Gulf Island Fabrication Inc. Q1 2023 Earnings Call
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Good afternoon, ladies and gentlemen, welcome to the Gulf Island Conference call to discuss first quarter 'twenty 'twenty 'twenty results.
All participants will be in listen only mode for the duration of the call.
Two measures not recognized under us GAAP.
As required by FCC 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 Haass, President and CEO missed.
Mr West Stockton Executive Vice President and CFO Mister Hough.
Thank you Sir.
Good afternoon, everyone and welcome to our first quarter results conference call from.
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 a quarter.
Q a segment performance and then market trends and an update on the progress we've made on our strategic initiatives.
<unk> will then discuss our first quarter results in greater detail.
Bolden open up the call for questions and in with the closing remarks.
We're currently focused on the second phase of our business transformation, which is based on generating stable profitable growth.
So we were very pleased to report another period of steady growth in our services division and small scale fabrication business during the first quarter.
We continue to be encouraged by the favorable demand trends that are benefiting our key and markets and the Gulf Coast region, which together with our strong competitive positioning should result in continued growth and services and small scale fabrication during fiscal 2023.
As we discussed last quarter in late February re received notice to suspend all project activities related to our large fabrication project. Unfortunately, we still have not received any further resolution on the status of the project and we continue to take steps to minimize the impact of the suspension. While we were wait an update on the project.
While this is this'll.
Disappointing, we remain encouraged by the bidding activity in the large fabrication market and are optimistic we will be able to replace this project in the event. It is ultimately canceled.
We're pursuing several large fabrication project opportunities and we're hopeful we will have used to share in the second half of 2023.
As it relates to our shipyard wind down we're happy to be nearing the completion of our remaining shipyard operating obligations as we expect to complete the North Carolina, and Texas very contracts during the second quarter.
We began the process of exiting the shipyard business, just two years ago, and we look forward to being able to shift the 100% of our focus to our services and fabrication businesses.
Now turning to our segment results.
First looking at our services Division, our first quarter revenue grew almost 5%, which was all organic as we fully lap the DSS acquisition last quarter more importantly to services operating income was almost up almost 100% compared to last year driven by a significant margin expansion as we continued to <unk>.
<unk>, our resources to higher margin opportunities.
The opportunity to reallocate resources to higher return opportunities was a key priority following the acquisition of DSS. So our success on this objective provides further validation for the rationale of the acquisition.
We remain excited by the steady margin growth of our services business and we have quickly build a leading services platforms in the Gulf of Mexico. Our success in the services business is a function of a skilled craft labor force that now numbers almost 600 employees, we're proud of our ability to maintain our services head count despite what <unk>.
Unused to be a very competitive labor market.
The demand trends for offshore services, and our core Gulf of Mexico market remain attractive driven by the favorable oil and gas market conditions. We have also been very pleased with the positive reaction in the market to us new spark safety product offerings, which provides well the enclosures that create a safe environment for hot work to be carried out without the need to.
Shutdown operations.
Commenced our second spark safety project in the first quarter and expect this business line to be paid material contributor going forward with the success of spark safety and the favorable market trends, we expect our services business to generate operating income growth in 2023.
Now moving onto our fabrication division during the first quarter approximately $23 million of our revenue was attributable to our large fabrication project prior to its suspension absent. This revenue contribution we generated year over year revenue growth of almost 200% owing to the continued strength and.
<unk> are small scale fabrication business. The continued strength in our small scale fabrication business is being driven by the favorable demand trends in our core markets combined with our strategic location in homa strong customer relationships and track record of quality and on time completion of projects.
While the year over year comparisons in our small fab business may vary from quarter to quarter, we still expect full year growth and small scale fab for 2023.
While the ongoing suspension of our large fabrication project is disappointing we remain optimistic regarding the bidding environment and the large project fabrication market.
Industry capacity remains limited and project activity in markets, such as LNG petrochemical and energy transition remains robust.
The timing of a final decision on our existing large project is uncertain. However, we are actively pursuing new opportunities to replace this backlog in the event that the contract is ultimately cancelled and we are hopeful that a replacement contract could be awarded in the second half of 2023 and just as a reminder, as we have stated many times in the past.
We will not chase backlog and we are committed to remaining disciplined to ensure that any large contract award is consistent with our financial and risk objectives, especially given the inflationary and labour challenges that we face today <unk>.
Finally, turning to our shipyard division, we continue to make progress toward an efficient and safe wind down of our shipyard operations and as previously discussed we expect to complete our remaining shipyard obligations by the end of the second quarter.
With respect to our 70 vehicle ferry project for the Texas.
The construction phase of the fairy is substantially finished as we detailed last quarter. The U S Coast guard determined that the vessels would consuls, which were contractually specified by the customer must be replaced or modify with metal consoles.
Modifications had been completed and we are awaiting final approval and inspection from the U S Coast Guard and texts Txdot in order to schedule delivery of the ferry. This month, we're continuing to work with the customer to minimize the financial impact of the delay as we work toward final delivery and commissioning in the second quarter.
With respect to our 240 vehicle ferry projects, where the North Carolina Department of Transportation are teams continue to make progress one of the ferries was delivered during the first quarter and we received conditional acceptance of the vessel. However, as discussed on our previous call we encountered in it.
