Q2 2020 Gulf Island Fabrication Inc Earnings Call
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Good day, ladies and gentlemen, and welcome to Gulf Island fabrication, Inc. second quarter 2020 earnings call.
All participants will be in listen only mode.
Patients.
Question.
Another.
Program.
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I'd like to turn the floor.
<unk> for any excuse me for opening remarks production can you. Please go ahead.
Thank you, Greg and good afternoon, I would like to welcome everyone to our second quarter 2020 telecom.
Our results were released this afternoon and a copy of the press release, it's available on our website <unk> Gulf Island Dot com.
A replay of today's call will be available on our website after seven pm.
Please keep in mind that the press release and certain comments on this call include forward looking statements.
Actual results may differ materially.
We would like to refer everyone to the cautionary language included in our press release.
For the risk factors described in our 2019 wants to carry and subsequent FCC.
Please also note that management made reference EBITDARM and backlog on this call, which our financial measures not recognized under us GAAP.
That's required by FCC rules and regulations. These non-GAAP financial measures are reconciled to their most comparable GAAP financial measure in our press release.
Today, we have Mr., Richard President and CEO, and Mr. Web Stockton Executive Vice President and CEO.
Mr Huh.
Thank you Sandy good afternoon, everyone and welcome to our second quarter discussion of our results business highlights and outlook.
I'm happy to be here with me this afternoon, and I hope that each of you and your families are coping well put the ongoing uncertainty associated challenges of the cobot 19 pandemic.
On today's call Oh provide an update on the progress, we're making them guard to our key initiatives followed by an overview of our second quarter results.
Doctors underpinning our performance, including an update on the current business environment as well as the impact of the coping 19 pandemic on our operations.
Wes will then discuss our second quarter results in greater detail as well as our backlog and liquidity position well then open up the call for questions I conclude some closing remarks.
First of all I'd like to thank all of our employees for their focus on the safety and well being of themselves and co workers at Gulf Island.
They all have demonstrated remarkable resilience and dedication in light of the challenges and the distractions of Kobin 19.
Tropical storm Crystal ball encourage social unrest.
Most of our employees are craft professionals that work in very difficult and dangerous environments and do not have the luxury working from home.
I'm grateful for the contribution of these employees as they say they deliver on our commitments to our clients.
Hey, safe and healthy operating environment for our employees customers and suppliers is our highest priority.
In regard to the second quarter, we continue to navigate through a difficult business environment due to the impact the cobot 19 pandemic and oil price volatility. However, our project execution and associated results were generally consistent with our expectations heading into the quarter given the aforementioned challenges.
Overall, I'm happy to see that our process improvement efforts are becoming further embedded in our culture and we're seeing the benefits of instilled in greater discipline and commercial management and our project financial results I.
I would now like to provide some commentary on our second quarter segment level results and accomplishments.
For the fabrication services division during the quarter, we executed several quick turnaround projects and our Jacketing Duck project realize financial improvement as we aren't project incentives by actually being an accelerated schedule requested by our clients.
This accomplishment despite the challenging environment presented by Kobin Nike highlights the team's ability to meet our client commitments.
Delivery, good quality product safely and on schedule.
We also realized improvements to project results on our pedal wheel riverboat and subsea components projects, primarily related to the settlement of change orders.
And final project Closeouts. These improvements reflect a more disciplined and enhanced approach to our project execution and commercial management.
Well overall project execution was strong the division continues to be challenged by low level of backlog and the resulting under utilization of our facilities and resources.
During the quarter, we didn't make a concerted effort to bring back and retain both salaried overhead Ed hourly Kraft paper.
Personnel to perform process improvement special project, a major maintenance and repairs in support of our operations.
We'll continue to evaluate our resource needs in light of economic impact go coping Nike and oil price volatility on our end markets.
Sales in bidding activity for fabrication services remain strong in the quarter. However final investment decisions on large key projects continue to be deferred due to the impact to call the Nike and associated market uncertainty.
