Gulf Island Fabrication(US:GIFI)2023-11-07 16:00markdown PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=8&type=section&id=Item%201.%20Financial%20Statements) This section presents Gulf Island Fabrication, Inc.'s unaudited consolidated financial statements for Q3 2023, including balance sheets, statements of operations, cash flows, and detailed notes [Consolidated Balance Sheets](index=8&type=section&id=Consolidated%20Balance%20Sheets) Consolidated Balance Sheets Summary | ASSETS (in thousands) | Sep 30, 2023 (Unaudited) | Dec 31, 2022 | | :-------------------- | :----------------------- | :----------- | | Cash and cash equivalents | $25,125 | $33,221 | | Restricted cash | $1,197 | $1,603 |\ | Short-term investments | $15,437 | $9,905 |\ | Contract receivables and retainage, net | $35,684 | $29,427 |\ | Contract assets | $4,305 | $4,839 |\ | Prepaid expenses and other assets | $3,438 | $6,475 |\ | Inventory | $2,340 | $1,599 |\ | **Total current assets** | **$87,526** | **$87,069** |\ | Property, plant and equipment, net | $29,285 | $31,154 |\ | Goodwill | $2,217 | $2,217 |\ | Other intangibles, net | $735 | $842 |\ | Other noncurrent assets | $839 | $13,584 |\ | **Total assets** | **$120,602** | **$134,866** |\ | | | |\ | LIABILITIES AND SHAREHOLDERS' EQUITY (in thousands) | Sep 30, 2023 (Unaudited) | Dec 31, 2022 |\ | :-------------------------------- | :----------------------- | :----------- |\ | Accounts payable | $11,515 | $8,310 |\ | Contract liabilities | $3,534 | $8,196 |\ | Accrued expenses and other liabilities | $13,247 | $14,283 |\ | **Total current liabilities** | **$28,296** | **$30,789** |\ | Contract liabilities, non-current | $20,000 | — |\ | Other noncurrent liabilities | $822 | $1,453 |\ | **Total liabilities** | **$49,118** | **$32,242** |\ | Shareholders' equity: | | |\ | Common stock | $11,690 | $11,591 |\ | Additional paid-in capital | $108,257 | $107,372 |\ | Accumulated deficit | $(48,463) | $(16,339) |\ | **Total shareholders' equity** | **$71,484** | **$102,624** |\ | **Total liabilities and shareholders' equity** | **$120,602** | **$134,866** | - Total assets decreased by **$14.26 million** from **$134.87 million** at December 31, 2022, to **$120.60 million** at September 30, 2023[16](index=16&type=chunk) - Total liabilities increased by **$16.88 million**, primarily due to the recognition of a **$20.0 million** non-current contract liability related to the MPSV Litigation resolution[16](index=16&type=chunk)[90](index=90&type=chunk) - Total shareholders' equity decreased significantly by **$31.14 million**, from **$102.62 million** to **$71.48 million**, largely due to the accumulated deficit increasing from **$(16.34) million** to **$(48.46) million**[16](index=16&type=chunk) [Consolidated Statements of Operations](index=9&type=section&id=Consolidated%20Statements%20of%20Operations) Consolidated Statements of Operations Summary | (in thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Revenue | $5,023 | $39,593 | $106,517 | $104,181 |\ | Cost of revenue | $34,902 | $35,373 | $126,881 | $98,709 |\ | Gross profit (loss) | $(29,879) | $4,220 | $(20,364) | $5,472 |\ | General and administrative expense | $4,080 | $4,510 | $12,883 | $12,965 |\ | Other (income) expense, net | $(324) | $(944) | $(689) | $(3,698) |\ | Operating income (loss) | $(33,635) | $654 | $(32,558) | $(3,795) |\ | Interest (expense) income, net | $397 | $(46) | $1,057 | $(104) |\ | Income (loss) before income taxes | $(33,238) | $608 | $(31,501) | $(3,899) |\ | Income tax (expense) benefit | $3 | $(10) | $9 | $(2) |\ | Net income (loss) | $(33,235) | $598 | $(31,492) | $(3,901) |\ | Basic and diluted income (loss) per share | $(2.04) | $0.04 | $(1.95) | $(0.25) | - Revenue for the three months ended September 30, 2023, decreased by **87.3%** to **$5.0 million** from **$39.6 million** in the prior year, primarily due to a **$32.5 million** reversal of previously recognized revenue from the MPSV