Gulf Island Fabrication(GIFI) - 2022 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents the unaudited consolidated financial statements and accompanying notes for the period Consolidated Balance Sheets ASSETS (in thousands) | ASSETS (in thousands) | March 31, 2022 | December 31, 2021 | | :-------------------- | :------------- | :---------------- | | Cash and cash equivalents | $41,061 | $52,886 | | Total current assets | $81,721 | $85,478 | | Total assets | $130,205 | $135,273 | LIABILITIES AND SHAREHOLDERS' EQUITY (in thousands) | LIABILITIES AND SHAREHOLDERS' EQUITY (in thousands) | March 31, 2022 | December 31, 2021 | | :-------------------------------- | :------------- | :---------------- | | Total current liabilities | $29,560 | $29,954 | | Total liabilities | $30,812 | $31,365 | | Total shareholders' equity | $99,393 | $103,908 | | Total liabilities and shareholders' equity | $130,205 | $135,273 | Consolidated Statements of Operations | (in thousands, except per share data) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------ | :-------------------------------- | :-------------------------------- | | Revenue | $28,686 | $23,785 | | Cost of revenue | $29,106 | $23,760 | | Gross profit (loss) | $(420) | $25 | | Operating loss | $(4,982) | $(2,233) | | Loss from continuing operations | $(5,027) | $(2,416) | | Loss from discontinued operations, net of taxes | — | $(16,121) | | Net loss | $(5,027) | $(18,537) | | Basic and diluted loss per share | $(0.32) | $(1.20) | Consolidated Statements of Changes in Shareholders' Equity For the Three Months Ended March 31, 2022 (in thousands) | (in thousands) | Balance at Dec 31, 2021 | Net loss | Vesting of restricted stock | Stock-based compensation expense | Balance at Mar 31, 2022 | | :------------- | :---------------------- | :------- | :-------------------------- | :------------------------------- | :---------------------- | | Common Stock Amount | $11,384 | — | $(6) | $57 | $11,435 | | Additional Paid-In Capital | $105,511 | — | $(53) | $514 | $105,972 | | Accumulated Deficit | $(12,987) | $(5,027) | — | — | $(18,014) | | Total Shareholders' Equity | $103,908 | $(5,027) | $(59) | $571 | $99,393 | For the Three Months Ended March 31, 2021 (in thousands) | (in thousands) | Balance at Dec 31, 2020 | Net loss | Vesting of restricted stock | Stock-based compensation expense | Balance at Mar 31, 2021 | | :------------- | :---------------------- | :------- | :-------------------------- | :------------------------------- | :---------------------- | | Common Stock Amount | $11,223 | — | $(9) | $31 | $11,245 | | Additional Paid-In Capital | $104,072 | — | $(91) | $282 | $104,263 | | Accumulated Deficit | $9,181 | $(18,537)| — | — | $(9,356) | | Total Shareholders' Equity | $124,476 | $(18,537)| $(100) | $313 | $106,152 | Consolidated Statements of Cash Flows | (in thousands) | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $(11,351) | $358 | | Net cash used in investing activities | $(415) | $(421) | | Net cash used in financing activities | $(59) | $(100) | | Net decrease in cash, cash equivalents and restricted cash | $(11,825) | $(163) | | Cash, cash equivalents and restricted cash, end of period | $42,764 | $42,996 | Notes to Consolidated Financial Statements 1. Organization and Summary of Significant Accounting Policies This note details the company's operations, accounting policies, and the impact of recent transactions - The company operates through Services, Fabrication, and Shipyard divisions, with the Shipyard Division's operations winding down by Q3 2022[29][30][112] - The DSS Acquisition on December 1, 2021, integrated services and industrial staffing businesses into the Services Division[31][87] - Financial estimates are significantly impacted by volatile oil prices, COVID-19, and the Russia-Ukraine conflict, leading to potential project risks[37][39] - Revenue is recognized under Topic 606, primarily using the percentage-of-completion method for fixed-price and unit-rate contracts[53][55][56] 2. Revenue, Contract Assets and Liabilities and Other Contract Matters This note disaggregates revenue, details performance obligations, and discusses the financial impact of Hurricane Ida Revenue Disaggregation (in thousands) | Segment | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------- | :-------------------------------- | :-------------------------------- | | Services | $20,664 | $7,506 | | Fabrication | $5,617 | $11,736 | | Shipyard | $2,497 | $5,130 | | Total | $28,686 | $23,785 | Remaining Performance Obligations (in thousands) at March 31, 2022 | Segment | Performance Obligations | | :---------- | :---------------------- | | Services | $1,237 | | Fabrication | $7,027 | | Shipyard | $7,611 | | Total | $15,875 | - Contract assets