Q2 2022 Gulf Island Fabrication Inc Earnings Call
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Good afternoon ladies and gentlemen and welcome to the Gulf Islands Conference Call to discuss 2022 Second Quarter results. All participants will be in listen-only mode for duration of the call. This call is being recorded.
At this time, I would like to turn the floor over to Ms. Cindy Cook for opening remarks and introductions. Cindy, please go ahead. Thank you and good afternoon. I would like to welcome everyone to our second quarter 2022 teleconference. Our results were released this afternoon and a copy of the press release is available on our website at gulfisland.com.
A replay of today's call will be available on our website after 7 p.m. this evening.
Please keep in mind that the press release and certain comments on this call include forward looking statements and actual results may differ materially.
We would like to refer everyone to the cautionary language included in our press release and to the risk factors described in our 2021 Form 10-K and subsequent SEC filings.
Please also note that management may reference EBITDA, new project awards, and backlog on this call, which are financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations to the extent used, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in our press release.
Today we have Mr. Richard Huff, President and CEO , and Mr. Wes Stockton, Executive Vice President and CFO . Mr. Huff?
Thank you, Cindy. Good afternoon, everyone, and welcome to our second quarter results conference call.
I'm happy to be here with you this afternoon, and I hope that each of you and your families are continuing to stay healthy and safe.
During today's call, I'll provide key takeaways from the quarter, a review of the segment performance and end market trends, and an update on the progress we have made on our strategic priorities.
Wes will then discuss our second quarter results in greater detail.
We will then open up the call for questions and end with some closing remarks. The positive momentum we experienced during the first quarter continued in the second quarter as we posted another period of strong services revenue in EBITDA growth.
Trends in the small-scale fabrication market remain favorable, and perhaps most important, we continue to be encouraged by the pickup and fitting activity in the large-scale fabrication market.
Additionally, I am encouraged by the progress our teams have made on the safe wind down of our shipyard business and advancements on our strategic initiatives.
Looking at our services division, we continue to expand our services platform and we are now well positioned to take advantage of the favorable end market trends benefiting the industry.
Our second quarter services revenue more than doubled and EBITDA was up 90% compared to the same period in 2021 driven by continued solid results from the recently acquired DSS business and organic growth in our legacy services business.
The integration of the DSS business is going well and it has performed consistent with our expectations. We are seeing strong utilization of our expanded craft workforce.
increasing cost selling opportunities.
and pulled through fabrication work from our expanded customer base. I could not be more excited about the progress we have made in the short time since the acquisition and the potential for our expanded services platform over the longer term.
Overall, our services business continues to benefit from very attractive in-market trends with high energy prices and favorable dynamics, resulting in a significant increase in activity in our core Gulf Coast onshore and offshore markets.
The improved market conditions are driving improved profitability for our customers, which is driving increased spending, including capital projects that have been delayed and pushed out in recent years.
Given our expanded portfolio of services offerings, a broader customer base,
In a deep workforce of skilled craft labor that doubled in size during the DSS acquisition, we are very well positioned to benefit from these trends.
It is also important to note that our growing services business brings an increased level of stability to our overall business, as well as providing a more predictable margin profile, as most of our services contracts consist of longer term master services agreements with services provided on a time and material basis.
In addition, just as important, the expansion of our services business has benefited our efforts to attract craft labor as our increased scale results in stability of work and opportunities for career growth, providing more certainty for our skilled craft labor.
Like others in the industry, we continue to face the challenges associated with the availability of labor, and I believe the DSS acquisition and the strategic initiatives we are implementing on recruiting and retention will help us add the necessary headcount to support our continued growth.
Moving on to our fabrication division, we continue to see good activity in our small-scale fabrication business supported by improving in-market trends and pull through fabrication work from our services customers.
Given this, and our strategic location, we expect continued strength in our small-scale fabrication business.
Looking at the large fabrication market, we continue to be encouraged by the increased project activity in the LNG market and the acceleration in bidding momentum for large fabrication projects.
Final investment decisions are being made on a number of key LNG projects in the Gulf Coast region, which combined with an overall increase in activity in the region due to strong energy prices, is resulting in a continued tightening in fabrication capacity.
We thought it might be helpful to provide additional context regarding the improved activity in the Gulf Coast LNG market.
There are approximately 12 LNG projects in the Gulf Coast region that are approved by FERC.
But not yet under construction
Prior to the recent rise in energy prices and the evolving uncertainty regarding the supply of Russian natural gas, the fate of many of these projects was unclear.
However, given the more favorable pricing environment, a shift away from Russian supply, and most existing LNG facilities already running near full capacity, the industry dynamics have changed dramatically, and operators and project developers are looking to quickly move forward with proposed projects.
