loss was mainly due to under-recovery of indirect costs from underutilized facilities in the Fabrication division, holding costs for MPSV vessels (**$0.8 million**), and increased cost estimates for the port tug project (**$1.2 million**) and ice-class tug project (**$0.8 million**)[158](index=158&type=chunk) - Selling, general and administrative expenses decreased by **20.2%** to **$7.8 million**, primarily due to lower incentive plan costs, board compensation, and legal consulting fees related to customer disputes, partially offset by increased professional fees related to strategic review and business diversification[159](index=159&type=chunk) [Operating Segments](index=33&type=section&id=Operating%20Segments) This section provides a detailed analysis of the operating results for the company's Fabrication, Shipyard, Services, and Corporate divisions for the three and six months ended June 30, 2019; each division's revenue, gross profit (loss), and operating profit (loss) were significantly impacted by project progress, cost control, and market conditions [Fabrication Division (Three Months)](index=33&type=section&id=Fabrication%20Division%20(Three%20Months)) For the three months ended June 30, 2019, the Fabrication division's revenue increased by 136.6% to $22.4 million year-over-year, gross loss decreased from $1.1 million to $0.7 million, and operating loss was $1.2 million Fabrication Division Operating Results Comparison (in thousands of dollars, percentage) | Metric | June 30, 2019 | June 30, 2018 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Revenue | $22,415 | $9,472 | $12,943 | 136.6% | | Gross loss | $(677) | $(1,124) | $447 | 39.8% | | Gross loss percentage | (3.0)% | (11.9)% | | | | Selling, general and administrative expenses | $742 | $1,436 | $694 | 48.3% | | Impairment of assets and (gain) loss on assets held for sale, net | $0 | $(6,579) | $(6,579) | (100.0)% | | Other (income) expense, net | $(208) | $(193) | $15 | 7.8% | | Operating (loss) income | $(1,211) | $4,212 | $(5,423) | (128.8)% | - Revenue growth was primarily driven by progress on the paddlewheel riverboat project and several smaller fabrication projects[142](index=142&type=chunk) - The decrease in gross loss was mainly due to increased revenue and improved indirect cost recovery, partially offset by a decline in project portfolio margins[142](index=142&type=chunk) - Selling, general and administrative expenses decreased by **48.3%**, primarily due to lower costs from the former EPC division and reduced legal consulting fees related to customer disputes[143](index=143&type=chunk) [Shipyard Division (Three Months)](index=34&type=section&id=Shipyard%20Division%20(Three%20Months)) For the three months ended June 30, 2019, the Shipyard division's revenue increased by 59.0% to $37.6 million year-over-year, gross loss widened from $2.8 million to $2.9 million, and operating loss was $3.6 million Shipyard Division Operating Results Comparison (in thousands of dollars, percentage) | Metric | June 30, 2019 | June 30, 2018 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Revenue | $37,567 | $23,620 | $13,947 | 59.0% | | Gross loss | $(2,912) | $(2,776) | $(136) | (4.9)% | | Gross loss percentage | (7.8)% | (11.8)% | | | | Selling, general and administrative expenses | $590 | $597 | $7 | 1.2% | | Other (income) expense, net | $62 | $4 | $(58) | nm | | Operating loss | $(3,564) | $(3,377) | $(187) | (5.5)% | - Revenue growth was primarily driven by progress on the first two Regional Class Research Vessel projects and the first Towing, Salvage, and Rescue ship project[147](index=147&type=chunk) - The increase in gross loss was mainly due to under-recovery of indirect costs, holding costs for MPSV vessels (**$0.6 million**), and increased cost estimates for the port tug project (**$1.4 million**) and ice-class tug project (**$0.9 million**)[147](index=147&type=chunk) [Services Division (Three Months)](index=35&type=section&id=Services%20Division%20(Three%20Months)) For the three months ended June 30, 2019, the Services division's revenue increased by 8.4% to $24.1 million year-over-year, gross profit decreased from $3.6 million to $2.1 million, and operating profit was $1.7 million Services Division Operating Results Comparison (in thousands of dollars, percentage) | Metric | June 30, 2019 | June 30, 2018 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Revenue | $24,065 | $22,205 | $1,860 | 8.4% | | Gross profit | $2,137 | $3,585 | $(1,448) | (40.4)% | | Gross profit percentage | 8.9% | 16.1% | | | | Selling, general and administrative expenses | $464 | $762 | $298 | 39.1% | | Other (income) expense, net | $(55) | $(12) | $43 | nm | | Operating profit | $1,728 | $2,835 | $(1,107) | (39.0)% | - Revenue growth was primarily due to the timing of new project awards and an increased proportion of materials in revenue[151](index=151&type=chunk) - The decrease in gross profit was mainly due to lower project portfolio margins, partly attributable to an increased proportion of materials in revenue, and reduced indirect cost recovery[152](index=152&type=chunk) - Selling, general and administrative expenses decreased by **39.1%**, primarily due to lower incentive plan costs and other cost reductions[153](index=153&type=chunk) [Corporate Division (Three Months)](index=35&type=section&id=Corporate%20Division%20(Three%20Months)) For the three months ended June 30, 2019, the Corporate division's gross loss decreased from $0.4 million to $0.1 million, and operating loss decreased from $2.9 million to $2.3 million Corporate Division Operating Results Comparison (in thousands of dollars, percentage) | Metric | June 30, 2019 | June 30, 2018 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Revenue (eliminations) | $(3,591) | $(1,283) | $(2,308) | nm | | Gross loss | $(146) | $(384) | $238 | 62.0% | | Selling, general and administrative expenses | $2,191 | $2,297 | $106 | 4.6% | | Other (income) expense, net | $0 | $265 | $265 | 100.0% | | Operating loss | $(2,337) | $(2,946) | $609 | 20.7% | - The decrease in gross loss was primarily due to lower costs supporting the former EPC division[154](index=154&type=chunk) - Selling, general and administrative expenses decreased by **4.6%**, primarily due to lower incentive plan costs and board compensation, partially offset by increased legal consulting fees related to customer disputes and professional fees related to strategic review and business diversification[155](index=155&type=chunk) [Fabrication Division (Six Months)](index=37&type=section&id=Fabrication%20Division%20(Six%20Months)) For the six months ended June 30, 2019, the Fabrication division's revenue increased by 30.7% to $35.0 million year-over-year, gross loss decreased from $1.7 million to $1.4 million, and operating loss was $2.8 million Fabrication Division Operating Results Comparison (in thousands of dollars, percentage) | Metric | June 30, 2019 | June 30, 2018 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Revenue | $35,046 | $26,815 | $8,231 | 30.7% | | Gross loss | $(1,449) | $(1,651) | $202 | 12.2% | | Gross loss percentage | (4.1)% | (6.2)% | | | | Selling, general and administrative expenses | $1,509 | $2,477 | $968 | 39.1% | | Impairment of assets and (gain) loss on assets held for sale, net | $(70) | $(5,829) | $(5,759) | (98.8)% | | Other (income) expense, net | $(137) | $(4) | $133 | nm | | Operating (loss) income | $(2,751) | $1,705 | $(4,456) | nm | - Revenue growth was primarily driven by progress on the paddlewheel riverboat project and several smaller fabrication projects[165](index=165&type=chunk) - The decrease in gross loss was mainly due to increased revenue and improved indirect cost recovery, partially offset by a decline in project portfolio margins[165](index=165&type=chunk) - Selling, general and administrative expenses decreased by **39.1%**, primarily due to lower costs from the former EPC division and reduced legal consulting fees related to customer disputes[166](index=166&type=chunk) [Shipyard Division (Six Months)](index=38&type=section&id=Shipyard%20Division%20(Six%20Months)) For the six months ended June 30, 2019, the Shipyard division's