Litigation resolution and lower revenue from Shipyard Division projects[19](index=19&type=chunk)[136](index=136&type=chunk) - The company reported a significant net loss of **$33.2 million** for the three months ended September 30, 2023, compared to a net income of **$0.6 million** in the same period last year, largely driven by the **$32.5 million** charge from the MPSV Litigation resolution[19](index=19&type=chunk)[71](index=71&type=chunk)[90](index=90&type=chunk)[138](index=138&type=chunk) - For the nine months ended September 30, 2023, revenue increased by **2.2%** to **$106.5 million**, but the company recorded a net loss of **$31.5 million**, compared to a net loss of **$3.9 million** in the prior year, primarily due to the MPSV Litigation charge[19](index=19&type=chunk)[162](index=162&type=chunk)[164](index=164&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=10&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Consolidated Statements of Changes in Shareholders' Equity Summary | (in thousands) | Common Stock (Shares) | Common Stock (Amount) | Additional Paid-In Capital | Accumulated Deficit | Total Shareholders' Equity | | :------------- | :-------------------- | :-------------------- | :------------------------- | :------------------ | :------------------------- | | Balance at Dec 31, 2022 | 15,973 | $11,591 | $107,372 | $(16,339) | $102,624 |\ | Adoption of ASU 2016-13 | — | — | — | $(632) | $(632) |\ | Balance at Jan 1, 2023 | 15,973 | $11,591 | $107,372 | $(16,971) | $101,992 |\ | Net income (loss) | — | — | — | $(33,235) | $(33,235) |\ | Stock-based compensation expense | — | $52 | $461 | — | $513 |\ | Balance at Sep 30, 2023 | 16,287 | $11,690 | $108,257 | $(48,463) | $71,484 | - The accumulated deficit significantly increased from **$(16.34) million** at December 31, 2022, to **$(48.46) million** at September 30, 2023, primarily due to the net loss of **$33.2 million** for the quarter and the adoption of ASU 2016-13[22](index=22&type=chunk)[60](index=60&type=chunk) [Consolidated Statements of Cash Flows](index=11&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Consolidated Statements of Cash Flows Summary | (in thousands) | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------- | :----------------------------- | :----------------------------- | | Net cash used in operating activities | $(172) | $(18,825) |\ | Net cash used in investing activities | $(6,591) | $(6,720) |\ | Net cash used in financing activities | $(1,739) | $(1,084) |\ | Net decrease in cash, cash equivalents and restricted cash | $(8,502) | $(26,629) |\ | Cash, cash equivalents and restricted cash, beginning of period | $34,824 | $54,589 |\ | Cash, cash equivalents and restricted cash, end of period | $26,322 | $27,960 | - Net cash used in operating activities significantly improved, decreasing from **$18.8 million** in the nine months ended September 30, 2022, to **$0.2 million** in the same period of 2023, largely due to the **$31.9 million** change in noncurrent assets and liabilities related to the MPSV Litigation resolution[24](index=24&type=chunk)[195](index=195&type=chunk)[197](index=197&type=chunk) - Net cash used in investing activities remained relatively stable at **$6.6 million** in 2023 compared to **$6.7 million** in 2022, with net purchases of short-term investments and capital expenditures being primary uses[24](index=24&type=chunk)[199](index=199&type=chunk) - Net cash used in financing activities increased to **$1.7 million** in 2023 from **$1.1 million** in 2022, mainly due to higher payments on Insurance Finance Arrangements and tax payments for vested stock withholdings[24](index=24&type=chunk)[200](index=200&type=chunk) [Notes to Consolidated Financial Statements](index=12&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) [1. Organization and Summary of Significant Accounting Policies](index=12&type=section&id=1.