In addition to these approved projects, there are potentially as many as 10 projects that are in the various stages of approval with FERC.
Needless to say, we're encouraged by the evolving trends in the large project fabrication market, and we're well positioned to take advantage of these trends based on our solid base of craft labor.
strategic location, and a history of safe and quality execution.
We indicated last quarter that we were in discussions with customers for large-scale fabrication. These customers recognized the industry capacity constraints, and during the quarter, we entered into a facility reservation arrangement with one key potential customer while we continued to negotiate the T's and C's of a contract.
We expect the contract to be completed in the third quarter and will help to begin fabrication work on the project by the end of the year.
This potential contract would help to provide a stable and material fabrication backlog for 2023 and potentially into 2024.
We're excited about the recent improvements in the large-scale fabrication market and look forward to sharing additional developments in the near future.
Now turning to our shipyard division, we continue to make progress towards an efficient and safe wind down of our shipyard operations.
Our 70-vehicle ferry project for the Texas Department of Transportation was previously anticipated to be completed in the third quarter. However, due to changes in design by the customer, we are now anticipating delivery by the end of the year.
The construction phase of the ferry is substantially finished and the ferry is in the water for the outfitting stage.
We continue to work collaboratively with the Texas Department of Transportation to ensure that we maintain our budget and schedule.
With respect to our two 40-vehicle ferry projects for the North Carolina Department of Transportation, our teams continue to make progress. As we previously discussed in January , during sea trials for the second vessel, we encounter challenges with the propulsion system.
which we have attributed to deficiencies in vessel design. During the second quarter, 2022, we agreed to a change order with the customer for modifications to the propulsion system to address the propulsion system performance, and the modifications were completed in July 2022.
We anticipate recommencing sea trials later in August 2022, which will determine whether the modifications corrected the propulsion system issues. And if we can finally deliver the vessel to the customer.
Currently, we expect the second vessel to be delivered in the third quarter 2022 and the first vessel to be delivered in the fourth quarter 2022.
The delays in delivery of both vessels is due to the design challenges and changes to the propulsion system as a result of original design flaws.
The lawsuit in North Carolina State Court, associated with the design issues, is still pending.
Overall, we remain focused on completing our remaining shipyard obligations and we now expect to complete the wind down of the shipyard business by the end of the fourth quarter upon delivery of the final North Carolina ferry and Texas ferry.
Once complete, we look forward to focusing our time and energy on profitably growing our remaining businesses.
Before turning things over to Wes, I want to provide a quick update on the progress we made during the quarter on our strategic transformation strategy, which is now focused on generating stable, profitable growth by pursuing new growth in markets.
growing and diversifying our services business.
further strengthening our project execution and expanding our skilled labor workforce.
While we made important progress on each of our transformation strategies during the quarter, I would like to address our pursuit of new growth in markets.
We remain encouraged by the trends in the LNG market and believe we are well positioned for large fabrication awards as a number of LNG projects move forward. While our focus is on markets like LNG in the near term, longer term we remain encouraged by the opportunities with customers focused on energy transition and renewable energy and recent news out of Washington could potentially accelerate some of these opportunities.
The Senate recently approved the Inflation Reduction Act that includes nearly $370 billion in spending on climate change measures.
The legislation includes an extension of the solar and wind tax credits and provisions to make them more permanent, which would eliminate much of the uncertainty in the industry and drive forward investments.
Separately, in late July , President Biden announced a series of executive actions on climate change, one of which called for the Department of the Interior to pursue wind energy developments in the Gulf of Mexico.
Based on the recent pickup in LNG activity in the Gulf, as well as the longer-term opportunity in clean energy, we're optimistic regarding the outlook for our fabrication business.
In closing, I'm very pleased with our second quarter financial performance, which was highlighted by the strong growth of our expanded services business and the continued progress we achieved on our strategic plan.
It has taken a lot of hard work, discipline, and dedication by our team members across the organization. Nick Frost is a Chat there, speaking of team members, just have fun.
But we are now well positioned to take advantage of a number of very attractive market opportunities.
Given the strong momentum in our services business.
the healthy bidding activity for large fabrication projects, and our continued solid project execution, I am very encouraged by the potential growth opportunities for 2023 and beyond.
I'll now turn the call over to Wes to discuss our quarterly results in greater detail.
Thanks, Richard, and good afternoon, everyone. I will discuss our consolidated results and then provide some additional details regarding our segment results, putting in context the factors mentioned by Richard and their impact on the quarter. I will then conclude with the discussion of our liquidity.
Please note that all financial information referenced relates only to our continuing operations.
Consolidated revenue for the second quarter of 2022 was $35.9 million, an increase of 48% from the second quarter of 2021, with a year-over-year increase attributable to our services division.
