Gulf Island Fabrication(GIFI) - 2021 Q2 - Quarterly Report

Company Information This section provides basic corporate information for Gulf Island Fabrication, Inc, including its stock exchange listing and filer status - Gulf Island Fabrication, Inc (GIFI) is filing its Quarterly Report on Form 10-Q for the period ended June 30, 2021, with its common stock traded on NASDAQ[2][3] Company Profile | Metric | Detail | | :--- | :--- | | Company Name | GULF ISLAND FABRICATION, INC | | State of Incorporation | LOUISIANA | | Headquarters Address | 16225 PARK TEN PLACE, SUITE 300 HOUSTON, TEXAS 77084 | | Telephone | (713) 714-6100 | | Ticker Symbol | GIFI | | Stock Exchange | NASDAQ | | Accelerated Filer Status | Non-accelerated filer | | Smaller Reporting Company Status | Smaller reporting company | | Shares Outstanding (as of August 10, 2021) | 15,535,225 shares | GLOSSARY OF TERMS This section defines abbreviations and terms used throughout the Form 10-Q report to ensure clarity for the reader - This section provides definitions for abbreviations and terms used in this 10-Q report to aid reader comprehension, including company names, accounting standards, legal regulations, project types, and transaction-related terminology[8][9][10] PART I FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements and related notes for the period ended June 30, 2021 Consolidated Balance Sheets The balance sheet shows a significant decrease in total assets and shareholders' equity due to the Shipyard Transaction Key Consolidated Balance Sheet Data (in thousands of U.S. dollars) | Metric | June 30, 2021 (Unaudited) | December 31, 2020 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $64,834 | $43,159 | | Restricted cash, current | $9,637 | — | | Short-term investments | — | $7,998 | | Current assets of discontinued operations | $2 | $66,116 | | Total current assets | $100,115 | $147,362 | | Non-current assets of discontinued operations | — | $39,169 | | Total assets | $143,679 | $231,343 | | Liabilities and Shareholders' Equity | | | | Accounts payable | $9,427 | $12,362 | | Contract liabilities | $8,206 | $10,262 | | Current liabilities of discontinued operations | $771 | $63,607 | | Total current liabilities | $27,651 | $98,412 | | Total liabilities | $38,340 | $104,981 | | Total shareholders' equity | $105,339 | $126,362 | | Total liabilities and shareholders' equity | $143,679 | $231,343 | - As of June 30, 2021, the company's total assets were $143.7 million, a sharp decline from $231.3 million on December 31, 2020, primarily due to the reduction in assets from discontinued operations following the Shipyard Transaction, with total shareholders' equity also decreasing from $126.4 million to $105.3 million[18] Consolidated Statements of Operations The company reported net losses for both the second quarter and first half of 2021, driven by losses from both continuing and discontinued operations Key Consolidated Statements of Operations Data (in thousands of U.S. dollars, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $24,268 | $31,988 | $48,053 | $69,667 | | Operating income (loss) | $(1,609) | $(4,099) | $(3,946) | $2,156 | | Net income (loss) from continuing operations | $(1,700) | $(4,210) | $(4,220) | $2,014 | | Loss from discontinued operations, net of tax | $(1,251) | $(1,327) | $(17,372) | $(1,646) | | Net income (loss) | $(2,951) | $(5,537) | $(21,592) | $368 | | Basic and diluted income (loss) per share | $(0.19) | $(0.36) | $(1.40) | $0.02 | - The company recorded net losses of $3.0 million and $21.6 million for the second quarter and first half of 2021, respectively, compared to a $5.5 million loss and $0.4 million profit in the prior-year periods, driven by losses from continuing operations and significant losses from discontinued operations, particularly the $17.4 million loss in the first half[20] Consolidated Statements of Changes in Shareholders' Equity Shareholders' equity decreased during the first half of 2021, primarily as a result of the net loss incurred during the period Key Consolidated Shareholders' Equity Data (in thousands of U.S. dollars) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Beginning Balance, Shareholders' Equity (December 31) | $126,362 | $152,685 | | Net loss | $(21,592) | $(5,537) | | Vesting of restricted stock | $(108) | $(74) | | Stock-based