decreased to $2.7 million from $4.8 million, while contract liabilities decreased to $4.2 million from $6.6 million[69][71] - A $0.1 million charge was recorded for an insurance deductible related to ferry damage during sea trials in Q1 2022[74] - Hurricane Ida resulted in $1.9 million in Q1 2022 restoration costs, with $1.6 million in insurance recoveries and a remaining receivable of $2.7 million[78] 3. Shipyard Transaction and Discontinued Operations This note details the sale of Shipyard Division assets to Bollinger, resulting in discontinued operations - The Shipyard Transaction on April 19, 2021, involved selling assets to Bollinger for $28.6 million[81] - An impairment charge of $22.8 million was recorded for Shipyard Division's long-lived assets in Q1 2021[83] - Q1 2021 results included a $16.1 million loss from discontinued operations, primarily due to the impairment charge[20][86] 4. Acquisition This note details the acquisition of Dynamic Industries' services businesses and its financial impact - On December 1, 2021, Gulf Island acquired the DSS Business from Dynamic Industries, Inc for $7.6 million[31][87] Preliminary Purchase Price Allocation (in thousands) | Category | Amount | | :---------------------------- | :----- | | Net tangible assets and liabilities | $4,360 | | Intangible assets - customer relationships | $996 | | Goodwill | $2,217 | | Purchase Price | $7,573 | - Pro forma revenue from continuing operations for Q1 2021 would have been $34.5 million with a net loss of $2.6 million if the acquisition occurred on January 1, 2021[91][92] 5. Assets Held for Sale - At March 31, 2022, assets held for sale consisted of one 660-ton crawler crane with a carrying value of $1.8 million[93] 6. Credit Facilities and Debt This note outlines the company's credit facilities, PPP loan status, and surety bond arrangements - The company has a $20.0 million LC Facility with Whitney Bank, with $1.7 million outstanding at March 31, 2022[94] - A $10.0 million PPP Loan was largely forgiven ($9.1 million) by the SBA in July 2021[95] - Outstanding surety bonds totaled $110.8 million at March 31, 2022, primarily for MPSV and shipyard contracts[96] - A Mortgage and Restrictive Covenant Agreement with a Surety encumbers Houma Facilities and precludes dividend payments or share repurchases[97] 7. Commitments and Contingencies This note discusses legal proceedings, particularly a significant dispute over two Multi-Purpose Supply Vessels - The company is in a lawsuit over terminated contracts for two MPSVs, with performance bonds totaling $50.0 million and a trial scheduled for March 2023[99][102] - A net contract asset of $12.5 million related to the MPSV dispute was included in other noncurrent assets[103] - The company maintains insurance but is exposed to losses through deductibles and self-insured retentions[104] 8. Income (Loss) Per Share Income (Loss) Per Share (in thousands, except per share data) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | | Loss from continuing operations | $(5,027) | $(2,416) | | Loss from discontinued operations, net of taxes | — | $(16,121) | | Net loss | $(5,027) | $(18,537) | | Basic and diluted loss per common share | $(0.32) | $(1.20) | | Weighted average shares | 15,662 | 15,403 | 9. Operating Segments This note provides summarized financial information for the company's realigned operating segments - In Q1 2022, the company realigned its operating divisions into Services, Fabrication, and Shipyard, plus a Corporate division[109] Segment Results (Three Months Ended March 31, 2022, in thousands) | Metric | Services | Fabrication | Shipyard | Corporate | Consolidated | | :------------------ | :------- | :---------- | :------- | :-------- | :----------- | | Revenue | $20,664 | $5,617 | $2,497 | $(92) | $28,686 | | Gross profit (loss) | $1,928 | $(2,021) | $(327) | — | $(420) | | Operating income (loss) | $1,187 | $(2,933) | $(1,188) | $(2,048) | $(4,982) | | Total assets | $29,939 | $35,121 | $16,459 | $48,686 | $130,205 | Segment Results (Three Months Ended March 31, 2021, in thousands) | Metric | Services | Fabrication | Shipyard | Corporate | Consolidated | | :------------------ | :------- | :---------- | :------- | :-------- | :----------- | | Revenue | $7,506 | $11,736 | $5,130 | $(587) | $23,785 | | Gross profit (loss) | $564 | $481 | $(932) | $(88) | $25 | | Operating income (loss) | $273 | $646 | $(1,205) | $(1,947) | $(2,233) | | Total assets | $10,203 | $45,279 | $17,909 | $59,345 | $132,736 | Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, strategic initiatives, operational results by segment, and liquidity Cautionary Statement on Forward-Looking Information - The report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially[117][118] Overview - Gulf Island fabricates complex steel structures and provides specialty services to industrial and energy sectors[120] - The company realigned its operating divisions in Q1 2022 into Services, Fabrication, and Shipyard following recent transactions[121][122][123] Impacts to Operations from Oil Price Volatility, COVID-19 and Russia's Invasion of Ukraine - Oil price volatility, COVID-19, and the Russia-Ukraine conflict have negatively impacted operations, leading to lower margins and potential disruptions[124][126] Initiatives to Improve Operating Results and Generate Stable, Profitable Growth - The company's strategy focuses on risk reduction, liquidity improvement, workforce expansion, and market diversification[128][130][131][132][133][134][135][136][137] - The DSS Acquisition nearly doubled the skilled workforce and expanded the company's geographic footprint[134] - At March 31, 2022, the cash balance totaled $42.8 million, reflecting efforts to preserve and improve liquidity[131] Operating Outlook - The outlook focuses on securing profitable new project awards, dependent on market conditions and project execution[138] - Near-term utilization of the Fabrication Division will be impacted by delays in new project awards and continued inefficiencies[138] Critical Accounting Policies - There have been no changes to critical accounting policies and estimates since December 31, 2021[139] New Project Awards and Backlog New Project Awards (in thousands) | Division | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :---------- | :-------------------------------- | :-------------------------------- | | Services | $19,402 | $6,423 | | Fabrication | $8,296 | $5,711 | | Shipyard | — | — | | Total | $27,606 | $11,547 | Backlog (in thousands) | Division | March 31, 2022 Amount | March 31, 2022 Labor Hours | December 31, 2021 Amount | December 31, 2021 Labor Hours | | :---------- | :-------------------- | :------------------------- | :----------------------- | :---------------------------- | | Services | $1,237 | 13 | $2,499 | 32 | | Fabrication | $7,027 | 46 | $4,348 | 41 | | Shipyard | $7,611 | 61 | $10,223 | 106 | | Total | $15,875 | 120 | $17,070 | 179 | - All backlog at March 31, 2022, is expected to be recognized as revenue in 2022[143] Results of Operations Consolidated Results Consolidated Financial Highlights (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change ($) | Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | New project awards | $27,606 | $11,547 | $16,059 | 139.1% | | Revenue | $28,686 | $23,785 | $4,901 | 20.6% | | Gross profit (loss) | $(420) | $25 | $(445) | -1780.0% | | Gross profit (loss) percentage | -1.5% | 0.1% | | | | Operating loss | $(4,982) | $(2,233) | $(2,749) | -123.1% | | Net loss | $(5,027) | $(18,537) | $13,510 | 72.9% | - Revenue increased by 20.6% YoY, driven by the DSS Business and increased offshore services activity[147] - Gross profit shifted to a loss due to low backlog and under-recovery of overhead in the Fabrication Division[148] - General and administrative expense increased by 47.5% YoY to $4.1 million, driven by higher legal fees and DSS Business costs[149] Services Division Results Services Division Financial Highlights (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change ($) | Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | New project awards | $19,402 | $6,423 | $12,979 | 202.1% | | Revenue | $20,664 | $7,506 | $13,158 | 175.3% | | Gross profit | $1,928 | $564 | $1,364 | 241.8% | | Gross profit percentage | 9.3% | 7.5% | | | | Operating income | $1,187 | $273 | $914 | 334.8% | - Revenue increased by 175.3% YoY, primarily due to incremental revenue from the DSS Business and increased offshore services activity[155] - Gross profit increased by 241.8% YoY, driven by higher revenue and a better margin mix[155] Fabrication Division Results Fabrication Division Financial Highlights (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change ($) | Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | New project awards | $8,296 | $5,711 | $2,585 | 45.3% | | Revenue | $5,617 | $11,736 | $(6,119) | -52.1% | | Gross profit (loss) | $(2,021) | $481 | $(2,502) | -520.2% | | Gross profit (loss) percentage | (36.0)% | 4.1% | | | | Operating income (loss) | $(2,933) | $646 | $(3,579) | -554.0% | - Revenue decreased by 52.1% YoY due to the completion of several large projects[158] - The division shifted from a gross profit to a gross loss of $2.0 million due to low backlog and under-recovery of overhead costs[158] Shipyard Division Results Shipyard Division Financial Highlights (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change ($) | Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Revenue | $2,497 | $5,130 | $(2,633) | -51.3% | | Gross