revenue increased by 75.8% to $74.2 million year-over-year, gross loss decreased from $3.8 million to $3.2 million, and operating loss was $4.5 million Shipyard Division Operating Results Comparison (in thousands of dollars, percentage) | Metric | June 30, 2019 | June 30, 2018 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Revenue | $74,154 | $42,185 | $31,969 | 75.8% | | Gross loss | $(3,192) | $(3,799) | $607 | 16.0% | | Gross loss percentage | (4.3)% | (9.0)% | | | | Selling, general and administrative expenses | $1,214 | $1,393 | $179 | 12.8% | | Other (income) expense, net | $62 | $164 | $102 | 62.2% | | Operating loss | $(4,468) | $(5,356) | $888 | 16.6% | - Revenue growth was primarily driven by progress on the first two Regional Class Research Vessel projects and the first Towing, Salvage, and Rescue ship project[168](index=168&type=chunk) - The decrease in gross loss was mainly due to increased revenue and improved indirect cost recovery, as well as higher project portfolio margins, partially offset by increased MPSV project holding costs (**$0.4 million**) and increased project cost estimates (**$2.0 million**)[170](index=170&type=chunk) - Selling, general and administrative expenses decreased by **12.8%**, primarily due to reduced legal consulting fees related to customer disputes, partially offset by increased incentive plan costs[170](index=170&type=chunk) [Services Division (Six Months)](index=39&type=section&id=Services%20Division%20(Six%20Months)) For the six months ended June 30, 2019, the Services division's revenue slightly decreased by 0.9% to $43.7 million year-over-year, gross profit decreased from $6.2 million to $3.9 million, and operating profit was $3.0 million Services Division Operating Results Comparison (in thousands of dollars, percentage) | Metric | June 30, 2019 | June 30, 2018 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Revenue | $43,667 | $44,075 | $(408) | (0.9)% | | Gross profit | $3,878 | $6,199 | $(2,321) | (37.4)% | | Gross profit percentage | 8.9% | 14.1% | | | | Selling, general and administrative expenses | $916 | $1,496 | $580 | 38.8% | | Other (income) expense, net | $(55) | $(38) | $17 | 44.7% | | Operating profit | $3,017 | $4,741 | $(1,724) | (36.4)% | - The decrease in gross profit was mainly due to lower project portfolio margins and reduced indirect cost recovery[173](index=173&type=chunk) - Selling, general and administrative expenses decreased by **38.8%**, primarily due to lower incentive plan costs and other cost reductions[174](index=174&type=chunk) [Corporate Division (Six Months)](index=40&type=section&id=Corporate%20Division%20(Six%20Months)) For the six months ended June 30, 2019, the Corporate division's gross loss decreased from $0.8 million to $0.3 million, and operating loss decreased from $5.5 million to $4.5 million Corporate Division Operating Results Comparison (in thousands of dollars, percentage) | Metric | June 30, 2019 | June 30, 2018 | Change Amount | Change Percentage | | :--- | :--- | :--- | :--- | :--- | | Revenue (eliminations) | $(4,806) | $(1,771) | $(3,035) | nm | | Gross loss | $(282) | $(769) | $487 | 63.3% | | Selling, general and administrative expenses | $4,182 | $4,435 | $253 | 5.7% | | Other (income) expense, net | $0 | $253 | $253 | 100.0% | | Operating loss | $(4,464) | $(5,457) | $993 | 18.2% | - The decrease in gross loss was primarily due to lower costs supporting the former EPC division[175](index=175&type=chunk) - Selling, general and administrative expenses decreased by **5.7%**, primarily due to lower incentive plan costs and board compensation, partially offset by increased legal consulting fees related to customer disputes and professional fees related to strategic review and business diversification[176](index=176&type=chunk) [Liquidity and Capital Resources](index=40&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains liquidity primarily through cash, short-term investments, and a revolving credit agreement; as of June 30, 2019, the company had $76.0 million in cash and short-term investments and $29.3 million available under its credit facility, and is committed to improving liquidity through cost control, asset sales, and new project acquisition [Available Liquidity](index=40&type=section&id=Available%20Liquidity) As of June 30, 2019, the company had $76.0 million in cash, cash equivalents, and short-term investments, along with $29.3 million available under its revolving credit agreement, totaling $105.2 million in available liquidity Available Liquidity (in thousands of dollars) | Metric | Amount | | :--- | :--- | | Cash and cash equivalents | $30,192 | | Short-term investments | $45,791 | | **Total Cash, Cash Equivalents, and Short-Term Investments** | **$75,983** | | Total credit agreement facility | $40,000 | | Outstanding letters of credit | $(10,737) | | Available under credit agreement | $29,263 | | **Total Available Liquidity** | **$105,246** | - Cash and cash equivalents include **$13.0 million** in U.S. Treasury bills with original maturities of three months or less[178](index=178&type=chunk) - Short-term investments include U.S. Treasury bills with original maturities greater than three months but less than six months[179](index=179&type=chunk) [Working Capital](index=41&type=section&id=Working%20Capital) As of June 30, 2019, the company's working capital was $99.1 million; excluding cash, short-term investments, and assets held for sale, working capital was $4.4 million, primarily composed of net contract assets, accounts receivable, and inventories, and influenced by project size and backlog mix - As of June 30, 2019, the company's working capital was **$99.1 million**, including **$76.0 million** in cash, cash equivalents, and short-term investments, and **$18.7 million** in assets held for sale[180](index=180&type=chunk) Working Capital Components (excluding cash, short-term investments, and assets held for sale) (in thousands of dollars) | Metric | June 30, 2019 | December 31, 2018 | Change | | :--- | :--- | :--- | :--- | | Contract assets | $51,334 | $29,982 | $(21,352) | | Contract liabilities | $(13,823) | $(16,845) | $(3,022) | | **Contracts in progress, net** | **$37,511** | **$13,137** | **$(24,374)** | | Accounts and retainage receivable, net | $23,343 | $22,505 | $(838) | | Inventories, prepaid expenses and other assets | $8,530 | $9,356 | $826 | | Accounts payable, accrued expenses and other liabilities | $(64,957) | $(39,256) | $25,701 | | **Total** | **$4,427** | **$5,742** | **$1,315** | - Fluctuations in working capital are influenced by factors such as project size, timing of new project awards, and advance and milestone payments[183](index=183&type=chunk) [Cash Flow Activity](index=41&type=section&id=Cash%20Flow%20Activity) For the six months ended June 30, 2019, net cash outflow from operating activities was $2.9 million, net cash outflow from investing activities was $36.6 million, and net cash outflow from financing activities was $0.8 million, resulting in a net decrease of $40.3 million in cash and cash equivalents - In the first half of 2019, net cash outflow from operating activities was **$2.9 million**, a significant improvement compared to the **$26.4 million** outflow in the same period of 2018[184](index=184&type=chunk) - Operating cash outflow was primarily due to operating losses, an increase in contract assets of **$21.4 million**, and an increase in accounts payable, accrued expenses, and other current liabilities of **$25.2 million**[184](index=184&type=chunk)[192](index=192&type=chunk) - In the first half of 2019, net cash outflow from investing activities was **$36.6 million**, primarily due to the purchase of **$45.4 million** in short-term investments and **$1.4 million** in capital expenditures, partially offset by **$8.5 million** in short-term investment maturities and **$1.6 million** in proceeds from equipment sales[186](index=186&type=chunk) - In the first half of 2019, net cash outflow from financing activities was **$0.8 million**, primarily due to tax payments for shares withheld for vested stock[187](index=187&type=chunk) [Credit Facilities](index=42&type=section&id=Credit%20Facilities) The