compensation expense | $677 | $440 | | Ending Balance, Shareholders' Equity | $105,339 | $153,419 | - As of June 30, 2021, the company's shareholders' equity was $105.3 million, a decrease from $126.4 million on December 31, 2020, primarily impacted by the $21.6 million net loss in the first half of the year[23] Consolidated Statements of Cash Flows Net cash increased significantly in the first half of 2021, as cash inflows from investing activities more than offset outflows from operations Key Consolidated Cash Flow Data (in thousands of U.S. dollars) | Metric | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(11,369) | $(3,758) | | Net cash provided by (used in) investing activities | $43,195 | $(6,656) | | Net cash (used in) provided by financing activities | $(108) | $9,895 | | Net increase (decrease) in cash, cash equivalents, and restricted cash | $31,718 | $(519) | | Cash, cash equivalents, and restricted cash at end of period | $74,877 | $49,184 | - In the first half of 2021, the company experienced a cash outflow from operations of $11.4 million, but a cash inflow from investing activities of $43.2 million, primarily due to net proceeds from the Shipyard Transaction, resulting in a significant increase in total cash, cash equivalents, and restricted cash to $74.9 million[26] Notes to Consolidated Financial Statements 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This note details the company's business, basis of presentation, accounting policies, and the impact of market conditions - The company specializes in fabricating complex steel structures and modules, providing a range of project management and field services to energy, industrial, and EPC clients[29] - On April 19, 2021, the company completed the sale of its Shipyard Division's operating assets and certain construction contracts (the "Shipyard Transaction") and plans to wind down the remaining shipyard operations by mid-2022[29] - The company has retrospectively classified the assets, liabilities, and operations associated with the Shipyard Transaction and previously closed shipyard facilities as discontinued operations to reflect a major strategic shift[31][83] - The COVID-19 pandemic and oil price volatility continue to adversely affect operations and financial performance, leading to reduced revenue, lower margins, under-utilization of facilities, and project losses[34][35][36] - Revenue is primarily derived from fixed-price, unit-rate, and T&M contracts, recognized over time using percentage-of-completion or as work is performed, involving significant estimates for costs, change orders, and claims[50][51][52][55] - In the first quarter of 2021, the company adopted ASU 2019-12 "Income Taxes" with no material impact, while ASU 2016-13 "Financial Instruments—Credit Losses" will be effective in the first quarter of 2023[62][63] 2. REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS This note provides a breakdown of revenue by segment and contract type, details contract balances, and discusses the impact of project estimate changes Revenue by Contract Type (in thousands of U.S. dollars) | Contract Type | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Fixed-price and unit-rate | $14,170 | $26,516 | $30,449 | $55,671 | | T&M | $9,254 | $4,455 | $15,523 | $11,380 | | Other | $844 | $1,017 | $2,081 | $2,616 | | Total | $24,268 | $31,988 | $48,053 | $69,667 | - As of June 30, 2021, the company's total remaining performance obligations were $23.9 million, with approximately $17.6 million expected to be recognized in the remainder of 2021 and $6.3 million thereafter[67][68] Contract Assets and Liabilities (in thousands of U.S. dollars) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Contract assets | $2,371 | $5,098 | | Contract liabilities | $(8,206) | $(10,262) | | Net contracts in progress | $(5,835) | $(5,164) | - The decrease in contract assets was primarily due to reduced unbilled positions in the Fabrication & Services and Shipyard divisions, while the decrease in contract liabilities was mainly due to lower accrued contract losses and advance payments in the Shipyard Division[72] - In the first half of 2021, project estimate changes had a positive impact of $1.9 million on the Fabrication & Services Division's operating results, whereas they had a negative impact of $1.7 million on the Shipyard