Consolidated operating income for the second quarter was $533,000 and EBITDA was $1.8 million. Our consolidated results reflect a positive contribution from our services division and a gain of $3.4 million associated with Hurricane Ida insurance recoveries.
offset by the partial under-recovery of our overhead costs for our fabrication division.
costs associated with our corporate division, and losses attributable to our retained shipyard operations.
Specifically for the Services Division, revenue for the second quarter 2022 was $22.2 million, an increase of over 115% compared to the second quarter 2021. The increase was driven by the DSS acquisition and organic growth in our legacy offshore services business. For more information, visit www.fema.gov
Services EBITDA for the second quarter was $2.7 million, or 12.3% of revenue, up from $1.4 million, or 13.9% of revenue for the prior year period.
Operating results for the quarter benefited from an improved margin mix for our legacy offshore services business and the contribution of the DSS acquisition.
Based on the favorable end-market trends and our strong competitive position, we expect continued strong operating results for this division in the back half of the year.
For our fabrication division, revenue for the second quarter 2022 was $10.8 million, a decrease of $403,000 compared to the second quarter 2021. The decrease was primarily due to completion of several large fabrication projects that were in progress in the prior period.
offset partially by higher small-scale fabrication activity.
Fabrication EBITDA for the second quarter was 2.4 million versus 1.3 million for the prior year period.
EBITDA for the second quarter 2022 included the previously mentioned gain from insurance recoveries associated with damage previously caused by Hurricane Ida and benefited from the facility reservation fee mentioned by Richard.
Offsetting these positive items for the quarter was the impact of low volume levels and the underutilization of the Division's facilities and resources.
Specifically, the division's utilization for the second quarter was comparable to the trailing quarter, but over 30% lower than the prior year period.
Excluding the Hurricane Ida insurance impacts, we expect operating results for the third quarter to improve relative to the second quarter due to anticipated moderate improvement in utilization levels and the benefit of additional facility reservation fees.
with the potential for further improvement as we move into the fourth quarter, depending on the timing of the potential large fabrication opportunities mentioned by Richard.
With respect to our liquidity, we ended the second quarter with a cash balance of $41 million, which was consistent with our expectations.
and we expect to exit the third quarter with a cash balance of approximately $40 million.
This concludes our prepared remarks. Operator, you may now open the line for questions.
Thank you. The question and answer session will be conducted electronically.
If you would like to ask a question, please do so by pressing the star key followed by digit 1 on your touch tone telephone. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. We will proceed in order that you signal us and will take as many questions as time permits.
Once again, please press star 1 if you would like to signal with questions. Again, that is star 1.
And our first question will come from Tom Spiro with Spiro Capital.
Afternoon.
Good afternoon.
I'm new to the story, so just a couple of basic questions. On the shipyard side, when you say that you hope to finish up one ferry in the third quarter and another in the fourth and such, do you mean to say that you have completed your work and that you have delivered the vessel to the buyer and the buyer will have paid you? Is that what you mean when you say complete or is there some other meaning to that?
Yeah, no, that's what that is. It's completing our obligations under the contract, which is delivery.
I see.
And on the underutilization point in the fabrication division, how many folks do you have dedicated to that division? And what are they doing? Are they just kind of waiting for work to come in? Or can you redeploy them? What does underutilization mean?
That's a good question. So we currently have about 200 folks in the fab yard today. And those folks that are in the fab yard are 100% utilized. When we talk about or when Wes has prepared remarks covered underutilization, we have an overhead recovery that has to assume a certain amount of hours, and we're not at that point yet, to fully utilize the overheads associated with the facility. It's a large facility, and we do have certain fixed costs.
and semi-variable costs that you have period in and period out. And given the...even though the individuals are fully utilized, we don't have at this point sufficient hours to fully recover those costs.
So if you were fortunate enough to get some big work, would you need to go out and hire more people to handle it? And if so, can you do that?
Yeah, absolutely we would have to go higher, more field clubs to do that work and we're confident with the type of work ahead of us that we could hire those amounts of headcount to do the work onshore.
And last question, your press releases and other public materials frequently refer to your strategic location. Why is your location strategic and kind of over what geographic range? How far west? Is it strategic all the way out to Port Arthur? How far east? Why is it strategic and how large is it strategic?
That's a great question. So you know we think it's strategic just because if you draw a circle 300 miles kind of from the the epicenter of Houma, Louisiana which is our flagship I mean we all obviously have more facilities than just Houma, Louisiana especially with the recent acquisition of DSS. Our flagship fabrication facility is strategic because of all the capital projects and the spend that's anticipated in that 300 mile circle radius.
from a transportation standpoint. So it's the facility, the proximity to the water, the geographic location, and just the asset itself in terms of laydown capacity, a lot of covered space that takes kind of the weather impacts out of the equation and so forth. So we talk about the strategic location because of those those attributes that I just now mentioned.
