Gulf Island Fabrication(GIFI) - 2023 Q4 - Annual Report

Part I Business and Properties Gulf Island Fabrication, Inc. is a fabricator of complex steel structures and a provider of specialty services primarily for the industrial and energy sectors Description of Operations The company operates through three reportable segments: Services, Fabrication, and Shipyard, with the Shipyard division largely winding down its legacy obligations - The company's business is managed through three operating divisions: Services, Fabrication, and Shipyard, plus a Corporate division[22] - The Services Division provides a range of specialty services including maintenance, repair, construction, scaffolding, and staffing[23] - The Fabrication Division fabricates complex steel structures and modules for various sectors including refining, petrochemical, LNG, and alternative energy[24] - The Shipyard Division has largely ceased new operations after a 2021 asset sale, with remaining activities focused on completing legacy Ferry Projects. The wind-down was substantially complete in Q4 2023, with final warranty periods ending in Q1 2025[25] Facilities and Equipment The company's primary operating facilities are the Houma Facilities in Louisiana, situated on approximately 160 acres with significant water frontage and extensive buildings - The main operating base is the Houma Facilities in Louisiana, covering 160 acres with 3,305 linear feet of water frontage, and includes over 420,000 square feet of covered facilities[27] - In February 2024, the company sold a portion of its Houma Facilities that had been classified as an asset held for sale at year-end 2023[28] Human Capital Management As of December 31, 2023, the company had 839 full-time employees, supplemented by 94 independent contractors, and actively promotes diversity and workforce development Employee Statistics (as of Dec 31) | Year | Full-Time Employees | Independent Contractors | | :--- | :--- | :--- | | 2023 | 839 | 94 | | 2022 | 874 | 83 | - The company utilizes Texas and Louisiana state grants for workforce skills development, training 772 employees in 2023 through these programs[36] - The workforce is diverse, with approximately 54% being women or minorities at the end of 2023, an increase from 51% in 2022[39] Customers The company's customer base includes U.S. and international energy producers and industrial operators, with revenue concentrated among a few key customers - In 2023, two customers accounted for 53% of consolidated revenue (excluding the negative revenue from the MPSV Litigation resolution)[50] - In 2022, two customers accounted for 48% of consolidated revenue[50] New Project Awards and Backlog New project awards represent the value of new contract commitments, while backlog is the unrecognized revenue from these awards, both subject to significant variability and potential customer changes - Backlog represents the unrecognized revenue from new project awards and is consistent with the value of remaining performance obligations under Topic 606[54] - Projects in backlog are subject to potential changes by the customer, including delay, suspension, or termination, which could significantly impact expected revenue[55] Risk Factors The company faces significant risks, including its dependence on the cyclical oil and gas industry, intense competition, and reliance on a small number of customers - Business/Industry Risks: The company's revenue is highly dependent on the cyclical offshore oil and gas industry, faces intense competition, and derives a significant portion of revenue from a small number of customers[71][74][76] - Operational Risks: A substantial number of projects are fixed-price, exposing the company to cost overruns. The business depends on winning new contracts, and its backlog is subject to cancellation, as exemplified by a major offshore jackets project cancellation in July 2023[78][80][87] - Financial Risks: The company may need additional capital, faces credit risks from its customers, and its insurance coverage has limitations. It is now generally self-insured for property and equipment damage[102][110][86] - Workforce Risks: Profitability depends on attracting and retaining skilled labor, which is challenging in a competitive market. The loss of key personnel could also impact operations[115][118] - Legal/Regulatory Risks: The business is subject to complex regulations, potential impacts from climate change policies, and actions of activist shareholders, with over one-third of stock held by institutional investors and funds with a history of activism[129][130][132] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the SEC - None[136] Cybersecurity The company has an integrated cyber risk management program overseen by the Corporate Manager of Information Technology and the Board's Audit Committee - The company's cyber risk management is integrated into its overall risk oversight program, utilizing both internal and external personnel for assessment and response[137][138] - The Board's Audit Committee is responsible for overseeing cyber and IT security risks, receiving annual reports on the company's enterprise risks, including cybersecurity[142] Legal Proceedings The company refers to Note 7 of its Financial