Division, mainly related to increased costs and liquidated damages forecasts for a 70-vehicle ferry project[73][74] 3. SHIPYARD TRANSACTION AND DISCONTINUED OPERATIONS This note details the sale of the Shipyard Division's assets, the resulting pre-tax loss, and the reclassification of these operations as discontinued - On April 19, 2021, the company sold the operating assets and certain construction contracts of its Shipyard Division to Bollinger Houma Shipyards, LLC and Bollinger Shipyards Lockport, LLC for approximately $28.6 million ($26.1 million net of transaction costs)[77] - The Shipyard Transaction included shipyard facilities, inventory, equipment, and contracts for three research vessels and five towing, salvage, and rescue ships, while excluding contracts for two 40-vehicle ferries, one 70-vehicle ferry, and two MPSVs[79] - The company recorded a total pre-tax loss of $25.3 million in the first half of 2021 from the Shipyard Transaction, comprising a $22.8 million impairment of the Shipyard Division's long-lived assets and $1.9 million in transaction and other costs[80][82] - Operations from the Shipyard Transaction and previously closed facilities have been classified as discontinued operations, with prior period financial information retrospectively adjusted; as of June 30, 2021, the net liabilities of discontinued operations were $11.9 million[81][83] Operating Results of Discontinued Operations (in thousands of U.S. dollars) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Revenue | $6,471 | $27,986 | $41,637 | $68,862 | | Operating loss | $(1,251) | $(1,327) | $(17,372) | $(1,646) | | Loss from discontinued operations, net of tax | $(1,251) | $(1,327) | $(17,372) | $(1,646) | Assets and Liabilities of Discontinued Operations (in thousands of U.S. dollars) | Metric | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Current assets | $2 | $66,116 | | Non-current assets | — | $39,169 | | Total assets | $2 | $105,285 | | Current liabilities | $771 | $63,607 | | Total liabilities | $771 | $63,607 | - In the first half of 2021, discontinued operations had a cash outflow from operations of $8.5 million and a cash inflow from investing of $31.4 million, with project estimate changes positively impacting operating results by $8.4 million, primarily from the towing, salvage, and rescue ship projects[86] 4. IMPAIRMENTS AND (GAIN) LOSS ON ASSETS HELD FOR SALE This note discloses the status of assets held for sale, primarily consisting of a crawler crane, and the proceeds from asset sales during the period Assets Held for Sale (in thousands of U.S. dollars) | Asset Class | June 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Machinery and equipment | $4,587 | $11,877 | | Accumulated depreciation | $(2,787) | $(5,677) | | Total | $1,800 | $6,200 | - In the first half of 2021, the company received $4.5 million in proceeds ($4.4 million net of transaction costs) from the sale of two crawler cranes, with no significant gain or loss recognized[89] 5. CREDIT FACILITIES AND DEBT This note details the company's credit facilities, PPP loan status, surety bonds, and related collateral and covenant agreements - The company maintains a $20.0 million letter of credit facility (LC Facility) with Whitney Bank, which requires cash collateralization; as of June 30, 2021, $10.0 million in letters of credit were outstanding, of which $7.0 million expired in July 2021, releasing the cash restriction[90] - The company received a $10.0 million PPP loan on April 17, 2020; in July 2021, the SBA approved $8.9 million in loan forgiveness, and the company repaid the remaining balance plus accrued interest on July 29, with the gain to be recognized in Q3 2021[91][111] - As of June 30, 2021, the company had $110.8 million in outstanding surety bonds, including $50.0 million related to the disputed MPSV projects, and faces challenges in obtaining additional surety capacity[93][207] - To secure consent for the Shipyard Transaction, the company entered into a Pledge Agreement and a Negative Covenants Agreement with its surety on April 19, 2021, to collateralize obligations for the MPSV and two 70-vehicle ferry projects; the covenants prohibit dividend payments and common stock repurchases[94][208] 6. COMMITMENTS AND CONTINGENCIES This note discusses legal proceedings, including a significant dispute