We are monitoring the market and targeting those opportunities, where we can differentiate ourselves from our comp competitors, while focusing on the opportunities that have the best chance of moving forward by our clients.
In spite of these headwinds during the second quarter. We received several quick book and Burn Project Awards, and we were awarded a project for Moring and Breasting Dolphins that contributed to our quarter and fabrication backlog.
Further our offshore and onshore surfaces has seen a slight pickup in activity.
However, the margins are below historical levels as many customers are requiring price concessions.
And oil and gas in markets.
And our shipyard Division, we completed and delivered our ice breaker talk to our customer in New York The ice breaker tug. That's the way Guardian made it really weak voyage from home on Louisiana, The Boston and New York on her own power navigating through the impact the coping Nike and they tropical storm along the east.
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The best of will be primarily used for buoyed maintenance and ice management, along the Saint Lawrence anyway.
We are proud to be part of this new history and wants to see way Guardian will be replacing a vessel that has been in service for over 60 years.
During the quarter. We also completed our eight harbor talk and expect completion of the ninth talk this month and the 10th and final talk in the fourth quarter, our previous expectation was for a third quarter completion at the last vessel.
Unfortunately, we experienced lower than anticipated labor productivity and a lower level of <unk> progress on the last two times during the effect due to the effects of the plant closure of Jennings facility and covert 19 mitigation measures.
While our overall efforts to keep our employees safe and help help the from the impact the coping I do not working social distancing requirements impacted the pace to work on the vessels as a significant amount of the remaining work scope isn't confined space.
Promote the health and wellbeing of our employees, we'd have to reduce headcount in the vessels, which resulted in decreased productivity and extensions of schedule. Unfortunately system delay in the final project completion were moved the closing of the journey facility to the fourth quarter.
With respect to our whole facility as we attempt to increase headcount to support the execution of our historically high shipyard backlog, we are experiencing a greater degree of absenteeism spray variety of reasons.
Which include employees have been concerns that they have symptoms of the virus.
FM family members are friends, who have tested positive for koeppen 19 or have overall apprehension due to cope and my team.
In addition, certain deliverables from third party engineering firms supporting our shipyard projects have been delayed as a result of the cobot 19 pandemic, what's yours, requiring us to resequence construction activities. We are regularly updating our clients regarding the impacts coping Nike and they need required work be sequencing.
Separately to support our headcount increases in shipyard division, our leadership team, including the human resources is working diligently with the local and surrounding communities and using social media and other avenues to attract recruit and retain talent during these challenging times.
On the self fund for the shipyard Division, we remain disciplined and selective and evaluation of opportunities given our significant backlog.
<unk> targeting prospects with attractive margins for which the project schedules are complementary to the execution of our current backlog, including future demands on our resources.
I'll now turn the call over to west to discuss our quarterly results in greater detail.
Thanks, Richard and good afternoon, everyone.
Discuss or consolidated results then provide some additional details regarding our segment results and conclude with a discussion of our backlog and liquidity.
Consolidated revenue for the second quarter 2020 was 60 million compared to 70 point 78.6 million for the second quarter 2020, and 80.5 million for the second quarter 2019, representing a sequential and year over year decrease of approximately 24% and 25% respectively.
The sequential decrease was primarily due to lower procurement activities on our research vessel and they'd be vessel projects.
You are harbor tug vessels under construction.
And the completion of our pattern will wherever boat project.
The decrease from the second quarter 2019 was also due to fewer Harvard took vessels under construction and completion of our pattern will riverboat project, along with lower construction activities. Our research that's what projects you did or temporary constructions away.
And lower onshore and offshore services activity.
These impacts were offset partially by increased revenue for our offshore jacket in fact project and increased construction and procurement activities for our Navy vessel projects.
Consolidated net loss for the second quarter 2020 was 5.5 million compared to net income of 5.9 million for the first quarter 2020 net loss of 5.29 for the second quarter 2019.