And aren't there many other fabricators In that area with you know on the water in that 300 mile range Are there lots of other players do you compete with? There are there are a lot of other players But not not with all the attributes that we talked about in terms of size. So there's not a lot of
big fabricators left today with that kind of capacity.
I see. Thanks much.
You're welcome.
And our next question will come from JP Dagen with Global Value Investment Corp.
Good afternoon gentlemen, thank you for taking my questions. Good afternoon, JP.
You've grown revenue in EBITDA quite nicely and I know part of that is attributable to the acquisition of DSS, but I'm hoping that you might comment on some of the other factors that have really contributed to that revenue growth. Some might be obvious, but maybe others less so. And then second, can you talk a little bit more about the opportunity or the size of the opportunity for poll group application work?
Yeah, so on the first one, you know, what we talked about is the growth in services through the DSS acquisition. But to your point, a lot of it was through our legacy services business. And it's just the robustness in the market today associated with, you know, crude oil pricing. Our customers are doing well. And so as a result, there's more work that they're anticipating, whether it be capital projects and or maintenance. So we're seeing a lot of growth in our existing customer base.
But, you know, more importantly, where I'm excited is the cross-selling that we are seeing as a result of the DSS acquisition in not only the customers but also the various products and services that we've added to our portfolio.
On the second front, with regard to kind of the size of the fabrication job, it is going to be material and kind of just ballpark definition. It's going to be in the north at $50 million.
All right, thank you, that's helpful. Then turning to fabrication work, I think this is the first time in several years we've heard about a facility reservation arrangement. We provide a little bit more color around that, the economics of the arrangement versus the potential work on the back end and what we might expect in the coming quarters.
Yeah, it happens sometimes in this industry where basically there is a lot of demand, right? For fabrication. And as I explained to the other caller, there's not a lot of fabrication capacity left today. And so, as a result, there's some customers that require significant amount of capacity and while we're negotiating the contract, they want to make sure that we lock in that space or reserve that space for them. So.
As we are negotiating the contract, they are paying us to essentially not go and sell that capacity.
It does happen in the market and we are at that kind of point where there's quite a bit of capital projects coming forward as we explained in the prepared remarks. We've got a great customer that ultimately we hope to push through and get a contract by the end of the year.
And so necessarily you talked about the vault, yeah, you talked about, and I think I might have misspoke, Jeff, maybe the prior question was on pull-through fabrication, but on this large fab, that will be material and it will be in excess of $50 million.
Got it. Is this something that we might expect going forward as we continue to see tightness in the market as customers really increase their capital budgets?
Yes, you know, we're already having conversations with additional customers. So we're having conversations with more than one customer today on facility reservation concept because, again, our facility is unique in size and close proximity to a certain number of these projects that we talked about and just, again, our available capacity. So we are having some very productive conversations with customers today.
Okay, and then finally
This is something we've talked about at length as it pertains to LNG capacity along the Gulf Coast, but can you give us any sort of early indications on the scope of the work that you might be bidding for for the 12 projects that have been approved by FERC, as well as maybe the timing and the scope of the 10 projects that are in various stages of approval? Thank you.
Yeah, so the type of work could be as simple as simple structural steel fabrication, so you know, foundations type work, and as complex as process modules that could be very complex, 2,000, 3,000 tons of metal structures. So it could be very simple in terms of just structural steel being welded together to,
complex processing equipment modules that have a lot of
different kind of electrical insulation components integrated.
Great, that's helpful. Thank you. I appreciate it.
Thank you.
And this concludes today's question and answer session. At this time, I'd like to turn the conference back over to Mr. Ha for any additional comments.
In closing, I'd like to thank our customers and shareholders for their continued support, as well as recognize our employees who continue to demonstrate a commitment to Gulf Island success. For those on the call, thanks again for your interest, and I look forward to speaking with you on our third quarter results conference call and updating you on our progress. Be safe and take care.
Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
I you.
Good afternoon ladies and gentlemen and welcome to the Gulf Islands Conference call to discuss 2022 second quarter results. All participants will be in listen-only mode for duration of the call. This call is being recorded.
At this time, I would like to turn the floor over to Ms. Cindy Cook for opening remarks and introductions. Cindy, please go ahead.
Thank you and good afternoon. I would like to welcome everyone to our second quarter 2022 teleconference.
Our results were released this afternoon and a copy of the press release is available on our website at Gulf Island.com
A replay of today's call will be available on our website after 7 p.m. this evening.
Please keep in mind that the press release and certain comments on this call include forward-looking statements, and actual results may differ materially.
We would like to refer everyone to the cautionary language included in our press release and to the risk factors described in our 2021 Form 10-K and subsequent SEC filings.