over two MPSV contracts, and other commitments such as insurance and surety bonds - The company is involved in various legal proceedings arising in the ordinary course of business, which are not expected to have a material adverse effect on its financial condition, results of operations, or cash flows[95][216] - A significant dispute exists with a customer regarding the termination of construction contracts for two MPSVs; the company has filed a lawsuit, the customer has filed counterclaims, and the case is currently in discovery with a trial date set for March 6, 2023, but the ultimate outcome and potential loss cannot be estimated[96][97][98][99][100] - The company manages third-party liability and workers' compensation risks through deductibles and self-insured retentions, maintaining insurance coverage, and uses letters of credit and surety bonds to secure advance payments or performance[101][102] - The company operates in compliance with environmental laws and regulations and maintains insurance to mitigate environmental liability risks, with no material adverse effect anticipated from environmental matters[103] 7. INCOME (LOSS) PER SHARE This note presents the calculation of basic and diluted earnings per share, which are identical due to the absence of dilutive securities Earnings (Loss) Per Share Calculation (in thousands of U.S. dollars, except per share data) | Metric | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Income (loss) from continuing operations | $(1,700) | $(4,210) | $(4,220) | $2,014 | | Loss from discontinued operations, net of tax | $(1,251) | $(1,327) | $(17,372) | $(1,646) | | Net income (loss) | $(2,951) | $(5,537) | $(21,592) | $368 | | Weighted-average shares outstanding | 15,528 | 15,301 | 15,466 | 15,288 | | Basic and diluted income (loss) per share from continuing operations | $(0.11) | $(0.28) | $(0.27) | $0.13 | | Basic and diluted loss per share from discontinued operations | $(0.08) | $(0.09) | $(1.12) | $(0.11) | | Basic and diluted income (loss) per share | $(0.19) | $(0.36) | $(1.40) | $0.02 | - The company reported a loss per share of $0.19 for the second quarter and $1.40 for the first half of 2021, reflecting the combined impact of losses from both continuing and discontinued operations[104] 8. OPERATING SEGMENTS This note describes the company's operating segments and provides a summary of their financial performance, reflecting reclassifications due to the Shipyard Transaction - The company manages its business through two operating segments, Fabrication & Services (F&S) and Shipyard, and a non-operating Corporate segment; the F&S segment focuses on module and steel structure fabrication and field services, while the Shipyard segment historically built new vessels and provided marine repair services[105][106][107] - Following the Shipyard Transaction, the Shipyard Division's operating assets and certain contracts were sold, with the associated business classified as discontinued operations, while the remaining shipyard business (retained shipyard contracts) is classified as continuing operations[107] - Due to the Shipyard Transaction and discontinued operations classification, certain expense allocations for the 2020 periods have been reclassified from the Shipyard Division to the Corporate and F&S segments, and legal fees for the MPSV dispute were reclassified from Corporate to the Shipyard segment[109] Segment Financial Information Summary (in thousands of U.S. dollars) | Metric | F&S (Q2 2021) | Shipyard (Q2 2021) | Corporate (Q2 2021) | Consolidated (Q2 2021) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $21,227 | $3,129 | $(88) | $24,268 | | Gross profit (loss) | $2,241 | $(1,059) | $(78) | $1,104 | | Operating income (loss) | $1,656 | $(1,119) | $(2,146) | $(1,609) | | Total Assets | $47,199 | $17,524 | $78,954 | $143,677 | - In the second quarter of 2021, the F&S segment generated $21.2 million in revenue and $2.2 million in gross profit, while the Shipyard segment had revenue of $3.1 million and a gross loss of $1.1 million; the Corporate segment held the largest portion of total assets at $79.0 million[110] 9. SUBSEQUENT EVENTS This note discloses the forgiveness and repayment of the company's PPP loan, which occurred after the reporting period - In July 2021, the SBA approved the company's application for $8.9 