company has a $40.0 million revolving credit agreement; as of June 30, 2019, there were no outstanding borrowings, $10.7 million in outstanding letters of credit, and $29.3 million available under the facility; the company is in compliance with all financial covenants and has $375.9 million in outstanding surety bonds - The company has a **$40.0 million** revolving credit agreement available for borrowings or letters of credit, which was amended on **May 1, 2019**, extending the maturity date to **June 9, 2021**[188](index=188&type=chunk) - As of June 30, 2019, the company had no outstanding borrowings, **$10.7 million** in outstanding letters of credit, and **$29.3 million** available under the facility[190](index=190&type=chunk) - As of June 30, 2019, the company was in compliance with all financial covenants, with a tangible net worth of **$191.3 million**, a current assets to current liabilities ratio of **2.26:1.0**, and an interest-bearing debt to tangible net worth ratio of **0.06:1.0**[190](index=190&type=chunk) - As of June 30, 2019, the company had **$375.9 million** in outstanding surety bonds[191](index=191&type=chunk) [Liquidity Outlook](index=42&type=section&id=Liquidity%20Outlook) The company expects its cash, cash equivalents, short-term investments, and available credit facility as of June 30, 2019, to be sufficient to meet operating expenses, working capital, and capital expenditure needs for at least the next twelve months; the company will continue to maintain and improve liquidity through cost reductions, asset sales, and new project acquisition - The company expects its cash, cash equivalents, short-term investments, and available credit facility as of June 30, 2019, to be sufficient to meet operating expenses, working capital, and capital expenditure needs for at least the next twelve months[196](index=196&type=chunk) - The company will continue to focus on maintaining liquidity, securing meaningful new project awards and backlog in the near term, and generating operating income and cash flow in the long term[192](index=192&type=chunk) - Key uses of future liquidity include costs associated with underutilized facilities in the Fabrication and Shipyard divisions, capital expenditures (including potential improvements to Shipyard facilities), accrued contract losses recorded as of June 30, 2019, project working capital requirements, and corporate administrative expenses and strategic initiatives[194](index=194&type=chunk) - The company anticipates capital expenditures for the remainder of 2019 to be between **$5.0 million** and **$7.0 million**[194](index=194&type=chunk) [Contractual Obligations](index=43&type=section&id=Contractual%20Obligations) There have been no material changes to the company's contractual obligations since the disclosure in its 2018 annual report - There have been no material changes to the company's contractual obligations since the disclosure in its 2018 annual report[197](index=197&type=chunk) [Off-Balance Sheet Arrangements](index=43&type=section&id=Off-Balance%20Sheet%20Arrangements) There have been no material changes to the company's off-balance sheet arrangements since the disclosure in its 2018 annual report - There have been no material changes to the company's off-balance sheet arrangements since the disclosure in its 2018 annual report[198](index=198&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=43&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) For the six months ended June 30, 2019, there were no material changes in the company's market risk; for additional information on market risk, please refer to the company's 2018 annual report - For the six months ended June 30, 2019, there were no material changes in the company's market risk[199](index=199&type=chunk) [Item 4. Controls and Procedures](index=43&type=section&id=Item%204.%20Controls%20and%20Procedures) The company's management assessed the effectiveness of its disclosure controls and procedures as of June 30, 2019, concluding they were effective in design and operation, with no material changes to internal controls during the quarter - The company's management assessed the effectiveness of its disclosure controls and procedures as of June 30, 2019, concluding they were effective in design and operation[200](index=200&type=chunk) - For the three months ended June 30, 2019, there were no material changes to the company's internal control over financial reporting[201](index=201&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company faces various routine legal proceedings, including commercial disputes, workers' compensation, and personal injury claims; a lawsuit with a customer regarding the termination of two MPSV construction contracts is ongoing, and the court has denied the customer's request for possession of the vessels - The company faces various routine legal proceedings, primarily involving commercial disputes and claims, workers' compensation claims, and personal injury claims under general U.S. maritime law and the Jones Act[203](index=203&type=chunk) - The company filed a lawsuit against a customer on **October 2, 2018**, to enforce its rights and remedies under two MPSV construction contracts; the customer filed counterclaims, and the court denied the customer's request for possession of the vessels on **May 28, 2019**[204](index=204&type=chunk) [Item 1A. Risk Factors](index=44&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the company's risk factors since the disclosure in its 2018 annual report - There have been no material changes to the company's risk factors since the disclosure in its 2018 annual report[205](index=205&type=chunk) [Item 6. Exhibits](index=44&type=section&id=Item%206.%20Exhibits) This report includes a series of exhibits, such as the company's articles of incorporation, credit agreement amendments, CEO and CFO certifications, and financial statements in XBRL format - Exhibits include the company's articles of incorporation, the Fourth Amendment to the Credit Agreement, CEO and CFO certifications under Section 13a-14 of the Securities Exchange Act, and Section 906 certifications provided pursuant to 18 U.S.C. Section 1350[206](index=206&type=chunk) - The financial statements (Consolidated Balance Sheets, Consolidated Statements of Operations, Consolidated Statements of Changes in Shareholders' Equity, Consolidated Statements of Cash Flows, and Notes to Consolidated Financial Statements) are filed as Exhibit 101 in XBRL (eXtensible Business Reporting Language) format[206](index=206&type=chunk) [Signatures](index=45&type=section&id=Signatures) This report was signed by Westley S. Stockton, Executive Vice President, Chief Financial Officer, Secretary, and Treasurer of GULF ISLAND FABRICATION, INC., on August 6, 2019 - This report was signed by Westley S. Stockton, Executive Vice President, Chief Financial Officer, Secretary, and Treasurer of GULF ISLAND FABRICATION, INC., on **August 6, 2019**[209](index=209&type=chunk)[210](index=210&type=chunk)