%20ORGANIZATION%20AND%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) - Gulf Island Fabrication, Inc. operates through three divisions: Services, Fabrication, and Shipyard, with a corporate headquarters in The Woodlands, Texas, and primary operating facilities in Houma, Louisiana[27](index=27&type=chunk) - The company sold its Shipyard Division operating assets in April 2021 and plans to wind down remaining Shipyard operations by Q4 2023[28](index=28&type=chunk) - The MPSV Litigation was resolved on October 4, 2023, leading to a **$32.5 million** charge in Q3 2023, comprising a **$12.5 million** write-off of a noncurrent net contract asset and a **$20.0 million** liability from a Note Agreement with Zurich[29](index=29&type=chunk)[71](index=71&type=chunk)[90](index=90&type=chunk) - The company adopted ASU 2016-13 (Financial Instruments - Credit Losses) in Q1 2023, resulting in a **$0.6 million** increase to beginning accumulated deficit, but no material effect on results of operations[60](index=60&type=chunk) [2. Revenue, Contract Assets and Liabilities and Other Contract Matters](index=18&type=section&id=2.%20REVENUE,%20CONTRACT%20ASSETS%20AND%20LIABILITIES%20AND%20OTHER%20CONTRACT%20MATTERS) Revenue, Contract Assets and Liabilities and Other Contract Matters Summary | Revenue (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Services | $22,976 | $22,569 | $69,033 | $65,413 |\ | Fabrication | $14,979 | $15,429 | $69,382 | $31,885 |\ | Shipyard | $(32,702) | $1,849 | $(30,973) | $7,314 |\ | Eliminations | $(230) | $(254) | $(925) | $(431) |\ | **Total** | **$5,023** | **$39,593** | **$106,517** | **$104,181** | - Shipyard Division revenue for the three and nine months ended September 30, 2023, was negative **$(32.7) million** and **$(31.0) million**, respectively, primarily due to the **$32.5 million** revenue reversal from the MPSV Litigation resolution[64](index=64&type=chunk)[136](index=136&type=chunk)[163](index=163&type=chunk)[182](index=182&type=chunk) - Fabrication Division's operating results were positively impacted by **$0.7 million** for both the three and nine months ended September 30, 2023, due to favorable resolution of customer change orders[72](index=72&type=chunk)[73](index=73&type=chunk) - Shipyard Division's operating results were negatively impacted by **$1.5 million** and **$2.3 million** for the three and nine months ended September 30, 2023, respectively, due to increased costs and schedule extensions on ferry projects[72](index=72&type=chunk)[74](index=74&type=chunk)[76](index=76&type=chunk) - The offshore jackets project for the Fabrication Division was cancelled in July 2023, leading to a **$76.1 million** reduction in performance obligations[67](index=67&type=chunk)[82](index=82&type=chunk) [3. Credit Facilities and Debt](index=22&type=section&id=3.%20CREDIT%20FACILITIES%20AND%20DEBT) - The LC Facility with Whitney Bank was amended in May 2023, reducing capacity from **$20.0 million** to **$10.0 million** and extending maturity to June 30, 2024[83](index=83&type=chunk) - Outstanding surety bonds totaled **$101.6 million** at September 30, 2023, including **$50.0 million** for MPSV projects (subsequently terminated) and **$45.6 million** for Active Retained Shipyard Contracts[84](index=84&type=chunk) - The Restrictive Covenant Agreement with Zurich, which precluded dividends or share repurchases, was terminated on November 6, 2023, following the MPSV Litigation resolution[86](index=86&type=chunk) [4. Commitments and Contingencies](index=23&type=section&id=4.%20COMMITMENTS%20AND%20CONTINGENCIES) - The MPSV Litigation was dismissed on October 4, 2023, with the company entering a Settlement Agreement with Zurich, releasing obligations under Performance Bonds and agreeing to a **$20.0 million** promissory Note Agreement[89](index=89&type=chunk) - A **$32.5 million** charge was recorded in Q3 2023 due to the MPSV Litigation resolution, comprising a **$12.5 million** write-off of a noncurrent net contract asset and a **$20.0 million** noncurrent contract liability for the Note Agreement[90](index=90&type=chunk) - The company is now generally self-insured for property and equipment damage as of Q2 2023 due to high premium costs and increased coverage limitations[91](index=91&type=chunk) [5. Income (Loss) Per Share](index=25&type=section&id=5.