Statements for a discussion of its legal proceedings, including details on the resolution of the significant MPSV Litigation - Details regarding legal proceedings, including the resolution of the MPSV Litigation, are incorporated by reference from Note 7 of the Financial Statements[143] Mine Safety Disclosures This item is not applicable to the company - Not applicable[144] Part II Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's common stock trades on the Nasdaq Global Select Market under the symbol "GIFI", and the Board authorized a $5.0 million share repurchase program in December 2023 - The company's common stock is traded on the Nasdaq Global Select Market under the symbol "GIFI"[146] Issuer Purchases of Equity Securities (Q4 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Total Purchased as Part of Program | Approx. Dollar Value Remaining ($ thousands) | | :--- | :--- | :--- | :--- | :--- | | Oct 2023 | — | $ — | — | — | | Nov 2023 | — | $ — | — | — | | Dec 2023 | 29,578 | $ 4.34 | 29,578 | $ 4,872 | Management's Discussion and Analysis of Financial Condition and Results of Operations In 2023, Gulf Island reported a net loss of $24.4 million on revenue of $151.1 million, driven by a $32.5 million charge from the MPSV Litigation resolution, while maintaining solid liquidity Results of Operations – Comparison of 2023 and 2022 For 2023, consolidated revenue increased to $151.1 million from $142.3 million in 2022, but the company posted a gross loss of $11.9 million and a net loss of $24.4 million, primarily due to a $32.5 million charge in the Shipyard division Consolidated Results of Operations (in thousands) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Revenue | $ 151,067 | $ 142,320 | $ 8,747 | | Gross Profit (Loss) | $ (11,901) | $ 7,895 | $ (19,796) | | Operating Loss | $ (25,883) | $ (3,415) | $ (22,468) | | Net Loss | $ (24,402) | $ (3,352) | $ (21,050) | - The 2023 gross loss was primarily driven by a $32.5 million charge from the MPSV Litigation resolution and $2.7 million in charges on Ferry Projects in the Shipyard Division[195][198] - General and administrative expenses decreased by 10.6% to $16.3 million in 2023, mainly due to lower legal fees associated with the now-resolved MPSV Litigation[196] New Project Awards and Backlog New project awards decreased to $157.7 million in 2023 from $240.2 million in 2022, and backlog fell sharply to $13.0 million due to a major contract cancellation New Project Awards by Segment (in thousands) | Segment | 2023 | 2022 | | :--- | :--- | :--- | | Services | $ 92,728 | $ 85,846 | | Fabrication | $ 66,629 | $ 154,239 | | Shipyard | $ (528) | $ 834 | | Total | $ 157,719 | $ 240,247 | Backlog by Segment (in thousands) | Segment | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Services | $ 502 | $ 1,322 | | Fabrication | $ 11,739 | $ 110,287 | | Shipyard | $ 709 | $ 3,272 | | Total | $ 12,950 | $ 114,881 | - A large offshore jackets contract awarded in 2022 was cancelled by the customer in July 2023, reducing performance obligations by $76.1 million during 2023[174] Liquidity and Capital Resources As of December 31, 2023, the company had total cash, cash equivalents, short-term investments, and restricted cash of $47.9 million, with positive cash from operations of $7.2 million Available Liquidity (in thousands) | Component | Dec 31, 2023 | | :--- | :--- | | Cash and cash equivalents | $ 38,176 | | Short-term investments | $ 8,233 | | Available cash, cash equivalents and short-term investments | $ 46,409 | | Restricted cash | $ 1,475 | | Total | $ 47,884 | Cash Flow Summary (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $ 7,197 | $ (8,923) | | Net cash used in investing activities | $ (503) | $ (8,870) | | Net cash used in financing activities | $ (1,867) | $ (1,972) | - The company anticipates capital expenditures of $4.5 million to $5.5 million for 2024, primarily for upgrades to its Houma Facilities and new equipment[228] Critical Accounting Policies The company's most significant accounting policies involve considerable judgment and estimates, particularly revenue recognition for long-term contracts, impairment assessments, and deferred tax assets - Revenue for long-term contracts is recognized over time using the percentage-of-completion (POC) method, based on costs incurred to date versus total estimated costs. This requires significant estimates for costs to complete, which can materially affect results[178] - Goodwill is tested for impairment annually. The Services Division is the only reporting unit with goodwill, and a qualitative assessment in 2023 indicated no impairment[182] - A full valuation allowance is maintained against deferred tax assets (DTAs) because, based on available evidence including cumulative losses, it is more likely than not that the DTAs will not be realized[185][360] - The company is now generally self-insured for property and equipment damage due to high premium costs and coverage limitations, exposing it to future losses[188] Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company - Not applicable[231] Financial Statements and Supplementary Data The company's Consolidated Financial Statements and accompanying notes are included in the report, starting on page F-1 - The