Financial Data and Key Metrics Changes - Consolidated revenue for Q1 2019 was $67.6 million, a 17% increase from $57.3 million in Q1 2018 and a 12% increase from $60.2 million in Q4 2018 [9][10] - Net loss for Q1 2019 was $3 million, or a diluted loss per share of $0.20, compared to a net loss of $5.3 million, or a diluted loss per share of $0.35 in Q1 2018 [9][10] - Operating loss decreased from $5.3 million in Q1 2018 to $3 million in Q1 2019, attributed to higher revenue and a better project mix [11][12] Business Line Data and Key Metrics Changes - **Shipyard Division**: Revenue was $36.6 million in Q1 2019, up from $18.6 million in Q1 2018 and $29.7 million in Q4 2018. Operating loss improved to $904,000 from $2 million in Q1 2018 [15][16] - **Fabrication Division**: Revenue decreased to $12.6 million in Q1 2019 from $17.3 million in Q1 2018, with an operating loss of $1.5 million compared to a loss of $2.5 million in Q1 2018 [20][22] - **Services Division**: Revenue was $19.6 million in Q1 2019, down from $21.9 million in Q1 2018, with operating income of $1.3 million, a decrease from $1.9 million in Q1 2018 [24][25] Market Data and Key Metrics Changes - Backlog as of March 31, 2019, totaled approximately $335 million, an increase of $43 million from March 2018 but a decrease of $22 million from year-end 2018 [29][30] - The backlog included $248 million for the Shipyard Division, $71 million for the Fabrication Division, and $15 million for the Services Division [30] Company Strategy and Development Direction - The company combined its EPC Division with the Fabrication Division to focus on modular fabrication in the petrochemical sector and offshore wind opportunities [8] - Approximately 90% of the backlog is now outside the oil and gas sector, indicating a strategic shift towards diversification [37] Management's Comments on Operating Environment and Future Outlook - Management expects improvement in facility utilization and revenue as construction activities ramp up for the backlog [39] - The company is optimistic about ongoing opportunities in onshore fabrication and traditional oil and gas maintenance [38] - A Special Committee has been established to evaluate options to enhance shareholder value, indicating a proactive approach to strategic alternatives [41] Other Important Information - The company ended Q1 2019 with cash and short-term investments of $70.2 million, an increase from $64 million in March 2018 [32][34] - The credit facility was amended to extend its maturity to June 2021, maintaining strong liquidity [34] Q&A Session Summary Question: Update on engineering and construction ramp-up for vessels - Management confirmed that engineering continues and construction for the Navy vessels is expected to start in Q3 2019, with the first vessel for Oregon State commencing construction this quarter [46][48] Question: Movement on SeaOne funding - Management indicated no significant movement on SeaOne financing, focusing efforts on petrochemical projects instead [55][58] Question: Status of disputed vessels - The two disputed vessels remain in the company's facilities, with $12.5 million related to those projects in long-term assets and $21 million in backlog [62][64] Question: Facility utilization and profitability - Management stated that full utilization is not currently achievable based solely on backlog, but improvements are expected by the end of the year [67][68] Question: Strategic alternatives and M&A activity - Management did not provide specific comments on M&A activity but emphasized the importance of maximizing shareholder returns through the strategic review process [79][80]

PART I. FINANCIAL INFORMATION This part presents the unaudited consolidated financial statements and management's discussion and analysis for the first quarter [Item 1. Financial Statements](index=7&type=section&id=Item%201.%20Financial%20Statements) This section presents Gulf Island Fabrication, Inc.'s unaudited consolidated financial statements for Q1 2019 and 2018, covering balance sheets, operations, cash flows, and detailed notes [Consolidated Balance Sheets](index=7&type=section&id=Consolidated%20Balance%20Sheets) This section provides a snapshot of the company's financial position at March 31, 2019, and December 31, 2018 | Metric | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | | :-------------------------------- | :----------------------------- | :----------------------------- | | Total assets | $258,715 | $258,290 | | Total liabilities | $60,811 | $57,190 | | Total shareholders' equity | $197,904 | $201,100 | | Cash and cash equivalents | $49,898 | $70,457 | | Short-term investments | $20,341 | $8,720 | | Contract assets | $38,707 | $29,982 | | Contract liabilities | $9,234 | $16,845 | [Consolidated Statements of Operations](index=8&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the company's revenues, expenses, and net loss for the three months ended March 31, 2019 and 2018 | Metric | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Revenue | $67,605 | $57,290 | | Cost of revenue | $67,052 | $56,611 | | Gross profit | $553 | $679 | | General and administrative expense | $3,834 | $4,709 | | Operating loss | $(3,282) | $(5,090) | | Net loss | $(3,042) | $(5,296) | | Basic and diluted loss per common share | $(0.20) | $(0.35) | - Revenue increased by **18.0%** year-over-year, from **$57,290 thousand** in Q1 2018 to **$67,605 thousand** in Q1 2019[21](index=21&type=chunk)[134](index=134&type=chunk) - Net loss improved by **42.6%** year-over-year, from **$(5,296) thousand** in Q1 2018 to **$(3,042) thousand** in Q1 2019[21](index=21&type=chunk)[134](index=134&type=chunk) [Consolidated Statement of Changes in Shareholders' Equity](index=9&type=section&id=Consolidated%20Statement%20of%20Changes%20in%20Shareholders%27%20Equity) This section outlines changes in the company's shareholders' equity, including net loss and stock-based compensation, for Q1 2019 | Metric | December 31, 2018 (in thousands) | March 31, 2019 (in thousands) | | :-------------------------------- | :----------------------------- | :---------------------------- | | Total Shareholders' Equity | $201,100 | $197,904 | | Net loss | — | $(3,042) | | Vesting of restricted stock | — | $(714) | | Stock-based compensation expense | — | $560 | [Consolidated Statements of Cash Flows](index=10&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for Q1 2019 and 2018 | Cash Flow Activity | Three Months Ended March 31, 2019 (in thousands) | Three Months Ended March 31, 2018 (in thousands) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net cash used in operating activities | $(8,477) | $(14,096) | | Net cash provided by (used in) investing activities | $(11,367) | $2,403 | | Net cash provided by (used in) financing activities | $(715) | $9,202 | | Net decrease in cash and cash equivalents | $(20,559) | $(2,491) | | Cash and cash equivalents, end of period | $49,898 | $6,492 | - Net cash used in operating activities decreased by **39.9%** from **$(14,096) thousand** in Q1 2018 to **$(8,477) thousand** in Q1 2019[27](index=27&type=chunk) - Investing activities shifted from providing **$2,403 thousand** in cash in Q1 2018 to using **$11,367 thousand** in Q1 2019, primarily due to the purchase of short-term investments[27](index=27&type=chunk)[165](index=165&type=chunk) [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations of the accounting policies, significant transactions, and financial statement line items [1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=11&type=section&id=1.%20ORGANIZATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This note describes the company's operational structure, business segments, significant projects, and key accounting policies, including the adoption of ASU 2016-02 - The company operates through three reportable segments: Fabrication, Shipyard, and Services, with the former EPC Division combined with Fabrication in Q1 2019 to focus on offshore wind and modular fabrication opportunities[29](index=29&type=chunk)[101](index=101&type=chunk) - Significant projects in backlog include the expansion of a paddle wheel riverboat, construction of a jacket and deck, eight harbor tug vessels, two offshore regional class marine research vessels, two vehicle ferries, two towboats, an ice-breaker tug, and a towing, salvage and rescue ship for the U.S. Navy[30](index=30&type=chunk) - Customer options for a third regional class marine research vessel and five additional towing, salvage and rescue ships were exercised in April 2019[31](index=31&type=chunk) - Management believes current cash, cash equivalents, short-term investments, and available capacity under the Credit Agreement will be sufficient to fund operations and capital expenditures for at least **twelve months**[35](index=35&type=chunk)[36](index=36&type=chunk) - The company adopted ASU 2016-02, 'Leases,' in Q1 2019, recording operating lease assets of approximately **$7,200 thousand** and lease liabilities of **$5,300 thousand** at January 1, 2019[63](index=63&type=chunk) [2. REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS](index=16&type=section&id=2.