%20INCOME%20(LOSS)%20PER%20SHARE) Income (Loss) Per Share Summary | (in thousands, except per share data) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :------------------------------------ | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Net income (loss) | $(33,235) | $598 | $(31,492) | $(3,901) |\ | Weighted average shares | 16,287 | 15,923 | 16,162 | 15,808 |\ | Basic and diluted income (loss) per common share | $(2.04) | $0.04 | $(1.95) | $(0.25) | - Basic and diluted loss per share was **$(2.04)** for the three months ended September 30, 2023, a significant decrease from **$0.04** income per share in the prior year, primarily due to the net loss[96](index=96&type=chunk) [6. Operating Segments](index=25&type=section&id=6.%20OPERATING%20SEGMENTS) - The company operates through Services, Fabrication, and Shipyard divisions, with the Shipyard Division winding down by Q4 2023[97](index=97&type=chunk)[98](index=98&type=chunk)[99](index=99&type=chunk) Operating Segments Summary | Segment Results (in thousands) | Services (3M Sep 2023) | Fabrication (3M Sep 2023) | Shipyard (3M Sep 2023) | Corporate (3M Sep 2023) | Consolidated (3M Sep 2023) | | :----------------------------- | :--------------------- | :------------------------ | :--------------------- | :---------------------- | :------------------------- | | Revenue | $22,976 | $14,979 | $(32,702) | $(230) | $5,023 |\ | Gross profit (loss) | $3,260 | $1,217 | $(34,356) | — | $(29,879) |\ | Operating income (loss) | $2,577 | $904 | $(35,117) | $(1,999) | $(33,635) |\ | | | | | | |\ | Segment Results (in thousands) | Services (9M Sep 2023) | Fabrication (9M Sep 2023) | Shipyard (9M Sep 2023) | Corporate (9M Sep 2023) | Consolidated (9M Sep 2023) | | :----------------------------- | :--------------------- | :------------------------ | :--------------------- | :---------------------- | :------------------------- | | Revenue | $69,033 | $69,382 | $(30,973) | $(925) | $106,517 |\ | Gross profit (loss) | $10,348 | $5,243 | $(35,955) | — | $(20,364) |\ | Operating income (loss) | $8,187 | $4,443 | $(39,268) | $(5,920) | $(32,558) | - The Shipyard Division reported significant negative revenue and gross loss for both the three and nine months ended September 30, 2023, primarily due to the MPSV Litigation resolution charge[101](index=101&type=chunk)[152](index=152&type=chunk)[153](index=153&type=chunk)[182](index=182&type=chunk)[183](index=183&type=chunk) - Services Division showed consistent gross profit percentages of **14.2%** (3M) and **15.0%** (9M) in 2023, indicating stable performance[101](index=101&type=chunk)[146](index=146&type=chunk)[174](index=174&type=chunk) [7. Subsequent Events](index=26&type=section&id=7.%20SUBSEQUENT%20EVENTS) - On October 4, 2023, the MPSV Litigation was resolved, leading to a **$32.5 million** charge in Q3 2023. On November 6, 2023, the Settlement Agreement, Note Agreement, and an amendment to the Mortgage Agreement were executed, and the Restrictive Covenant Agreement was terminated[102](index=102&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=27&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operational results, strategic initiatives, and future outlook, including the impact of the MPSV Litigation resolution [Overview](index=28&type=section&id=Overview) - Gulf Island is a fabricator of complex steel structures and modules and a provider of specialty services to industrial and energy sectors, operating through Services, Fabrication, and Shipyard divisions[108](index=108&type=chunk) - The Shipyard Division's operating assets were sold in April 2021, with remaining operations