EBITDA was a loss of 3.4 million for the second quarter 2020, compared to EBITDA of 8.29 for the trailing quarter and in EBITDA loss of 3 million for the year ago quarter.
Our consolidated loss for the second quarter 2020 was attributable to a low margin backlog for our shipyard division low revenue volume for our fabrication services division and the partial under utilization of our facilities in resources, primarily primarily for fabrication services Division.
As a reminder, consolidated operating income for the first quarter 2020 reflected at $10 million gain for fabrication services divisions associated with the settlement other contract dispute for previously completed projects.
Now let me provide some additional details regarding our quarterly results by operating segment.
For our shipyard Division revenue was 33.9 million for the quarter compared to 45.6 million for the first quarter 2020 at 40.1 million for the second quarter 2019.
26% decrease relative to the trailing period. It was primarily due to lower procurement activities on our research vessel and maybe vessel projects.
You are Harvard drug vessels under construction.
The 15% decrease compared to the second quarter 2019 was also due to fewer and fewer harbor type vessels under construction completion of our ice breaker cod and lower construction activity on our research vessel projects.
These impacts were offset partially by increased construction in procurement activities for our Navy vessel projects and increased procurement activities for our 70 vehicle Ferry project.
Operating loss for the quarter was 1.7 million compared to an operating loss of 1.9 million for the first quarter 2020.
And an operating loss of 3.6 million for the second quarter 2019.
EBITDA was a loss of 922000 for the second quarter 2020.
Compared to EBITDA loss of 1.1 million for the trailing quarter and an EBITDA loss of 2.5 million for the year ago quarter.
The operating loss for the second quarter 2020, because you got low margin backlog personal under utilization of the divisions facilities.
And project charges of 600000 associated with our Herbert type projects.
Project impacts were 1.2 million for the first quarter 2020, and 2.3 million for the second quarter 2019.
Absent the project impacts for each period, the increase was for the second quarter 2020.
Relative to both the trailing and year ago quarter was due to lower margin project mix relative to the previous periods.
The utilization of the divisions facilities and resources was generally consistent between periods, but the current period realizing increased utilization from construction activities on our navy vessel projects offset partially by lower activity for our harbor tug and ice breaker type projects under construction delays on our free research that's what projects as note.
Last quarter construction activities for our research special projects have been suspended until we believe engineering has achieved a satisfactory levels completion to limit impacts on construction activities.
Our fabrication services Division revenue was 26.6 million for the quarter compared to 33.4 million for the first quarter 2020.
At 40.7 million, but a second quarter 2019.
20 per cent decrease from the trailing period was primarily due to the completion of our powder World where provoke project.
35% decrease from the second quarter 2019 was also due to the completion of our proud of low riverboat project, along with lower onshore and offshore services activity.
Partially by increased revenue for offshore jacket, and direct material supply projects.
Operating loss for the quarter was 1.4 million compared to operating income of 2.2 million for the first quarter 2020.
Operating income of 517000 for the second quarter 2019th.
EBITDA was a loss of 206000 for the second quarter 2020, compared to any to EBITDA of 11.5 million for the trailing quarter and EBITDA of 1.8 million for the year ago quarter.
The operating loss for the second quarter 2020 was due to low revenue volume the partial under utilization of the divisions facilities in resources.
And costs associated with retaining salaried and hourly craft employees to perform process improvements special projects and facility maintenance and repairs.
These impacts were partially offset by project improvements of 1 million for the divisions jacket and back out it will riverboat conceptually components projects.
While there were no material project impacts for the second quarter 2019, the first quarter 2020 benefited from project improvements of 900010 million and a 10 million dollar change order settlement.
Absent the project impacts for each period increased loss for the second quarter 2020 relative to the first quarter 2020, and a loss relative to income from a year ago period was primarily due to a lower margin project mix lower revenue volume and reduced utilization of our facilities in resources, including higher costs associated.
With the previously mentioned retention of personnel.