Financial Statements and related notes are incorporated by reference and appear on pages F-1 through F-26[232] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[233] Controls and Procedures Management concluded that the company's disclosure controls and procedures and internal control over financial reporting were effective as of December 31, 2023 - Management concluded that disclosure controls and procedures were effective as of December 31, 2023[234] - Management concluded that internal control over financial reporting was effective as of December 31, 2023[235] Part III Directors, Executive Officers and Corporate Governance Information required for this item, including details on directors, executive officers, and corporate governance practices, is incorporated by reference from the company's definitive proxy statement for its 2024 annual meeting of shareholders - Information is incorporated by reference from the 2024 annual meeting proxy statement[241] Executive Compensation Information required for this item regarding executive compensation is incorporated by reference from the company's definitive proxy statement for its 2024 annual meeting of shareholders - Information is incorporated by reference from the 2024 annual meeting proxy statement[242] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters Information required for this item concerning security ownership is incorporated by reference from the company's definitive proxy statement for its 2024 annual meeting of shareholders - Information is incorporated by reference from the 2024 annual meeting proxy statement[243] Certain Relationships and Related Transactions, and Director Independence Information required for this item regarding related party transactions and director independence is incorporated by reference from the company's definitive proxy statement for its 2024 annual meeting of shareholders - Information is incorporated by reference from the 2024 annual meeting proxy statement[244] Principal Accounting Fees and Services Information required for this item concerning principal accounting fees and services is incorporated by reference from the company's definitive proxy statement for its 2024 annual meeting of shareholders - Information is incorporated by reference from the 2024 annual meeting proxy statement[245] Part IV Exhibits, Financial Statement Schedules This section indicates that the required financial statement schedules and exhibits are filed as part of the Form 10-K report, with a detailed list available in the Exhibit Index - Required financial statement schedules and exhibits are filed as part of the report, detailed in the Exhibit Index on page E-1[248] Financial Statements Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the consolidated financial statements, identifying "Revenue recognition for long-term contracts" as a critical audit matter due to complex management judgments - The auditor, Ernst & Young LLP, issued an unqualified opinion on the consolidated financial statements[254] - The critical audit matter identified was "Revenue recognition for long-term contracts" due to the significant management judgment involved in estimating costs to complete and variable consideration[259][260] Consolidated Financial Statements The consolidated financial statements show a decrease in total assets from $134.9 million in 2022 to $128.4 million in 2023, an increase in total liabilities to $49.5 million, and a net loss of $24.4 million for 2023 Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Current Assets | $ 101,627 | $ 87,069 | | Total Assets | $ 128,428 | $ 134,866 | | Total Current Liabilities | $ 29,847 | $ 30,789 | | Total Liabilities | $ 49,457 | $ 32,242 | | Total Shareholders' Equity | $ 78,971 | $ 102,624 | Consolidated Statement of Operations Highlights (in thousands) | Account | 2023 | 2022 | | :--- | :--- | :--- | | Revenue | $ 151,067 | $ 142,320 | | Gross Profit (Loss) | $ (11,901) | $ 7,895 | | Operating Loss | $ (25,883) | $ (3,415) | | Net Loss | $ (24,402) | $ (3,352) | | Basic and Diluted Loss Per Share | $ (1.51) | $ (0.21) | Notes to Consolidated Financial Statements The notes provide detailed disclosure on the company's accounting policies, segment performance, and key events, including the $32.5 million charge for the MPSV litigation and the new $20.0 million promissory note with Zurich - MPSV Litigation Resolution: The company resolved its MPSV litigation, resulting in a $32.5 million charge (a $12.5M non-cash write-off and a $20.0M liability). As part of the settlement, the company entered into a $20.0 million promissory note with Zurich, payable over 15 years[374][375][352] - Ferry Project Losses: The Shipyard division recorded an additional $2.7 million in negative margin changes on its legacy Ferry Projects in 2023 due to increased material/subcontractor costs, schedule delays, and warranty costs[329][330] - Asset Sale: In February 2024, the company sold a portion of its Houma Facilities (classified as held for sale) for $8.5 million net of costs. The carrying value was $5.6 million[340][393] - Share Repurchase Program: A $5.0 million share repurchase program was approved in December 2023. The company repurchased 29,578 shares for $0.1 million before year-end[383]