expected to wind down by Q4 2023[109](index=109&type=chunk) - The DSS Acquisition in December 2021 expanded the Services Division's workforce and service offerings[110](index=110&type=chunk) - The MPSV Litigation was resolved on October 4, 2023[110](index=110&type=chunk) [Impacts of Oil and Gas Price Volatility and Macroeconomic Conditions on Operations](index=28&type=section&id=Impacts%20of%20Oil%20and%20Gas%20Price%20Volatility%20and%20Macroeconomic%20Conditions%20on%20Operations) - Oil and gas price volatility and global macroeconomic factors (supply chain disruptions, inflation, geopolitical conflicts) continue to impact operations, leading to reduced bidding, project suspensions, and increased costs[111](index=111&type=chunk)[112](index=112&type=chunk)[113](index=113&type=chunk) [Other Impacts to Operations](index=28&type=section&id=Other%20Impacts%20to%20Operations) - Hurricane Ida in August 2021 caused damage to Houma Facilities, and the company continues to manage insurance recoveries and repair costs[114](index=114&type=chunk) - Construction challenges and cost increases have been experienced on the seventy-vehicle and forty-vehicle ferry projects[115](index=115&type=chunk) [Initiatives to Improve Operating Results and Generate Stable, Profitable Growth](index=29&type=section&id=Initiatives%20to%20Improve%20Operating%20Results%20and%20Generate%20Stable,%20Profitable%20Growth) - The company's strategic transformation focuses on expanding its skilled workforce, strengthening project execution, diversifying its offshore services customer base, pursuing traditional offshore fabrication markets, and entering new growth markets like green energy and commercial construction[116](index=116&type=chunk)[120](index=120&type=chunk)[123](index=123&type=chunk)[125](index=125&type=chunk)[127](index=127&type=chunk)[128](index=128&type=chunk) - Key progress includes mitigating COVID-19 impacts, reducing risk profile through the Shipyard Transaction, improving liquidity via cost reductions and asset monetization, and enhancing competitiveness through management changes and process improvements[117](index=117&type=chunk)[118](index=118&type=chunk)[119](index=119&type=chunk)[121](index=121&type=chunk)[122](index=122&type=chunk) [Operating Outlook](index=32&type=section&id=Operating%20Outlook) - Future success depends on hiring and retaining skilled labor, managing oil and gas price volatility, securing new project awards in traditional and new markets, executing projects within cost estimates, and successfully winding down Shipyard Division operations[129](index=129&type=chunk) - Near-term Fabrication Division utilization will be impacted by the timing of new project awards and the cancellation of the offshore jackets project[129](index=129&type=chunk) [New Project Awards and Backlog](index=32&type=section&id=New%20Project%20Awards%20and%20Backlog) New Project Awards and Backlog Summary | New Project Awards (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :-------------------------------- | :------------------------------ | :------------------------------ | :----------------------------- | :----------------------------- | | Services | $22,776 | $22,110 | $68,578 | $64,572 |\ | Fabrication | $16,589 | $116,926 | $46,733 | $136,948 |\ | Shipyard | $(718) | $380 | $(1,067) | $1,213 |\ | Eliminations | $(230) | $(254) | $(925) | $(431) |\ | **Total** | **$38,417** | **$139,162** | **$113,319** | **$202,302** | Backlog Summary | Backlog (in thousands) | Sep 30, 2023 (Amount) | Sep 30, 2023 (Labor Hours) | Dec 31, 2022 (Amount) | Dec 31, 2022 (Labor Hours) | | :--------------------- | :-------------------- | :------------------------- | :-------------------- | :------------------------- | | Services | $867 | 8 | $1,322 | 20 |\ | Fabrication | $11,507 | 119 | $110,287 | 613 |\ | Shipyard | $726 | 2 | $3,272 | 22 |\ | **Total** | **$13,100** | **129** | **$114,881** | **655** | - Total new project awards decreased