Please also note that management may reference EBITDA, new project awards, and backlog on this call, which are financial measures not recognized under U.S. GAAP. As required by SEC rules and regulations to the extent used, these non-GAAP financial measures are reconciled to their most comparable GAAP financial measures in our press release.
Today we have Mr. Richard Huff, President and CEO , and Mr. Wes Stockton, Executive Vice President and CFO . Mr. Huff?
Thank you, Cindy. Good afternoon, everyone, and welcome to our second quota results conference call.
I'm happy to be here with you this afternoon, and I hope that each of you and your families are continuing to stay healthy and safe. During today's call, I'll provide key takeaways from the quarter, a review of the segment performance and end market trends, and an update on the progress we have made on our strategic priorities.
Wes will then discuss our second quarter results in greater detail.
We will then open up the call for questions and end with some closing remarks. The positive momentum we experienced during the first quarter continued in the second quarter as we posted another period of strong services revenue in EBITDA growth.
Trends in the small-scale fabrication market remain favorable, and perhaps most important, we continue to be encouraged by the pickup and fitting activity in the large-scale fabrication market.
Additionally, I am encouraged by the progress our teams have made on the safe wind down of our shipyard business and advancements on our strategic initiatives.
Looking at our services division, we continue to expand our services platform and we are now well positioned to take advantage of the favorable in-market trends benefiting the industry.
Our second quarter services revenue more than doubled and EBITDA was up 90% compared to the same period in 2021 driven by continued solid results from the recently acquired DSS business and organic growth in our legacy services business.
The integration of the DSS business is going well and it has performed consistent with our expectations. We are seeing strong utilization of our expanded craft workforce.
increasing cost selling opportunities.
and pulled through fabrication work from our expanded customer base. I could not be more excited about the progress we have made in a short time since the acquisition and the potential for our expanded services platform over the longer term.
Overall, our services business continues to benefit from very attractive in market trends with high energy prices and favorable dynamics, resulting in a significant increase in activity in our core golf coast onshore and offshore markets. elbow
The improved market conditions are driving improved profitability for our customers, which is driving increased spending, including capital projects that have been delayed and pushed out in recent years.
Given our expanded portfolio of services offerings, a broader customer base.
and a deep workforce of skilled craft labor that doubled in size during the DSS acquisition, we are very well positioned to benefit from these trends.
It is also important to note that our growing services business brings an increased level of stability to our overall business as well as providing a more predictable margin profile. As most of our services contracts consist of longer term master services agreements with services provided on a time and material basis.
In addition, just as important, the expansion of our services business has benefited our efforts to attract craft labor as our increased scale results in stability of work and opportunities for career growth, providing more certainty for our skilled craft labor.
Like others in the industry, we continue to face the challenges associated with the availability of labor. And I believe the DSS acquisition and the strategic initiatives they're implementing on recruiting and retention will help us add the necessary headcount to support our continued growth. The DSS will help us add the necessary headcount to support our continued growth.
Moving on to our fabrication division. We continue to see good activity in our small scale fabrication business supported by improving in market trends and pull through fabrication work from our services customers.
Given this, and our strategic location, we expect continued strength in our small scale fabrication business. This presentation data!
Looking at the large fabrication market, we continue to be encouraged by the increased project activity in the LNG market and the acceleration and bidding momentum for large fabrication projects. and bidding momentum for large fabrication projects.
Final investment decisions are being made on a number of key LNG projects in the golf cuss region, which combined with an overall increase in activity in the region due to strong energy prices is resulting in a continued tightening in fabrication capacity.
We thought it might be helpful to provide additional context regarding the improved activity in the golf course energy market.
There are approximately 12 LNG projects in the golf course region that are approved by FURC.
approximately 12 LNG projects in the Gulf Coast region that are approved by FURC. But not yet under construction.
Prior to the recent rise in energy prices and the evolving uncertainty regarding the supply of Russian natural gas, the fate of many of these projects was unclear.
However, given the more favorable pricing environment has shift away from Russian supply and most existing energy facilities already running near full capacity, the industry dynamics have changed dramatically and operators and project developers are looking to quickly move forward with proposed projects.
In addition to these approved projects, there are particularly as many as ten projects that are in the various stages of approval with FERC.
Needless to say, we're encouraged by the evolving trends in the large project fabrication market, and we're well positioned to take advantage of these trends based on our solid base of craft labor. and we're well positioned to take advantage of these trends based on our solid base of craft labor.
strategic location and a history of safe and quality execution.
We indicated last quarter that we're in discussions with customers for large-scale fabrication. These customers recognize the industry capacity constraints. And during the quarter, we entered into a facility reservation arrangement with one key potential customer while we continue to negotiate the tees and seas of the contract.