million in forgiveness of its PPP loan, and the company has since repaid the remaining balance; the related gain will be recognized in the third quarter of 2021[111] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides a detailed analysis of the company's financial performance, strategic initiatives, operating outlook, and liquidity position Overview The company is a leading fabricator of complex steel structures and modules, currently undergoing a strategic shift away from its shipyard business - The company is a leading fabricator of complex steel structures and modules, providing project management, hook-up, commissioning, repair, maintenance, and civil construction services to energy, industrial, and EPC clients[117] - On April 19, 2021, the company sold the operating assets and certain contracts of its Shipyard Division and plans to wind down the remaining shipyard operations by mid-2022, with these operations retrospectively classified as discontinued[117][118] - The Fabrication & Services Division's backlog includes materials for a marine docking structure and an offshore jacket and deck, while the Shipyard Division's backlog consists of the construction of three vehicle ferries[119] COVID-19 and Oil Price Impacts to Operations The company's operations continue to be negatively impacted by the COVID-19 pandemic and volatile oil prices, leading to financial and operational challenges - Persistently low and volatile oil prices, combined with the COVID-19 pandemic, continue to negatively impact the company's operations and financial performance, resulting in reduced revenue, lower margins, under-utilization of facilities, and project losses[120] - The pandemic has caused operational disruptions for the company, its customers, and subcontractors due to social distancing, quarantines, and business closures, with uncertainty remaining around vaccine distribution and potential resurgences[121] - The ongoing uncertainty from COVID-19 and oil price volatility may lead to reduced bidding activity, project suspensions, customer financial distress, supply chain disruptions, increased costs, and labor productivity issues[122] Initiatives to Improve Operating Results The company is implementing several strategic initiatives to mitigate market challenges, reduce risk, and improve profitability and liquidity - The company is addressing operational and market challenges through initiatives including COVID-19 mitigation, risk reduction via the Shipyard Transaction, liquidity improvement through cost cuts and asset sales, facility consolidation, enhanced project execution, workforce expansion, and business diversification[124] - To mitigate COVID-19 impacts, the company implemented workplace safety measures and applied for a PPP loan, which was forgiven and repaid in July 2021[125] - The completion of the Shipyard Transaction significantly reduced the company's risk profile by eliminating potential future risks associated with the divested contracts, allowing a focus on higher-margin markets within the Fabrication & Services Division[125] - The company is preserving and improving liquidity through cost reductions, the sale of idle assets (generating $4.4 million in net proceeds in Q2 2021), and project cash flow management, with the Shipyard Transaction also reducing bonding and working capital needs[126] - The company is improving resource utilization by integrating its fabrication and services divisions, closing its Jennings and Lake Charles facilities, and completing the Shipyard Transaction to centralize key project resources[127][131] - The company is working to enhance competitiveness and project execution by strengthening its proposal, estimating, and operational resources and processes, including management changes and project management training[128] - The company is actively pursuing diversification to reduce its reliance on the offshore oil and gas industry, targeting onshore module fabrication for refining, petrochemical, LNG, and industrial facilities, expanding its services business, and entering the green energy and offshore wind markets[130][132] Operating Outlook The company's future success depends on securing profitable new work and effectively managing market uncertainties and operational challenges - The company remains focused on securing profitable new awards and backlog