%20REVENUE%2C%20CONTRACT%20ASSETS%20AND%20LIABILITIES%20AND%20OTHER%20CONTRACT%20MATTERS) This note details revenue recognition by segment and contract type, remaining performance obligations, and changes in contract assets and liabilities Revenue by Segment and Contract Type (Three Months Ended March 31, 2019) | Contract Type | Fabrication ($k) | Shipyard ($k) | Services ($k) | Eliminations ($k) | Total ($k) | | :------------ | :--------------- | :------------ | :------------ | :---------------- | :--------- | | Fixed-price and unit-rate | 12,631 | 33,626 | 6,231 | (614) | 51,874 | | T&M | — | 2,961 | 10,622 | — | 13,583 | | Other | — | — | 2,749 | (601) | 2,148 | | **Total** | **12,631** | **36,587** | **19,602** | **(1,215)** | **67,605** | Revenue by Segment and Contract Type (Three Months Ended March 31, 2018) | Contract Type | Fabrication ($k) | Shipyard ($k) | Services ($k) | Eliminations ($k) | Total ($k) | | :------------ | :--------------- | :------------ | :------------ | :---------------- | :--------- | | Fixed-price and unit-rate | 17,343 | 17,222 | 10,290 | (453) | 44,402 | | T&M | — | 1,343 | 10,585 | — | 11,928 | | Other | — | — | 995 | (35) | 960 | | **Total** | **17,343** | **18,565** | **21,870** | **(488)** | **57,290** | - Total remaining performance obligations at March 31, 2019, were **$312,800 thousand**, with **$180,200 thousand** expected to be recognized in the remainder of 2019[72](index=72&type=chunk)[74](index=74&type=chunk) - Contract assets increased to **$38,700 thousand** at March 31, 2019, from **$30,000 thousand** at December 31, 2018, while contract liabilities decreased to **$9,200 thousand** from **$16,800 thousand**, primarily due to the unwind of advance payments[75](index=75&type=chunk) - Eight uncompleted harbor tug projects in the Shipyard Division are in a loss position, with a **$1,300 thousand** reserve for estimated losses due to lower craft labor productivity and schedule extensions[77](index=77&type=chunk) [3. ASSETS HELD FOR SALE](index=18&type=section&id=3.%20ASSETS%20HELD%20FOR%20SALE) This note provides a breakdown of assets classified as held for sale within the Fabrication and Shipyard Divisions Assets Held for Sale (March 31, 2019) | Assets | Fabrication Division (in thousands) | Shipyard Division (in thousands) | Consolidated (in thousands) | | :-------------------- | :-------------------------- | :------------------------- | :------------------------ | | Machinery and equipment | $25,583 | $1,222 | $26,805 | | Accumulated depreciation | $(7,871) | $(298) | $(8,169) | | **Total** | **$17,712** | **$924** | **$18,636** | - Fabrication Division assets held for sale, totaling **$17,700 thousand**, include three **660-ton** crawler cranes, a deck barge, two plate bending roll machines, and panel line equipment[79](index=79&type=chunk) - Shipyard Division assets held for sale, totaling **$900 thousand**, consist of a **2,500-ton** drydock[83](index=83&type=chunk) - A net gain of **$70 thousand** was recorded on asset impairments and sales in Q1 2019, compared to an expense of **$800 thousand** in Q1 2018[81](index=81&type=chunk) [4. CREDIT FACILITIES](index=18&type=section&id=4.%20CREDIT%20FACILITIES) This note outlines the company's revolving credit facility, its terms, available capacity, and compliance with financial covenants - The company has a **$40,000 thousand** revolving credit facility with Hancock Whitney Bank, which was amended on May 1, 2019, to extend its maturity date to June 9, 2021, and amend certain financial covenants[84](index=84&type=chunk) - At March 31, 2019, there were no outstanding borrowings under the Credit Agreement, **$2,900 thousand** in outstanding letters of credit, and **$37,100 thousand** of available capacity[88](index=88&type=chunk) - The company was in compliance with all financial covenants at March 31, 2019, including a tangible net worth of **$196,100 thousand** and a current assets to current liabilities ratio of **2.84:1.0**[88](index=88&type=chunk) - Outstanding surety bonds totaled **$334,900 thousand** at March 31, 2019[89](index=89&type=chunk) [5. COMMITMENTS AND CONTINGENCIES](index=19&type=section&id=5.%20COMMITMENTS%20AND%20CONTINGENCIES) This note discusses ongoing legal proceedings, particularly the MPSV contract dispute, and details future lease payment obligations - The company is involved in a lawsuit against a customer regarding the purported termination of contracts for the construction of two Multi-Purpose Service Vessels (MPSVs), disputing the termination and seeking damages, while the customer has filed a counterclaim[91](index=91&type=chunk)[187](index=187&type=chunk) - A net contract asset of **$12,500 thousand** related to the MPSV projects is included in other noncurrent assets at March 31, 2019[92](index=92&type=chunk) Future Lease Payments (in thousands) | Period | Payments | | :--------------- | :------- | | Remainder of 2019 | $489 | | 2020 | $659 | | 2021 | $668 | | 2022 | $677 | | 2023 | $676 | | Thereafter | $6,173 | | **Total lease payments** | **$9,342** | | Less interest | $(4,181) | | **Present value of lease liabilities** | **$5,161** | - The weighted-average remaining lease term for operating leases was approximately **16.1 years**, with a weighted-average discount rate of **7.5%** at March 31, 2019[97](index=97&type=chunk) [6. LOSS PER COMMON SHARE](index=21&type=section&id=6.%20LOSS%20PER%20COMMON%20SHARE) This note presents the calculation of basic and diluted loss per common share for the periods presented Loss Per Common Share | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :-------------------------------- | :-------------------------------- | :-------------------------------- | | Net loss attributable to common shareholders | $(3,042)k | $(5,296)k | | Weighted-average shares | 15,151k | 14,964k | | Basic and diluted loss per common share | $(0.20) | $(0.35) | [7. SEGMENT DISCLOSURES](index=21&type=section&id=7.%20SEGMENT%20DISCLOSURES) This note provides financial information by the company's three reportable segments: Fabrication, Shipyard, and Services - The company's EPC Division was operationally combined with the Fabrication Division during the first quarter 2019, resulting in three operating divisions: Fabrication, Shipyard, and Services[101](index=101&type=chunk) Segment Financial Information (Three Months Ended March 31, 2019) | Metric | Fabrication ($k) | Shipyard ($k) | Services ($k) | Corporate ($k) | Consolidated ($k) | | :-------------------- | :--------------- | :------------ | :------------ | :------------- | :---------------- | | Revenue | 12,631 | 36,587 | 19,602 | (1,215) | 67,605 | | Gross profit (loss) | (772) | (280) | 1,741 | (136) | 553 | | Operating income (loss) | (1,540) | (904) | 1,289 | (2,127) | (3,282) | | Total assets | 63,761 | 103,703 | 34,306 | 56,945 | 258,715 | Segment Financial Information (Three Months Ended March 31, 2018) | Metric | Fabrication ($k) | Shipyard ($k) | Services ($k) | Corporate ($k) | Consolidated ($k) | | :-------------------- | :--------------- | :------------ | :------------ | :------------- | :---------------- | | Revenue | 17,343 | 18,565 | 21,870 | (488) | 57,290 | | Gross profit (loss) | (527) | (1,023) | 2,614 | (385) | 679 | | Operating income (loss) | (2,506) | (1,979) | 1,906 | (2,511) | (5,090) | | Total assets | 149,116 | 76,150 | 35,529 | 8,327 | 269,122 | [8. SUBSEQUENT EVENTS](index=22&type=section&id=8.%20SUBSEQUENT%20EVENTS) This note discloses significant events occurring after the balance sheet date, including an amendment to the Credit Agreement - On May 1, 2019, the company amended its Credit Agreement to extend its maturity date and amend certain financial covenants[106](index=106&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202.