We expect the contract to be completed in the third quarter and we'll help to begin fabrication work on the project by the end of the year.
This potential contract would help to provide a stable and material fabrication backlog for 2023 and potentially into 2024.
We're excited about the recent improvements in the large scale fabrication market and look forward to sharing additional developments in the near future.
Now turning to our Shipyard Division, we continue to make progress towards an efficient and safe wind down of our Shipyard Operations. And we continue to make progress towards an efficient and continue to make progress towards an efficient And we continue to make progress towards an efficient you
Our 70 Vehicle Ferry Project for the Texas Department of Transportation was previously anticipated to be completed in the third quarter. However, due to changes in design by the customer, we are now anticipating delivery by the end of the year.
The construction phase of the ferry is substantially finished and the ferry is in the water for the outfitting stage.
We continue to work collaboratively with the Texas Department of Transportation to ensure that we maintain our budget and schedule.
With respect to our two 40 vehicle ferry projects for the North Carolina Department of Transportation, our teams continue to make progress. As we previously discussed in January , during C-Trials for the second vessel, we encounter challenges with the propulsion system.
which we have attributed to deficiencies and vessel design. During the second quarter, 2022, we agreed to a change order with the customer for modifications to the propulsion system to address the propulsion system performance. And the modifications were completed in July 2022. And the modifications were completed in July 2022.
We anticipate recommencing C-Trial the later in August , 2022, which will determine whether the modifications corrected the propulsion system issues, and if we can finally deliver the vessel to the customer. And if we can finally deliver the vessel to the customer.
Currently, we expect the second vessel to be delivered in the third quarter, 2022, and the first vessel to be delivered in the fourth quarter, 2022. The first vessel to be delivered in the fourth quarter, 2022.
The delays in delivery above the vessels is due to the design challenges and changes to the proposal system as a result of original design flaws.
The lawsuit in North Carolina State Court, the surface with the design issues is still pending.
Overall, we remain focused on completing our remaining shipyard obligations. And we expect to complete the wind down of the shipyard business by the end of the fourth quarter upon delivery of the final North Carolina ferry and Texas ferry.
Once complete, we look forward to focusing our time and energy on properly growing our remaining businesses. On properly growing our remaining businesses.
Before turning things over to Wes, I want to provide a quick update on the progress remade during the quarter on our strategic transformation strategy, which is now focused on generating stable, profitable growth by pursuing new growth in markets.
Growing, and diversifying our services business.
Further strengthening our project execution and expanding our skilled labor workforce.
While we made important progress on each of our transformation strategy during the quarter, I would like to address our pursuit of new growth in markets.
We remain encouraged by the trends in the LNG market and believe we are well positioned for large fabrication awards as a number of LNG projects move forward. While our focus is on markets like LNG in the near term, longer term, we remain encouraged by the opportunities with customers focused on energy transition and renewable energy. And recent news out of Washington could potentially accelerate some of these opportunities.
The Senate recently approved the Inflation Reduction Act that includes nearly $370 billion in spending on climate change measures.
The legislation includes an extension of the solar and windcaxe credits and provisions to make them more permanent, which would eliminate much of the uncertainty in the industry and drive forward investments. Separately, in late July , President Biden announced a series of executive actions on climate change, one of which called for the Department of the Interior to pursue wind energy developments in the Gulf of Mexico.
Based on the recent pickup and LNG activity in the Gulf, as well as the longer-term opportunity and clean energy, we're optimistic regarding the outlook for our fabrication business.
In closing, I'm very pleased with our second quarter financial performance, which was highlighted by the strong growth of our expanded services business and the continued progress we achieved on our strategic plan.
It has taken a lot of hard work, discipline, and dedication by our team members across the organization.
But we are now well positioned to take advantage of a number of very attractive market opportunities.
Given the strong momentum in our services business.
the healthy bidding activity for large fabrication projects and our continued solid project execution. I am very encouraged by the potential growth opportunities for 2023 and beyond.
I'll now turn the call over to Wes to discuss our quarterly results in greater detail.
Thanks Richard and good afternoon everyone. I will discuss our consolidated results and then provide some additional details regarding our segment results, putting in context the factors mentioned by Richard and their impact on the quarter. I will then conclude with the discussion of our liquidity.
Please note that all financial information reference relates only to our continued operations.
Consolidated revenue for the second quarter of 2022 was 35.9 million, and increased the 48% from the second quarter of 2021, with the year over your increase attributable to our services division.
Consolidated operating income for the second quarter was $533,000, and EBITDA was 1.8 million. Our consolidated results reflect a positive contribution from our services division, and again a 3.4 million associated with Hurricane Ida Insurance Recovery.
Offset by the partial under recovery of our overhead costs for our fabrication division.