to generate operating income and cash flow over the long term, while ensuring the safety of its employees and contractors[133] - Future success is contingent on factors such as oil and gas price volatility, COVID-19 impacts, opportunities in new markets like LNG, industrial, and green energy, project execution capabilities, and the resolution of the MPSV dispute[133][135] - Near-term utilization for the Fabrication & Services Division will be impacted by delays in new project awards, COVID-19 related inefficiencies, employee absenteeism, and disruptions from suppliers and subcontractors[133] Critical Accounting Policies The company's critical accounting policies have remained unchanged since its last annual report - There have been no changes to the company's critical accounting policies since December 31, 2020[134] New Awards and Backlog This section details the company's new project awards and backlog, which have decreased significantly following the sale of shipyard contracts - New project awards represent expected revenue commitments received during a period, while backlog represents unrecognized revenue, which is comparable to the remaining performance obligations disclosed under Topic 606[136] New Project Awards (in thousands of U.S. dollars) | Division | Three Months Ended June 30, 2021 | Three Months Ended June 30, 2020 | Six Months Ended June 30, 2021 | Six Months Ended June 30, 2020 | | :--- | :--- | :--- | :--- | :--- | | Fabrication & Services | $18,192 | $27,442 | $29,739 | $39,642 | | Shipyard | — | $20 | — | $152 | | Total New Awards | $18,192 | $27,462 | $29,739 | $39,794 | Backlog (in thousands of U.S. dollars and labor hours) | Division | June 30, 2021 (Amount) | June 30, 2021 (Labor Hours) | December 31, 2020 (Amount) | December 31, 2020 (Labor Hours) | | :--- | :--- | :--- | :--- | :--- | | Fabrication & Services | $9,326 | 112 | $19,381 | 236 | | Shipyard | $14,588 | 159 | $23,187 | 263 | | Total Backlog | $23,914 | 271 | $42,568 | 499 | - As of June 30, 2021, total backlog was $23.9 million, a significant decrease from $42.6 million at December 31, 2020, primarily due to the sale of $303.1 million of backlog as part of the Shipyard Transaction[139] Results of Operations Comparison of the Three Months Ended June 30, 2021 and 2020 Consolidated revenue declined in the second quarter of 2021, but gross profit improved significantly due to better performance in the Fabrication & Services segment Consolidated Results of Operations (Three Months, in thousands of U.S. dollars) | Metric | June 30, 2021 | June 30, 2020 | Change Amount | Change Percent | | :--- | :--- | :--- | :--- | :--- | | New project awards | $18,192 | $27,462 | $(9,270) | (33.8)% | | Revenue | $24,268 | $31,988 | $(7,720) | (24.1)% | | Gross profit (loss) | $1,104 | $(728) | $1,832 | nm | | Gross profit (loss) percent | 4.5% | (2.3)% | | | | Operating loss | $(1,609) | $(4,099) | $2,490 | 60.7% | | Loss from continuing operations | $(1,700) | $(4,210) | $2,510 | 59.6% | | Loss from discontinued operations, net of tax | $(1,251) | $(1,327) | $76 | 5.7% | | Net loss | $(2,951) | $(5,537) | $2,586 | 46.7% | - In Q2 2021, consolidated revenue decreased by 24.1% to $24.3 million due to lower revenue in both the Fabrication & Services and Shipyard divisions; however, gross profit improved from a loss of $0.7 million in 2020 to a profit of $1.1 million in 2021, driven by project improvements in the Fabrication & Services division[143][144] Fabrication & Services Division Results of Operations (Three Months, in thousands of U.S. dollars) | Metric | June 30, 2021 | June 30, 2020 | Change Amount | Change Percent | | :--- | :--- | :--- | :--- | :--- | | Revenue | $21,227 | $26,606 | $(5,379) | (20.2)% | | Gross profit (loss) | $2,241 | $(492) | $2,733 | nm | | Gross profit (loss) percent | 10.6% | (1.8)% | | | | Operating income (loss) | $1,656 | $(1,484) | $3,140 | nm | - The Fabrication & Services division's revenue decreased by 20.2%, but its gross profit improved from a loss to a profit of $2.2 million, primarily due to project improvements of $1.9 million and a more favorable project mix[151] Shipyard Division Results of Operations (Three Months, in thousands of U.S. dollars) | Metric | June 30, 2021 | June 30, 2020 | Change Amount | Change Percent | | :--- | :--- | :--- | :--- | :--- | | Revenue | $3,129 | $5,902 | $(2,773) | (47.0)% | | Gross loss | $(1,059) | $(183) | $(876) | nm | | Gross loss percent | (33.8)% | (3.1)% | | | | Operating loss | $(1,119) | $(422) | $(697) | nm | - The Shipyard division's revenue decreased by 47.0%, and its gross loss widened from $0.2 million to $1.1 million, mainly due to increased cost estimates and liquidated damages for a 70-vehicle ferry project and holding costs for the MPSV vessels[155] Discontinued Operations Results (Three Months, in thousands of U.S. dollars) | Metric | June 30, 2021 | June 30, 2020 | Change Amount | Change Percent | | :--- | :--- | :--- | :--- | :--- | | Revenue | $6,471 | $27,986 | $(21,515) | (76.9)% | | Gross profit (loss) | $65 | $(975) | $1,040 | nm | | Gross profit (loss) percent | 1.0% | (3.5)% | | | | Operating loss | $(1,251) | $(1,327) | $76 | 5.7% | - Revenue from discontinued operations decreased by 76.9% to $6.5 million, primarily due to the completion of harbor tug projects and the sale of research and towboat projects in the Shipyard Transaction; gross profit improved from a loss to a profit of $65 thousand, mainly due to the absence of prior-year losses on the harbor tug projects[161][165] Comparison of the Six Months Ended June 30, 2021 and 2020 For the first half of 2021, consolidated revenue declined while gross profit turned positive, though a significant loss from discontinued operations led to a substantial net loss Consolidated Results of Operations (Six Months, in thousands of U.S. dollars) | Metric | June 30, 2021 | June 30, 2020 | Change Amount | Change Percent | | :--- | :--- | :--- | :--- | :--- | | New project awards | $29,739 | $39,794 | $(10,055) | (25.3)% | | Revenue | $48,053 | $69,667 | $(21,614) | (31.0)% | | Gross profit (loss) | $1,025 | $(1,196) | $2,221 | nm | | Gross profit (loss) percent | 2.1% | (1.7)% | | | | Operating income (loss) | $(3,946) | $2,156 | $(6,102) | nm | | Income (loss) from continuing operations | $(4,220) | $2,014 | $(6,234) | nm | | Loss from discontinued operations, net of tax | $(17,372) | $(1,646) | $(15,726) | nm | | Net income (loss) | $(21,592) | $368 | $(21,960) | nm | - In the first half of 2021, consolidated revenue decreased by 31.0% to $48.1 million; however, gross profit improved from a loss of $1.2 million in 2020 to a profit of $1.0 million in 2021, driven by project improvements in the Fabrication & Services division[167][169] Fabrication & Services Division Results of Operations (Six Months, in thousands of U.S. dollars) | Metric | June 30, 2021 | June 30, 2020 | Change Amount | Change Percent | | :--- | :--- | :--- | :--- | :--- | | Revenue | $40,287 | $60,049 | $(19,762) | (32.9)% | | Gross profit | $3,228 | $446 | $2,782 | nm | | Gross profit percent | 8.0% | 0.7% | | | | Operating income | $2,517 | $8,579 | $(6,062) | (70.7)% | - The Fabrication & Services division's revenue decreased by 32.9%, but its gross profit increased from $0.4 million to $3.2 million, primarily due to project improvements of $2.0 million and a more favorable project mix[175] Shipyard Division Results of Operations (Six Months, in thousands of U.S. dollars) | Metric | June 30, 2021 | June 30, 2020 | Change Amount | Change Percent | | :--- | :--- | :--- | :--- | :--- | | Revenue | $8,259 | $10,585 | $(2,326) | (22.0)% | | Gross loss | $(2,037) | $(1,524) | $(513) | (33.7)% | | Gross loss percent | (24.7)% | (14.4)% | | | | Operating loss | $(2,370) | $(2,089) | $(281) | (13.5)% | - The Shipyard division's revenue decreased by 22.0%, and its gross loss widened from $1.5 million to $2.0 million, mainly due to increased cost estimates for a 70-vehicle ferry project and holding costs for the MPSV vessels[179] Discontinued Operations Results (Six Months, in thousands of U.S. dollars) | Metric | June 30, 2021 | June 30, 2020 | Change Amount | Change Percent | | :--- | :--- | :--- | :--- | :--- | | Revenue | $41,637 | $68,862 | $(27,225) | (39.5)% | | Gross profit (loss) | $7,725 | $(761) | $8,486 | nm | | Gross profit (loss) percent | 18.6% | (1.1)% | | | | Operating loss | $(17,372) | $(1,646) | $(15,726) | nm | - Revenue from discontinued operations decreased by 39.5% to $41.6 million; however, gross profit improved from a loss of $0.8 million in 2020 to a profit of $7.7 million in 2021, primarily due to a positive impact of $8.4 million from change orders on the