%2E%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial performance, condition, and future outlook, including strategic repositioning, asset divestitures, backlog, and liquidity [Cautionary Statement on Forward-Looking Information](index=23&type=section&id=Cautionary%20Statement%20on%20Forward-Looking%20Information) This section advises readers about the inherent risks and uncertainties associated with forward-looking statements in the report - The report contains forward-looking statements regarding future performance, including projections for oil and gas prices, operating cash flows, capital expenditures, liquidity, and tax rates[109](index=109&type=chunk) - Readers are cautioned that actual results may differ materially from forward-looking statements due to factors such as the cyclical nature of the oil and gas industry, competition, contract terms, cost overruns, weather, and legal disputes[110](index=110&type=chunk) [Overview](index=24&type=section&id=Overview) This section provides a general description of the company's business, strategic repositioning efforts, and market focus - The company is a leading fabricator of complex steel structures, modules, and marine vessels, also providing project management and services, with customers in energy, petrochemical, industrial, power, alternative energy, and shipping sectors[113](index=113&type=chunk) - Due to a severe decline in oil and gas prices since late 2014, the company has strategically repositioned itself to focus on petrochemical and industrial facilities, offshore wind opportunities, and customer diversification, while implementing cost reductions and asset sales[115](index=115&type=chunk) - The EPC Division was operationally combined with the Fabrication Division in Q1 2019 to emphasize offshore wind and modular fabrication over the SeaOne Project[114](index=114&type=chunk) [Ongoing Effort to Divest of Underutilized Assets](index=24&type=section&id=Ongoing%20Effort%20to%20Divest%20of%20Underutilized%20Assets) This section details the company's initiatives to sell non-core assets within its Fabrication and Shipyard Divisions - At March 31, 2019, the Fabrication Division held **$17,700 thousand** in assets for sale (Fabrication AHFS), including crawler cranes, a deck barge, plate bending roll machines, and panel line equipment[116](index=116&type=chunk) - The Shipyard Division held **$900 thousand** in assets for sale (Shipyard AHFS), consisting of a **2,500-ton** drydock[117](index=117&type=chunk) [Ongoing Efforts to Increase Our Backlog, Diversify Our Customer Base and Resolve Customer Dispute](index=24&type=section&id=Ongoing%20Efforts%20to%20Increase%20Our%20Backlog%2C%20Diversify%20Our%20Customer%20Base%20and%20Resolve%20Customer%20Dispute) This section outlines strategies to grow backlog, diversify customers, and address the ongoing MPSV contract dispute - The company is actively pursuing petrochemical and industrial fabrication opportunities, with bidding activity for onshore modules and structures at its highest level[118](index=118&type=chunk) - Efforts to pursue offshore wind opportunities include a cooperation agreement with Smulders, a major European fabrication supplier of offshore wind structures[119](index=119&type=chunk) - Shipyard Division backlog includes construction of a towing, salvage and rescue ship for the U.S. Navy (with options for additional vessels exercised in April 2019), two regional class research vessels (with an option for a third exercised in April 2019), and eight harbor tug vessels[122](index=122&type=chunk) - Fabrication Division backlog includes a jacket and deck, a paddle wheel riverboat expansion, and two vehicle ferries[122](index=122&type=chunk) - A lawsuit is ongoing regarding the termination of two MPSV construction contracts, with the company disputing the termination and seeking damages[121](index=121&type=chunk) [Operating Outlook](index=26&type=section&id=Operating%20Outlook) This section discusses the company's expectations for future operating results, project awards, and divisional performance - Future operating results depend on securing new projects in petrochemical, industrial, and offshore wind markets, continued growth in Shipyard and Services Divisions, successful project execution, and resolution of the MPSV dispute[126](index=126&type=chunk) - The Fabrication Division is expected to be negatively impacted in the near-term by facility underutilization due to anticipated delays in new project awards[124](index=124&type=chunk) - The Shipyard Division will also be impacted by facility underutilization and lower margin backlog, with harbor tug projects currently in a loss position[124](index=124&type=chunk) [Safety](index=26&type=section&id=Safety) This section highlights the company's commitment to safety through its stringent assurance program and training initiatives - The company maintains a stringent safety assurance program, providing continuous safety education and training to employees and subcontractors, and enforces a zero-tolerance policy for drugs and alcohol in the workplace[125](index=125&type=chunk) [Critical Accounting Policies](index=26&type=section&id=Critical%20Accounting%20Policies) This section confirms no changes to the company's critical accounting policies since the prior fiscal year-end - There have been no changes to the company's critical accounting policies since December 31, 2018[126](index=126&type=chunk) [New Awards and Backlog](index=27&type=section&id=New%20Awards%20and%20Backlog) This section provides an overview of new project awards and the company's total backlog, including expected revenue recognition Backlog by Division (in thousands) | Division | March 31, 2019 (Amount) | December 31, 2018 (Amount) | | :--------- | :------------------------ | :------------------------- | | Fabrication | $71,144 | $63,883 | | Shipyard | $248,138 | $281,531 | | Services | $15,397 | $11,046 | | **Total Backlog** | **$334,679** | **$356,460** | - Backlog at March 31, 2019, includes **$21,900 thousand** related to MPSV contracts under purported termination[129](index=129&type=chunk) Expected Revenue Recognition from Backlog (March 31, 2019) | Year | Total (in thousands) | Percentage | | :------------------------------------ | :------------------- | :--------- | | Remainder of 2019 | $180,172 | 53.8% | | 2020 | $101,924 | 30.5% | | 2021 | $29,825 | 8.9% | | Thereafter | $870 | 0.3% | | Future performance obligations under Topic 606 | $312,791 | 93.5% | | Contracts under purported termination | $21,888 | 6.5% | | **Total Backlog** | **$334,679** | **100.0%** | - Customer options exercised in April 2019 for a third regional class marine research vessel (**$70,000 thousand**) and two additional towing, salvage and rescue ships (**$129,000 thousand**) are not included in the March 31, 2019 backlog[130](index=130&type=chunk) - Remaining options for five additional towing, salvage and rescue ships could add approximately **$333,000 thousand** to backlog[130](index=130&type=chunk) [Results of Operations](index=29&type=section&id=Results%20of%20Operations) This section analyzes the company's consolidated and segment-specific financial performance for the three months ended March 31 [Consolidated](index=29&type=section&id=Consolidated) This subsection provides a consolidated view of the company's revenue, gross profit, operating loss, and net loss performance Consolidated Financial Performance (Three Months Ended March 31) | Metric | 2019 (in thousands) | 2018 (in thousands) | Favorable (Unfavorable) Change (Amount) | Favorable (Unfavorable) Change (Percent) | | :------------------------------------------ | :------------------ | :------------------ | :-------------------------------------- | :--------------------------------------- | | Revenue | $67,605 | $57,290 | $10,315 | 18.0% | | Gross profit | $553 | $679 | $(126) | (18.6)% | | Operating loss | $(3,282) | $(5,090) | $1,808 | 35.5% | | Net loss | $(3,042) | $(5,296) | $2,254 | 42.6% | | General and administrative expense | $3,834 | $4,709 | $875 | 18.6% | | Asset impairments and (gain) loss on assets held for sale, net | $(70) | $750 | $820 | 109.3% | | Interest income (expense), net | $262 | $(147) | $409 | 278.2% | - The **18.0%** increase in consolidated revenue was primarily driven by an **$18,000 thousand** increase in the Shipyard Division, partially offset by decreases in Fabrication and Services Divisions[139](index=139&type=chunk) - Gross profit decreased by **18.6%** due to the under-recovery of overhead costs across divisions, despite higher revenue[136](index=136&type=chunk) [Fabrication Division](index=30&type=section&id=Fabrication%20Division) This subsection analyzes the