Specifically as it relates utilization our work hours for the second quarter 2024, approximately 35% lower relative to the trailing period and approximately 50% lower year over year with the lower utilization primarily due to the completion of our of our pattern will riverboat project and lower onshore and offshore services activity.
Offset partially by higher activity for our jacket and that project.
As Richard mentioned, we will continue to manage divisions resource needs considering the challenge on gas market.
Our corporate division operating loss for the quarter was 2.3 million with a similar operating loss for both the first quarter 2020, and second quarter 2019.
The comparable gross loss for the current quarter relative to the year over year period, because you do our cost reduction initiatives and lower legal fees.
Offset by higher incentive plan costs, you did the second quarter 2019, including the benefit of the partial reversal of incentive plan cost in crude in the first quarter 29.
Next I will provide a few comments regarding our quarter end backlog and liquidity situation.
Total backlog was approximately 470 million at June 2020, representing a decrease of 30 million compared to March 2020, and an increase of 33 million from June 2019.
The decrease remarks was due to revenue volume outpacing our new project awards for the shift our division in the second quarter 2020.
The year over year increase was due to the Navy's option exercises sports fourth and fifth vessels in the first quarter 2020, and at year end quarter end, approximately 93% of our backlog was attributable to our ship their division.
This backlog exclude customer options for three additional vessels, which f. exercise, but approximate 200 million.
With respect to our liquidity operating cash flow through the quarter was negative 3.8 million and our capital expenditures were 5.6 million consistent with our expectations.
These cash flow uses were offset by the proceeds of our PBB loan during the second quarter, resulting in a cash and investment balance of 69 million and total depth of 10 million at quarter end.
The proceeds alone were used only for permissible purposes, but 94% attributable to payroll and benefit cost.
We are determining our loan forgiveness reclass based on current SPD guidelines and we'll submit our forgiveness application when the SB begins accepting applications any portions of the PPP loan not forgiven along with interest will be repaid based on the terms of our loan inapplicable applicable program guidelines.
At quarter end, we I reflect the PBB loan as debt, but the debt classification based on the terms and conditions of our loan and the timing of required repayment absent any loan forgiveness.
We intend to reflect the benefit of any loan forgiveness, if and when our loan forgiveness application has approved by the FDA and we have reasonable assurance from U.S.P.A. that we have met the eligibility and loan forgiveness forgiveness requirements of the program.
Regarding our credit facility in August we amended the facility to extend its maturity date from June 2021 to June 2022, and a quarter end, we were in compliance with all our financial covenants with approximately 10 million of outstanding letters of credit no borrowings on the facility, providing approximately 30 million of availability for additional letters.
As of credit.
With respect to working capital at quarter end, we continued to maintain 8.1 million of assets held for sale and our working capital excluding cash and investments assets held for sale and the current portion of our PPP loan was approximately breakeven.
We anticipate ongoing quarterly variability in our working capital requirements with an increase in our working capital for the remainder of 2020 of approximately five to 10 million, which is consistent with our previous expectations.
Also consistent with our previous expectations. We currently anticipate our capital needs, which include contractual requirements for our projects with the U.S. Navy to be approximately five to 6 million for the second half a 2020.
Lastly, with respect to expectations regarding EBITDA for the remainder of 2020, given to covert 19 pandemic crude oil price volatility and related market uncertainty, we will not be providing guidance at this time.
This concludes our prepared remarks, Greg you May now open the line for questions.
Thank you very much sir ladies and gentlemen for any questions today.
The session will be conducted electronically if you'd like to ask a question. Please do so by pressing the star Keith followed by the digit one I touched on telephone.
And the speaker phone just make sure that your mute function has turned off to allow us to receive that signal.
For season, the order that you sickness and we'll take as many questions as time permits again, ladies gentlemen star one for any questions at this time.
Yes.
Well as we have no questions I'll turn it over Richard forget John.
Okay.
Yeah, and apologies, we did have one come through it looks like John Deysher with Pinnacle.