significantly to **$38.4 million** for the three months ended September 30, 2023, from **$139.2 million** in the prior year, primarily due to the cancellation of a large offshore jackets project in the Fabrication Division[132](index=132&type=chunk)[135](index=135&type=chunk) - Total backlog at September 30, 2023, was **$13.1 million**, a substantial decrease from **$114.9 million** at December 31, 2022, mainly due to the **$76.1 million** reduction from the cancelled offshore jackets project[132](index=132&type=chunk) [Results of Operations](index=34&type=section&id=Results%20of%20Operations) [Comparison of the Three Months Ended September 30, 2023 and 2022](index=34&type=section&id=Comparison%20of%20the%20Three%20Months%20Ended%20September%2030,%202023%20and%202022) Comparison of the Three Months Ended September 30, 2023 and 2022 Summary | Consolidated (in thousands) | Sep 30, 2023 | Sep 30, 2022 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Revenue | $5,023 | $39,593 | $(34,570) |\ | Gross profit (loss) | $(29,879) | $4,220 | $(34,099) |\ | Operating income (loss) | $(33,635) | $654 | $(34,289) |\ | Net income (loss) | $(33,235) | $598 | $(33,833) | - Consolidated revenue decreased by **87.3%** YoY, primarily due to a **$32.5 million** revenue reversal from the MPSV Litigation resolution in the Shipyard Division[136](index=136&type=chunk) - Gross loss for Q3 2023 was **$29.9 million**, compared to a gross profit of **$4.2 million** in Q3 2022, mainly due to the MPSV Litigation charge and project charges in the Shipyard Division[138](index=138&type=chunk) - Services Division revenue increased by **1.8%** and gross profit increased by **3.1%** due to incremental revenue and a higher margin mix from the welding enclosures business line[146](index=146&type=chunk)[147](index=147&type=chunk) - Fabrication Division revenue decreased by **2.9%** due to the cancelled offshore jackets project, but gross profit was positively impacted by **$0.7 million** from favorable change order resolutions[149](index=149&type=chunk)[150](index=150&type=chunk) - Shipyard Division reported negative revenue of **$32.7 million** and a gross loss of **$34.4 million**, primarily from the **$32.5 million** MPSV Litigation charge and project cost increases on ferry projects[152](index=152&type=chunk)[153](index=153&type=chunk) [Comparison of the Nine Months Ended September 30, 2023 and 2022](index=40&type=section&id=Comparison%20of%20the%20Nine%20Months%20Ended%20September%2030,%202023%20and%202022) Comparison of the Nine Months Ended September 30, 2023 and 2022 Summary | Consolidated (in thousands) | Sep 30, 2023 | Sep 30, 2022 | Change | | :-------------------------- | :----------- | :----------- | :----- | | Revenue | $106,517 | $104,181 | $2,336 |\ | Gross profit (loss) | $(20,364) | $5,472 | $(25,836) |\ | Operating loss | $(32,558) | $(3,795) | $(28,763) |\ | Net loss | $(31,492) | $(3,901) | $(27,591) | - Consolidated revenue increased by **2.2%** YoY, driven by higher revenue in Services and Fabrication, offset by a **$38.3 million** decrease in Shipyard revenue due to the MPSV Litigation charge[162](index=162&type=chunk)[163](index=163&type=chunk) - Gross loss for the nine months ended September 30, 2023, was **$20.4 million**, compared to a gross profit of **$5.5 million** in the prior year, primarily due to the **$32.5 million** MPSV Litigation charge[164](index=164&type=chunk) - Services Division revenue increased by **5.5%** and gross profit increased by **24.7%** due to incremental revenue and a higher margin mix from the welding enclosures business line[174](index=174&type=chunk)[176](index=176&type=chunk) - Fabrication Division revenue increased by **117.6%** due to the offshore jackets project (prior to cancellation) and increased small-scale fabrication activity, resulting in a gross profit of **$5.2 million** compared to a gross loss of **$2.1 million** in the prior year[178](index=178&type=chunk) - Shipyard