financial performance of the Fabrication Division, including revenue and gross loss trends Fabrication Division Financial Performance (Three Months Ended March 31) | Metric | 2019 (in thousands) | 2018 (in thousands) | Favorable (Unfavorable) Change (Amount) | Favorable (Unfavorable) Change (Percent) | | :------------------------------------------ | :------------------ | :------------------ | :-------------------------------------- | :--------------------------------------- | | Revenue | $12,631 | $17,343 | $(4,712) | (27.2)% | | Gross loss | $(772) | $(527) | $(245) | (46.5)% | | Operating loss | $(1,540) | $(2,506) | $966 | 38.5% | | General and administrative expense | $767 | $1,041 | $274 | 26.3% | | Asset impairments and (gain) loss on assets held for sale, net | $(70) | $750 | $820 | 109.3% | - Revenue decreased by **27.2%** primarily due to the completion of modules for a petrochemical facility in Q2 2018, partially offset by revenue from the paddle wheel riverboat project[144](index=144&type=chunk) - Gross loss increased by **46.5%** due to lower revenue and under-recovery of overhead costs[145](index=145&type=chunk) [Shipyard](index=31&type=section&id=Shipyard) This subsection examines the financial performance of the Shipyard Division, focusing on revenue growth and gross loss improvement Shipyard Division Financial Performance (Three Months Ended March 31) | Metric | 2019 (in thousands) | 2018 (in thousands) | Favorable (Unfavorable) Change (Amount) | Favorable (Unfavorable) Change (Percent) | | :------------------------------------------ | :------------------ | :------------------ | :-------------------------------------- | :--------------------------------------- | | Revenue | $36,587 | $18,565 | $18,022 | 97.1% | | Gross loss | $(280) | $(1,023) | $743 | 72.6% | | Operating loss | $(904) | $(1,979) | $1,075 | 54.3% | | General and administrative expense | $624 | $796 | $172 | 21.6% | - Revenue increased by **97.1%** due to progress on regional class research vessels, a towing/salvage ship, an ice-breaker tug, and harbor tug projects[149](index=149&type=chunk) - Gross loss decreased by **72.6%** due to higher revenue and increased recovery of overhead costs, despite a lower margin project mix from harbor tug projects in a loss position[150](index=150&type=chunk) [Services](index=31&type=section&id=Services) This subsection reviews the financial performance of the Services Division, including revenue and gross profit changes Services Division Financial Performance (Three Months Ended March 31) | Metric | 2019 (in thousands) | 2018 (in thousands) | Favorable (Unfavorable) Change (Amount) | Favorable (Unfavorable) Change (Percent) | | :------------------------------------------ | :------------------ | :------------------ | :-------------------------------------- | :--------------------------------------- | | Revenue | $19,602 | $21,870 | $(2,268) | (10.4)% | | Gross profit | $1,741 | $2,614 | $(873) | (33.4)% | | Operating income | $1,289 | $1,906 | $(617) | (32.4)% | | General and administrative expense | $452 | $734 | $282 | 38.4% | - Revenue decreased by **10.4%** primarily due to the timing of new project awards[153](index=153&type=chunk) - Gross profit decreased by **33.4%** due to lower revenue and reduced recovery of overhead costs[154](index=154&type=chunk) [Corporate](index=32&type=section&id=Corporate) This subsection details the financial performance of the Corporate segment, including gross loss and administrative expenses Corporate Division Financial Performance (Three Months Ended March 31) | Metric | 2019 (in thousands) | 2018 (in thousands) | Favorable (Unfavorable) Change (Amount) | Favorable (Unfavorable) Change (Percent) | | :------------------------------------------ | :------------------ | :------------------ | :-------------------------------------- | :--------------------------------------- | | Revenue (eliminations) | $(1,215) | $(488) | $(727) | nm | | Gross loss | $(136) | $(385) | $249 | 64.7% | | Operating loss | $(2,127) | $(2,511) | $384 | 15.3% | | General and administrative expense | $1,991 | $2,138 | $147 | 6.9% | - Gross loss decreased by **64.7%** primarily due to lower costs related to supporting the former EPC Division[156](index=156&type=chunk) - General and administrative expense decreased by **6.9%** due to lower incentive plan costs, partially offset by increased legal and advisory fees related to customer disputes[157](index=157&type=chunk) [Liquidity and Capital Resources](index=32&type=section&id=Liquidity%20and%20Capital%20Resources) This section assesses the company's financial resources, including available liquidity, working capital, and cash flow activities [Available Liquidity](index=32&type=section&id=Available%20Liquidity) This subsection quantifies the company's total available liquidity, comprising cash, short-term investments, and credit facility capacity Available Liquidity (March 31, 2019) | Available Liquidity | Total (in thousands) | | :-------------------------------------- | :------------------- | | Cash and cash equivalents | $49,898 | | Short-term investments | $20,341 | | Credit Agreement available capacity | $37,083 | | **Total available liquidity** | **$107,322** | [Working Capital](index=32&type=section&id=Working%20Capital) This subsection analyzes the company's working capital position and its key components, excluding cash and assets held for sale - Working capital was **$102,000 thousand** at March 31, 2019[160](index=160&type=chunk) - Excluding cash, cash equivalents, short-term investments, and assets held for sale, working capital was **$13,100 thousand**[161](index=161&type=chunk) Working Capital Components (excluding cash, investments, and assets held for sale) | Component | March 31, 2019 (in thousands) | December 31, 2018 (in thousands) | Change (in thousands) | | :------------------------------------------ | :----------------------------- | :----------------------------- | :-------------------- | | Contract assets | $38,707 | $29,982 | $(8,725) | | Contract liabilities | $(9,234) | $(16,845) | $(7,611) | | Contracts in progress, net | $29,473 | $13,137 | $(16,336) | | Contracts receivable and retainage, net | $21,658 | $22,505 | $847 | | Inventory, prepaid expenses and other assets | $8,126 | $9,356 | $1,230 | | Accounts payable, accrued expenses and other liabilities | $(46,116) | $(39,256) | $6,860 | | **Total** | **$13,141** | **$5,742** | **$(7,399)** | [Cash Flow Activity](index=33&type=section&id=Cash%20Flow%20Activity) This subsection details the net cash flows from operating, investing, and financing activities for the reporting periods - Net cash used in operating activities was **$8,500 thousand** in Q1 2019, a decrease from **$14,100 thousand** in Q1 2018, primarily due to an operating loss and changes in contract assets and liabilities[165](index=165&type=chunk)[166](index=166&type=chunk) - Net cash used in investing activities was **$11,400 thousand** in Q1 2019, compared to **$2,400 thousand** provided in Q1 2018, mainly due to **$20,000 thousand** in short-term investment purchases[165](index=165&type=chunk) - Net cash used in financing activities was **$700 thousand** in Q1 2019, primarily for tax payments on vested stock withholdings, contrasting with **$9,200 thousand** provided in Q1 2018 from Credit Agreement borrowings[166](index=166&type=chunk)[167](index=167&type=chunk) [Credit Facilities](index=34&type=section&id=Credit%20Facilities) This subsection describes the company's revolving credit facility, its recent amendment, and compliance status - The **$40,000 thousand** revolving credit facility was amended on May 1, 2019, extending its maturity to June 9, 2021, and revising financial covenants[168](index=168&type=chunk) - At March 31, 2019, the company had no outstanding borrowings, **$2,900 thousand** in outstanding letters of credit, and **$37,100 thousand** in available capacity under the Credit Agreement, remaining in compliance with all covenants[171](index=171&type=chunk) - Outstanding surety bonds totaled **$334,900 thousand** at March 31, 2019[172](index=172&type=chunk) [Liquidity Outlook](index=34&type=section&id=Liquidity%20Outlook) This