Please go ahead Sir.
Hello, everyone.
Hey, good ideas and John.
Oh.
Where do we start.
Oh, the forgiveness of the P. P. P. P P will.
Some of our company's hips or something bidding.
Hey for work starting this quarter, one do you anticipate submitting yours.
Don will submit as soon as they started accepting applications were ready to do that.
And what.
Yes, but I still have.
There are accepting them.
We we understand it in the next several weeks MBS bail started accepting applications that act that you know subject to change but at this point. This is what we're hearing.
Okay.
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There was a 3 million dollar receivable for below holes.
That was billable upon the exploration of a warranty.
Detailed in last quarter's 10-Q, what's the status of that because you collect.
Yes, John during the quarter, we actually build according to the terms and that receivable was paid prior to quarter and.
Okay. So that's what's included in our.
It is.
Okay.
Hi, good regarding the.
That facility or any of the covenants changed to maturity was extended but doors.
Several covenants.
That will detail previously did any of those change.
No Sir no changes to our covenants on the there was a one minor change.
The introduction of a minimum LIBOR floor of 1% for any borrowings, but absent that the primary change the facility was simply an extension of the facility through June of 2022.
So my question.
It was a minimum.
Well I've, Oregon.
Just 1%.
Okay.
Or any change in the status of the Mpsvs.
No no no no updates to provide at this time.
Alright, and look forward was.
Reduced to three people who are those three [noise].
Well they were reduced not to three people, but reduced by three folks.
Okay. So who are the three that left the board.
Mr. Jacqueline Board.
Mr. Gregory Cotter.
And Mr. Christopher Harding.
Okay. So you want from.
Seven to four board members.
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From nine to six.
Nine to six okay.
Hi.
Thanks.
Thanks, John.
Moving on we have GP gagan with global Investor.
Good afternoon gentlemen.
Obviously, the bidding environment is quite challenged for a number of regions that you discussed can you talk about the bidding activity that have participated in or that you anticipate participating in in terms of besides any sort of color you can provide on the margins any sort of color you can provide.
And the markets for that bidding activity and then for the stage that you had either submitted or.
Well its submitted and are in consideration or submitted and another company has one debate can you provide any color about the feedback on.
Hitters about Gulf Island.
Yeah. Good afternoon, JV, so I'll address that on the shipyard side, it's it's pretty easy it well, we're being very selective as we pointed out on our on our talking points in terms of what we're going after but I think you're probably more interested on the fabrication services.
Business, which is correlated to the oil and gas industry on the fabrication services side of the business I would bucket I I'd I'd evaluate this way are considered this way I'd bucket that the two types of awards into large capex type projects and that smaller book and burn type projects, the smaller book and burn type.
Projects of of course, there are less volume, we are seeing an uptick in the volume, but it's still a relatively lower volume that that historically, we've seen one and two the margins obviously are lower just because those up oil off offshore oil and gas operators are struggling with.
Financial challenges.
Now we are.
Winning our fair share and we're not losing any of the.
The awards with the key clients that Weve.
Historically had good relationships with the challenge.
That I see ahead of US today is more on the larger fabrication type type of work while that bidding activity still remains a strong.
Strong being consistent to the first first quarter 2020, what we're seeing is that those those jobs are continuing to push to the right and they're not reaching fine if I'd final investment decision and so.
We're continuing to bid the activity.
We're continuing to estimate and bid the work, it's just not getting rewarded.
Okay. That's helpful.
For a period of time, there was some excitement about Gulf Island potential involvement in industries, we hadnt previously done a substantial amount of work.
At one point wave energy was discussed put offshore wind energy in that category of I realize that you do have some experienced in offshore wind as you think about your potential customers are you really cant finding yourself, she <unk> onshore and offshore oil gas and petrochemical industries and shipyards are you looking outside of your traditional markets.