Division reported negative revenue of **$31.0 million** and a gross loss of **$36.0 million**, primarily from the **$32.5 million** MPSV Litigation charge and project cost increases on ferry projects[182](index=182&type=chunk)[183](index=183&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) Available Liquidity Summary | Available Liquidity (in thousands) | Sep 30, 2023 | | :--------------------------------- | :----------- | | Cash and cash equivalents | $25,125 |\ | Short-term investments | $15,437 |\ | Restricted cash, current | $1,197 |\ | **Total** | **$41,759** | - Total available liquidity (cash, cash equivalents, short-term investments, and restricted cash) was **$41.8 million** at September 30, 2023[190](index=190&type=chunk) - Working capital was **$59.2 million** at September 30, 2023, including **$41.8 million** in cash and short-term investments[192](index=192&type=chunk) - Net cash used in operating activities significantly improved to **$0.2 million** for the nine months ended September 30, 2023, from **$18.8 million** in the prior year, largely due to the MPSV Litigation resolution[195](index=195&type=chunk) - The company anticipates capital expenditures of approximately **$2.0 million** for the remainder of 2023[203](index=203&type=chunk) - Management believes current cash, cash equivalents, and short-term investments will be sufficient to fund operating expenses, capital expenditures, and debt obligations for at least the next twelve months[204](index=204&type=chunk) [Item 4. Controls and Procedures](index=49&type=section&id=Item%204.%20Controls%20and%20Procedures) Management evaluated disclosure controls and procedures as effective on September 30, 2023, with no material changes to internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed **effective** as of September 30, 2023[206](index=206&type=chunk) - **No material changes** to internal control over financial reporting occurred during Q3 2023[207](index=207&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) Legal proceedings, including the MPSV Litigation resolution, are discussed in detail within Note 4 of the Financial Statements - Legal proceedings, including the MPSV Litigation resolution, are discussed in Note 4 of the Financial Statements[210](index=210&type=chunk) [Item 1A. Risk Factors](index=50&type=section&id=Item%201A.%20Risk%20Factors) No material changes to risk factors have occurred since the 2022 Annual Report, except for updates in the Q2 2023 Form 10-Q - No material changes to risk factors since the 2022 Annual Report, except for updates in the Q2 2023 Form 10-Q[211](index=211&type=chunk) [Item 5. Other Information](index=50&type=section&id=Item%205.%20Other%20Information) On November 6, 2023, the company entered a $20.0 million Note Agreement with Zurich, amending the Mortgage Agreement and terminating the Restrictive Covenant Agreement - A **$20.0 million** Secured Promissory Note was entered into with Zurich on November 6, 2023, with **3.0%** interest and 15 equal annual installments starting December 31, 2024[212](index=212&type=chunk) - The Mortgage Agreement was amended, and the Restrictive Covenant Agreement was terminated in connection with the Note Agreement[212](index=212&type=chunk) [Item 6. Exhibits](index=51&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including corporate governance documents, the Secured Promissory Note, and related agreements - Key exhibits include the Secured Promissory Note (10.1), Amendment to Multiple Indebtedness Mortgage (10.2), and Nullification of Restrictive Covenant (10.3), all dated November 6, 2023[214](index=214&type=chunk) [Signatures](index=52&type=section&id=Signatures) The report was signed by Westley S. Stockton, EVP, CFO, Treasurer, and Secretary of Gulf Island Fabrication, Inc. on November 7, 2023 - The report was signed by Westley S. Stockton, EVP, CFO, Treasurer, and Secretary, on November 7, 2023[218](index=218&type=chunk)