subsection provides management's perspective on future liquidity needs, capital expenditures, and funding sufficiency - Primary uses of liquidity include funding facility underutilization, capital expenditures, accrued contract losses, working capital requirements, and corporate administrative expenses[175](index=175&type=chunk) - Anticipated capital expenditures for the remainder of 2019 are **$5,000 thousand** to **$7,000 thousand**, excluding potential investments for offshore wind projects[176](index=176&type=chunk) - Management believes current cash, cash equivalents, short-term investments, and Credit Agreement availability will be sufficient for at least **twelve months**, but acknowledges risks if financial forecasts are not met[178](index=178&type=chunk) [Contractual Obligations](index=35&type=section&id=Contractual%20Obligations) This subsection confirms no material changes to the company's contractual obligations since the previous annual report - There have been no material changes to contractual obligations from the 2018 Annual Report[179](index=179&type=chunk) [Off-Balance Sheet Arrangements](index=35&type=section&id=Off-Balance%20Sheet%20Arrangements) This subsection confirms no material changes to the company's off-balance sheet arrangements since the previous annual report - There have been no material changes to off-balance sheet arrangements from the 2018 Annual Report[180](index=180&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=35&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section states that there have been no material changes in the company's market risks during the reporting period - There have been no material changes in the company's market risks during the three months ended March 31, 2019[181](index=181&type=chunk) [Item 4. Controls and Procedures](index=35&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of March 31, 2019[182](index=182&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2019[183](index=183&type=chunk) PART II. OTHER INFORMATION This part includes information on legal proceedings, risk factors, and exhibits filed with the Form 10-Q [Item 1. Legal Proceedings](index=36&type=section&id=Item%201.%20Legal%20Proceedings) This section details the company's legal proceedings, including a lawsuit regarding the termination of two MPSV construction contracts and a customer counterclaim - The company is involved in a lawsuit filed on October 2, 2018, against a customer regarding the termination of two MPSV construction contracts, disputing the termination and seeking damages[187](index=187&type=chunk) - The customer has filed a counterclaim, and a hearing on their motion to obtain possession of the MPSVs is scheduled for May 28, 2019[187](index=187&type=chunk) [Item 1A. Risk Factors](index=36&type=section&id=Item%201A.%20Risk%20Factors) This section confirms no material changes to the risk factors previously disclosed in the company's 2018 Annual Report - There have been no material changes from the risk factors included in the company's 2018 Annual Report[188](index=188&type=chunk) [Item 6. Exhibits](index=36&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the Credit Agreement amendment, CEO/CFO certifications, and XBRL financial statements - Exhibit 10.1 is the Consent and Fourth Amendment to Credit Agreement dated May 1, 2019[189](index=189&type=chunk) - Exhibits 31.1, 31.2, and 32 include CEO and CFO Certifications pursuant to Rule 13a-14 and Section 906 Certification[189](index=189&type=chunk) - Exhibit 101 provides the Consolidated Balance Sheets, Statements of Operations, Statement of Changes in Shareholders' Equity, Statements of Cash Flows, and Notes to Consolidated Financial Statements in XBRL format[189](index=189&type=chunk)[190](index=190&type=chunk) SIGNATURES This section contains the official signatures certifying the accuracy and completeness of the Form 10-Q filing - The report was signed by Westley S Stockton, Executive Vice President, Chief Financial Officer, Secretary and Treasurer, on May 7, 2019[194](index=194&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) x Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 2018 ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 001-34279 GULF ISLAND FABRICATION, INC. (Exact name of registrant as specified in its charter) (State or other jurisdiction of incorporation ...

Financial Data and Key Metrics Changes - Consolidated revenue for Q4 2018 was $60.2 million, compared to $37.3 million in Q4 2017, reflecting a significant increase [16] - Net loss for Q4 2018 was $4.7 million, or diluted loss per share of $0.31, an improvement from a net loss of $24.3 million, or diluted loss per share of $1.63 in Q4 2017 [16] - The operating results were impacted by a forecast cost increase of $5.8 million on harbor tug projects and lower revenue volume in the Fabrication division [17] Business Line Data and Key Metrics Changes - Shipyard division revenue was $29.7 million for Q4 2018, up from $900,000 in the same period of 2017, with an operating loss of $6.6 million compared to $27.5 million in Q4 2017 [20] - Fabrication division revenue decreased by 36% to $9.8 million from $15.4 million in Q4 2017, but operating income improved to $2.2 million from an operating loss of $9.8 million [23] - Services division revenue was $21.5 million, slightly down from $21.7 million in Q4 2017, with operating income increasing to $2.1 million from $1.5 million [26] Market Data and Key Metrics Changes - Backlog as of December 31, 2018, totaled approximately $357 million, an increase of $135 million from the previous year [29] - The backlog by segment included $282 million for the Shipyard division, $64 million for Fabrication, $11 million for Services, and $400,000 for EPC [29] - Cash and short-term investments at year-end were $79.2 million, an increase of almost $25 million from September 2018 [30] Company Strategy and Development Direction - The company is focusing on improving estimating functions by centralizing efforts at the Houma shipyard to prevent future cost overruns [10][46] - Management remains optimistic about future opportunities across all business lines, citing significant bidding activity [33] - The company is targeting recovery of underutilized overheads and is actively pursuing new projects [33] Management's Comments on Operating Environment and Future Outlook - Management acknowledged challenges with the harbor tug projects but emphasized lessons learned will be applied to future work [33] - The company anticipates starting work on Navy vessels in the latter part of 2019, with ongoing negotiations to finalize contracts [36][37] - There is a positive outlook for profitability in 2019, with expectations of improved operating income as backlog projects progress [40][41] Other Important Information - The company reported a $2.8 million benefit from the recovery of bad debt in the Fabrication division [18] - The company is experiencing strong liquidity with total cash, investments, and credit availability of approximately $116 million [31] Q&A Session Summary Question: Discussion on the pace of work on Navy vessels and potential further awards - Management indicated that negotiations with the Navy are ongoing, with work expected to start in the third or fourth quarter of 2019 [36][37] Question: Insights on profitability and timing for 2019 - Management expects to recover overheads and improve margins, with a goal of returning to profitability in the latter part of 2019 [40][41] Question: Changes with the tug projects and mitigation strategies - Management is centralizing estimating efforts to improve accuracy and prevent future issues, acknowledging that the current project is not profitable [46][48] Question: Scope and impact of the jacket projects in the Fabrication division - Management expressed excitement about the jacket project, which is expected to improve utilization in the Fabrication division [49][50] Question: Market outlook and relationship with SeaOne - Management noted high levels of bidding activity, particularly in the petrochemical industry, while the status of SeaOne's financing remains uncertain [52][54]