Cost associated with our Corbord division and losses attributable to our retained shipyard operations. And losses attributable to our retained shipyard operations.
Specifically for the services division, revenue for the second quarter 2022 was 22.2 million, an increase of over 115% compared to the second quarter 2021. The increase was driven by the DSS acquisition and organic growth in our legacy offshore services business. And organic growth in our legacy offshore services business.
Services E-Vidad for the second quarter was 2.7 million or 12.3% of revenue from 1.4 million or 13.9% of revenue for the prior year period. Our 13.9% of revenue for the prior year period.
Operating results for the quarter benefited from an improved margin mix for our legacy offshore services business and the contribution of the DSS acquisition. Operating results for the quarter benefited from an improved margin mix for our legacy offshore services business and the contribution of the DSS acquisition.
Based on the favorable end market trends in our strong competitive position, we expect continued strong operating results for this division in the back half of the year.
For our fabrication division, revenue for the second quarter 2022 was $10.8 million, a decrease of $403,000 compared to the second quarter 2021. The decrease was primarily due to completion of several large fabrication projects that were in progress in the prior period.
Offset partially the higher small scale fabrication activity. Fabrication evened off for the second quarter, the 2.4 million versus 1.3 million for the prior year period.
Evened out for the second quarter 2022, included the previously mentioned gain from insurance recoveries, associated with damage previously caused by Hurricane Ida, and benefited from the facility reservation fee mentioned by Richard.
Offsetting these positive items for the quarter was the impact of low-volume levels and the underutilization of the division's facility then resources.
Specifically, the division's utilization for the second quarter was comparable to the trailing quarter, but over 30% lower than the prior year period. The division's utilization for the third quarter was comparable to the last quarter.
Excluding Hurricane Ida insurance impacts, we expect operating results for the third quarter to improve relative to the second quarter, due to anticipated moderate improvement and utilization levels, and the benefit of additional facility reservation fees.
With the potential for further improvement as we move into the fourth quarter, depending on the timing of the potential large fabrication opportunities mentioned by Richard.
With respect to our liquidity, we ended the second quarter with a cash balance of 41 million, which was consistent with our expectations.
and we expect to exit the third quarter with a cash balance of approximately 40 million.
This concludes our prepared remarks. Operator, you may now open the line for questions. Thank you. The question and answer session will be conducted electronically. We will be conducted electronically. We will be conducted electronically.
If you would like to ask a question, please do so I press in the star key. Followed by digit one, your touchtone telephone. If you are using a speaker phone, please make sure your new function is turned off to allow your signal to reach our equipment. We will proceed in order that you signal us and we'll take as many questions as time permits. Once again, please press star one if you would like to signal with questions. Again, that is star one. Now, let's start with the first one. Now, let's start with the second one. Now, let's start with the second one.
And our first question comes from Tom Spiro with Spiro Capital.
That's the noon.
Good afternoon. Good afternoon.
I'm new to the stories. There are just a couple of big basic questions on the shipyard side. When you say that you hope to finish up one ferry in the third quarter and another in the fourth and such, do you mean to say that you will have completed your work and that you have delivered the vessel to the buyer and the buyer will have paid you? Is that what you mean when you say complete or is some of the meaning to that?
Yeah, that's what that is. Completing our obligations on the contract, which is delivery.
I see.
And on the underutilization point in the large family and the fabrication division, how many folks do you have sort of dedicated to that division? And are they, what are they doing? Do they just kind of are we waiting for work to come in or can you redeploy them? What is underutilization mean? What does underutilization mean? What does underutilization mean?
Oh, that's a good question. So we currently have about 200 folks in the Fabyard today. And those folks that are in the Fabyard are 100% utilized. When we talk about or when a West has prepared remarks covered under utilization, we have an overhead recovery that has to assume a certain amount of hours. And we're not at that point yet to fully utilize the overheads associated with the facility.
Yeah, it's a large facility and we do have certain fixed costs and semi-variable costs that you have period and period out. And given the, even though the individuals are fully utilized, we don't have at this point sufficient hours to fully recover those costs.
So if you were fortunate enough to get some big work, would you need to go out and hire more people to handle it? And if so, can you do that? Yeah, absolutely. We would have to go hire more people to do that work and work confident with the type of work ahead of us that could hire those headcounts, those amounts that have come to do the work on short.
And last question, can you, are your pet releases another public material frequently referred to your strategic location? Why is your location strategic? And kind of over what geographic range? How far west is it strategic all the way out to Port Arthur? How far east? How many? Why is it strategic and how large is it strategic? How many? How many? is its strategic.