Yes, I'll take that one that's exactly what we're really not looking too far outside the traditional markets. We are is as we've discussed in the past few quarters, the pivot to more of the onshore petrochemical and LNG Mark.
And more specifically to to capitalize on our geographic locations is as we discussed a lot of these larger petrochemical and LNG projects are being contemplated in Texas and Louisiana. So.
There's quite a bit of activity there like we talked about it's just a.
We ended the.
Delays on UNEV I'd of these capital projects.
And what we're seeing on the off shore side is.
The the developments that are right on the front of us looked to be going on the amount of power piled route which.
As opposed to jacket and I'm a jacket foundation.
And those are coming from overseas from Europe, I'm very capital intensive something that we're not really going to be able to participate in but at the if if and when any developments go forward that do require that jacket foundation, which is something that work customers doing well, we'll we'll get art, we'll get an opportunity, but we don't senior.
Those right in front of us.
Okay.
And as you think about how the business develops over the next several quarters or several years.
How comfortable are you with your physical footprint right now recognizing that you sold your child, Texas yards couple of years ago, and you're closing Jennings yard and then.
How are you thinking about your capital structure and how it might enable you or restrict you from.
To go particular projects.
What we find generally.
Typically or the way we set today the capital requirements wooden typically be significant but because of the Navy awards, we had certain contractual commitments that did require some fairly capital on a fairly significant capital once that's behind US we'll be at this point, we think we'll be back to more of our normal maintenance capex.
As opposed to these significant capital requirement, we're seeing this quarter, we're seeing this year I should say.
And then your question regarding capacity I do not feel comfortable with the capacity that we have today targeting the markets that we've discussed.
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Hello.
Hello.
That was all from you take three times.
Yeah.
Okay. Actually then we will move back to John It looks like John.
And of course.
Oh, one follow up well out of the share price is now trading.
At a substantial discount tend not to cash and I was just wondering if there's any serious.
Discussion at the board level regarding buying back stock I.
I mean, that's one of the things we judge of course management on the board on those capital allocation.
And given the substantial discount the shares are trading I could not cash.
Forget about book value or anything like that but net cash any serious discussion at the board level regarding buybacks.
John I appreciate the question and it's something that does get talked about we talk about it you know every quarter, but at the same time I'll all maybe parent what what we've said in the past is.
This business and where we sit today in particular, our balance sheet, we require fairly strong balance sheet to compete and win. These these types of project, where we have out in front of us when we do have a credit facility, but we do have a minimum cash requirement of four to 40 million, so and we would expect that that.
Credit facility would largely be used for letters of credit as opposed to for example borrowings so at this point.
Not being contemplated imminently, but it's something that does get discussed at the board level as you can imagine.
Alright, okay. So there's a minimum cash requirement a 49 and that's.
What's your hoarding the cash flow okay.
What are your going to be filing your 10-Q.
We will file that sometime this evening so it will be available it or after this call. So it will be available either tonight or tomorrow morning, before I'm afraid I am.
Okay, great good luck.
Thanks.
Nothing further in the queue, then I'd like to turn the floor back over to Richard If you have any additional my closing remarks.
Alright, Thanks, Craig the duration and the uncertainty of Coven 90, and the volatile oil prices will continue to be a headwind as we worked to execute our backlog and secured new project Awards. However, we're continuing to proactively manage the variables that are within our control and are making progress on marketing initiatives.
Being more disciplined in pursuing project opportunities strengthening our management and functional leadership and enhancing our processes and procedures, improving resource utilization and centralizing key project resources.
We have made a lot of progress on the implementation of issues initiatives and we're seeing the results in the quality of our New project Awards and project execution I.
I still believe that does it end markets recover we will be well positioned to capture our share of the market and returned Gulf Island profitability.
I want to thank everyone today on the call for your continued interest and support of Gulf Island, and I wish you well as we navigate together through these uncertain times. Thanks, Greg.
Gentlemen, once again that does conclude our call today, we do think for joining US you may now disconnect.
Oh.
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