loss | $(327) | $(932) | $605 | 64.9% | | Gross loss percentage | (13.1)% | (18.2)% | | | | Operating loss | $(1,188) | $(1,205) | $17 | 1.4% | - Revenue decreased by 51.3% YoY due to reduced activity on the seventy-vehicle ferry project[162][163] - Gross loss decreased to $0.3 million from $0.9 million due to lower project charges compared to the prior year[164] Corporate Division Results Corporate Division Financial Highlights (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change ($) | Change (%) | | :-------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Operating loss | $(2,048) | $(1,947) | $(101) | -5.2% | - General and administrative expense increased by 8.1% YoY to $2.0 million, driven by higher incentive plan and business diversification costs[168][169] Discontinued Operations Results Discontinued Operations Financial Highlights (in thousands) | Metric | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | Change ($) | Change (%) | | :---------------------------------------- | :-------------------------------- | :-------------------------------- | :--------- | :--------- | | Revenue | — | $35,166 | $(35,166) | -100.0% | | Gross profit | — | $7,660 | $(7,660) | -100.0% | | Impairments and (gain) loss on assets held for sale, net | — | $23,428 | $(23,428) | -100.0% | | Operating loss | — | $(16,121) | $16,121 | 100.0% | - There were no operating results from discontinued operations for Q1 2022, as the Shipyard Transaction was completed in April 2021[170] - Q1 2021 revenue of $35.2 million was primarily from harbor tug, research vessel, and towing/salvage/rescue ship projects[171][172] Liquidity and Capital Resources Available Liquidity - At March 31, 2022, cash, cash equivalents, and restricted cash totaled $42.8 million[171] - Working capital at March 31, 2022, was $52.2 million, including $42.8 million in cash and equivalents[173] Cash Flow Activity Cash Flow Activity (in thousands) | Activity | Three Months Ended March 31, 2022 | Three Months Ended March 31, 2021 | | :------------------------------------------ | :-------------------------------- | :-------------------------------- | | Net cash provided by (used in) operating activities | $(11,351) | $358 | | Net cash used in investing activities | $(415) | $(421) | | Net cash used in financing activities | $(59) | $(100) | - Cash used in operating activities for Q1 2022 was $11.4 million, primarily due to changes in working capital accounts[175][177] Credit Facilities and Debt - The company has a $20.0 million LC Facility with Whitney Bank, with $1.7 million outstanding at March 31, 2022[180] - A $10.0 million PPP Loan was largely forgiven in July 2021, with the remainder repaid[181] - Outstanding surety bonds totaled $110.8 million at March 31, 2022, related to MPSV and shipyard contracts[182] - A Mortgage and Restrictive Covenant Agreement with a Surety encumbers Houma Facilities and restricts dividends/share repurchases[183] Registration Statement - The company has an effective shelf registration statement allowing for the issuance of up to $200.0 million in securities[184] Liquidity Outlook - The company believes its cash position is sufficient to fund operations for at least twelve months[187] - Anticipated capital expenditures for the remainder of 2022 are $1.0 million to $2.0 million[186] - Primary uses of liquidity include overhead, capital expenditures, working capital, and legal costs for the MPSV dispute[185] Off-Balance Sheet Arrangements - The company is not a party to any material off-balance sheet arrangements[188] Item 4. Controls and Procedures Management confirms the effectiveness of disclosure controls and procedures as of the period end - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2022[189] - No material changes to internal control over financial reporting occurred during the first quarter 2022[190] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section references Note 7 for details on legal matters, including the significant MPSV dispute - Legal proceedings, including the MPSV dispute, are discussed in Note 7 of the Financial Statements[192] Item 1A. Risk Factors This section confirms no material changes to risk factors since the last annual report - No material changes to risk factors have occurred since the 2021 Annual Report[193] Item 6. Exhibits This section lists all exhibits filed with the Form 10-Q, including certifications and corporate documents - The report includes various exhibits such as corporate governance documents, CEO and CFO Certifications, and Inline XBRL documents[195] Signatures This section provides the official certification and signatures for the quarterly report filing - The report is signed by Westley S Stockton, Executive Vice President and CFO, on May 10, 2022[199]