That's a great question. So, you know, we think it's strategic just because if you draw a circle, 300 miles kind of from the epicenter of home Louisiana, which is our flagship, I mean, we obviously have more facilities than just home Louisiana, especially with the recent acquisition of DSS. Our flagship fabrication facility is strategic because of all the capital projects and the spend that's anticipated in that 300 mile circle rate.
and easy access from a transportation standpoint. So it's the facility that proximity to the water, the geographic location, and just the acid itself in terms of lay down capacity, a lot of covered space that takes the weather impacts out of the equation and so forth. So we talk about the strategic location because of those attributes that I just now mentioned. of those attributes that I just now mentioned.
And aren't there many other fabricators in that area with, you know, on the water, and that's 300 mile range. Aren't there lots of other players you could be with? There are a lot of other players, but not with all the attributes that we talked about in terms of size. There's not a lot of...
That big fabricator's left today with that kind of capacity. I see. Thanks much.
day with that kind of capacity. I see. Thanks, Martin. You're welcome.
And our next question will come from JP Dagen with Global Value Investment Corp. Apa.
Good afternoon gentlemen, thank you for taking my questions. Starting at the service division. You grew up revenue in EBITDAQ quite nicely, and I know part of that's attributable to the acquisition of the SS, but I'm hoping that you might comment on some of the other factors that have really contributed to that revenue growth. Some might be obvious, but maybe others less so. And then second, can you talk a little bit more about the opportunity or the size of the opportunities or pull-through fabrication work?
Yeah, so on the first one, you know, what we talked about is the growth and services through the DSS acquisition, but to your point, a lot of it was through our legacy services business. And it's just the robustness in the market today associated with crude oil pricing. Our customers are doing well. And so as a result, there's more work that they're anticipating, whether it be capital projects and or maintenance. So we're seeing a lot of growth in our existing customer base.
But more importantly, where I'm excited is the cross-selling that we are seeing as a result of the DSS acquisition and not only the customers but also the various products and services that we've added to our portfolio.
On the second front with regard to kind of the size of the fabrication job, it is going to be material and kind of just ballpark definition. It's going to be in the north at $50 million dollars. It's going to be in the north at $50 million dollars.
All right, thank you. That's helpful. Then turning to fabrication work, I think this is the first time in several years we've earned about a facility reservation arrangement. To provide a little bit more color around that, the economics of the arrangement versus the potential work on the back end and what we might expect of the coming quarters.
Yeah, it happens sometimes in this industry where basically there is a lot of demand, right? For fabrication, as I explained to the other caller, there's not a lot of fabrication capacity left today. And so as a result, there are some customers that require significant amount of capacity. And while we're negotiating the contract, they want to make sure that we lock in that space or reserve that space for them. And so.
as we are negotiating the contract, they are paying us to essentially not go and sell that capacity. I'm here to know more steps looking ahead in this area. There are new locations so do companies with new offices and companies look to weigh anything down to scale data here. We???.com is here.Our new platforms are built connected to filling into projects where every platform that requires calls they are tingling outside. approve. We elevates into?? hard people. As for somebody who is in charge of all their you
It does happen in the market and we are at that point where there's quite a bit of capital projects coming forward as we explain in the prepared remarks. And we got a great customer that ultimately we hope to push through and get a contract by the end of the year. And then you talked about the vault. Yeah, you talked about, and I think I'm going to misspoke, Jeff, maybe the prior question was on pull-through fabrication, but on this large fat.
That will be material and it'll be an excess of $50 million. Got it. Is this something that we might expect going forward as we continue to tighten this market? Is the customers really increase their capital budgets?
Yes, yeah, we're already having conversations with additional customers. So we're having conversations with more than one customer today on facility reservation concept. Because again, our facility is unique in the size and close proximity to certain number of these projects that we talked about and just, again, are available capacities. So.
We are having some very productive conversations with customers today. Okay, and then finally, this is something we've talked about at length as it pertains to energy capacity along the Gulf Coast, but can we give us any sort of early indications on the scope of the work that you might be bidding for for the 12 projects that have been approved by FERC as well as maybe the timing and the scope of the 10 projects that are at various stages of approval? Thank you. The type of work could be as simple as...
different kind of electrical insulation components integrated.
Great, that's helpful. Thank you. I appreciate it.
Thank you, Siri.
And this concludes today's question and answer session. At this time, I'd like to turn the conference back over to Mr. Ha for any additional comments. At this time, I'd like to turn the conference back over to Mr. Ha for any additional comments.
In closing, I'd like to thank our customers and shareholders for their continued support, as well as recognize our employees, who continue to demonstrate a commitment to call five and success. For those on the call, thanks again for your interest. Now look forward to speaking with you on our third quarter results conference call and updating you on our progress. Be safe and take care.
Thank you. That does conclude today's conference. We do thank you for your participation. We have an excellent day. Thank you. Thank you. Thank you. Thank you.