towing, salvage, and rescue ship projects[184][185][186] - In the first half of 2021, discontinued operations recorded a $25.3 million loss on impairments and assets held for sale, including a $22.8 million impairment of the Shipyard Division's long-lived assets and $2.5 million in transaction costs related to the Shipyard Transaction[187] Liquidity and Capital Resources The company's liquidity position improved due to proceeds from the Shipyard Transaction, which is expected to support near-term operational needs - The company's primary sources of liquidity are its cash, cash equivalents, restricted cash, and maturing short-term investments; as of June 30, 2021, total cash, cash equivalents, and restricted cash was $74.9 million[189] Cash, Cash Equivalents, and Restricted Cash (in thousands of U.S. dollars) | Metric | June 30, 2021 | | :--- | :--- | | Cash and cash equivalents | $64,834 | | Restricted cash, current | $9,637 | | Total cash, cash equivalents, and current restricted cash | $74,471 | | Restricted cash, non-current | $406 | | Total cash, cash equivalents, and restricted cash | $74,877 | - As of June 30, 2021, the company had working capital of $72.5 million; excluding cash, short-term investments, assets held for sale, and the current portion of long-term debt, working capital was a deficit of $2.0 million[191] Cash Flow Activities (Six Months, in thousands of U.S. dollars) | Metric | June 30, 2021 | June 30, 2020 | | :--- | :--- | :--- | | Net cash used in operating activities | $(11,369) | $(3,758) | | Net cash provided by (used in) investing activities | $43,195 | $(6,656) | | Net cash (used in) provided by financing activities | $(108) | $9,895 | - In the first half of 2021, cash used in operating activities was $11.4 million, primarily due to an increase in contract assets and decreases in contract liabilities and accounts payable; cash provided by investing activities was $43.2 million, mainly from the net proceeds of the Shipyard Transaction and the sale of assets held for sale[196][197][201] - The company anticipates capital expenditures of $1.0 million to $2.0 million for the remainder of 2021 and believes its cash, cash equivalents, and short-term investments are sufficient to meet its operational, working capital, and capital expenditure needs for at least the next twelve months[211][212] Item 4. Controls and Procedures This section confirms the effectiveness of the company's disclosure controls and procedures and notes no material changes to internal controls - Management concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[213] - There were no changes in the company's internal control over financial reporting during the second quarter of 2021 that have materially affected, or are reasonably likely to materially affect, its financial reporting[214] PART II OTHER INFORMATION Item 1. Legal Proceedings This section confirms the company is subject to ordinary course legal proceedings and references the detailed discussion of the MPSV dispute - The company is involved in various legal proceedings in the ordinary course of business, which are not expected to have a material adverse effect on its financial condition, results of operations, or cash flows[216] - A detailed discussion of the MPSV dispute is provided in Note 6 to the financial statements and is incorporated herein by reference[216] Item 1A. Risk Factors This section states that there have been no material changes to the company's risk factors since its last annual and quarterly reports - There have been no material changes to the risk factors previously disclosed in the company's 2020 Annual Report and its Form 10-Q for the quarter ended March 31, 2021[217] Item 6. Exhibits This section lists all exhibits filed with or incorporated by reference into the report, including key agreements and certifications - Exhibits include the Asset Purchase Agreement, Articles of Incorporation, employment agreements, Negative Covenants Agreement, Pledge Agreement, stock incentive plans, and certifications by the CEO and CFO[219] SIGNATURES This section contains the official sign-off of the report by the company's authorized officer - This report was signed on August 10, 2021, by Westley S Stockton, Executive Vice President, Chief Financial Officer, Secretary, and Treasurer of GULF ISLAND FABRICATION, INC[223][224]