Equipment issue associated with the previously mentioned design deficiencies and are awaiting the replacement equipment to be delivered and installed the repair should be completed this month as we work toward final acceptance. The last ferry is in the final outfitting stage and we are targeting completion and delivery by the end of the second quarter.
Separately, our lawsuit in North Carolina State Court seeking damages, resulting from the design flaws for the vessels and the resulting delays is ongoing.
Turning to the <unk> lawsuit with Hornbeck as discussed on our previous call on March 2nd the appellate court reversed the trial court's decision that had granted harm backs motions for partial summary judgment that was seeking dismissal of the claim by golf.
Gulf Islands shipyards that hornbeck wrongfully terminated the vessel construction contracts as a result of the successful appeal ship.
<unk> wrongful termination claim was reinstated.
Following the appellate court's ruling the trial previously scheduled for March 6th 2023.
Re scheduled to begin on October 16th 2023.
On April 3rd 2023, Hornbeck filed a writ application with the Louisiana Supreme Court relating to the March 2nd Appellate Court decision and on April 19th Gulf Islands shipyards filed its opposition to the rich applications and decision is pending from the Louisiana Supreme Court.
Concerning whether it will exercises discretion to review the appellate court's decision.
I would like to wrap up my comments with a quick update on our progress against our strategic initiatives very proud of our continued execution on our business transformation, which is evident by the strength of our recent financial results and has positioned us to take advantage of the favorable trends in our key in markets.
And pursue profitable growth.
As a reminder, the key aspects of the second phase of our strategy are based on pursuing growth opportunities and you end markets as well as our traditional offshore markets growing and diversifying our services business.
Further strengthening project execution and expanding our skilled labor force some of our recent progress on these initiatives include the following.
First in terms of our pursuit of project opportunities in traditional offshore markets as well as new growth and markets. We continued to generate strong growth from our traditional markets and are small scale fat business and we expect this momentum to continue. In addition, we're pursuing several projects and you end markets and we.
Recently announced an award for structural components for Nasa's Artemis program, we're confident that our strategic location in homa and our track record of high quality on time execution on complex projects is transferable to a wide range of and markets and believe we are well positioned to take advantage of the.
Favorable trends in this in select markets.
Second we continue to make progress on expanding our services business. We're very pleased that we have been able to maintain our head count given the competitive labor market and continue to look for ways to expand and retain our skilled craft head count.
Our most Noah notable near term success and services has been the rapid growth of our new spark safety business.
We began our second project during the first quarter and interest from the customers remain high due to the additional safety features of our system. We expect success of this new business to be a key contributor to the growth of our services division going forward.
Lastly, we remain committed to maintaining bidding discipline in our large fabrication business as we pursue you awards, while we are eager to replace our large fabrication project in the event and this terminated given the ongoing inflationary pressures and challenges with the availability of skilled labor, we will not enter into an agreement that.
Does not meet our return objectives and risk tolerances as we continued to assess the overall return on investment of our fabrication aspirin.
In closing and pleased by our first quarter results and remained encouraged by the favorable and market trends we.
We expect to generate continued profitable growth and our services division and small scale fabrication business and we are encouraged by the active beating environment and the large project market are nocturnal call over to us 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 put in context, the factors mentioned by Richard and their impacts on the quarter.
I will then conclude with a discussion of our liquidity.
Consolidated revenue for the first quarter of 2023 was $62 $2 million, an increase of over 115% from the first quarter of 2022, driven by continued growth in small scale fabrication revenue related to our large fabrication project prior to its suspension and.
And growth for our services division attributable to our new spark safety business line.
Consolidated net income for the first quarter was 641000 and EBITDA was $1.7 million.
Arkansas Holidayed results reflect the positive contributions from our services and fabrication divisions.
All set by costs associated with our corporate division and legal and advisory fees attributable to our remaining shipyard operations.
Specifically for the services Division.
Revenue for the first quarter of 2023 was $21.6 million, an increase of 4.5% compared to the same period last year. The increase was driven by the contribution of our spark safety business line, which we launched in the third quarter of 2022.
While our core services revenue was down modestly from last year, excluding spark safety. We continued to take advantage of the tight labor market by allocating are skilled labor workforce to higher margin project opportunities.
As a result services EBITDA for the quarter was $2 $8 million or 12.9% of revenue up from $1.5 million or 75% of revenue for the prior year period.
Operating results for the quarter benefited from our spark safety business line in a more favorable project margin mix.
We continue to expect organic growth and strong operating results for the division in 2023 based on the strength of our end markets favorable competitive position and contribution of our spark safety business line.
For our fabrication division revenue for the first quarter of 2023 was $39.7 million up significantly from first quarter of 2022 revenue of $5 $6 million.
The increase was attributable to strong growth in small scale fabrication and revenue related to our large fabrication project prior to its suspension.
As noted by Richard total revenue associated with our large projects was approximately $23 million for the quarter and a significant portion of which was related to procurement activities, which generated limited gross margins.
Fabrication EBITDA for the first quarter was $3 $1 million versus the loss of $2.1 million for the prior year period.
The improve profitability in 2023 was the result of higher revenue and a decrease in the under recovery of overhead costs due to improve utilization of our facilities and resources.
And recoveries associated with our large fabrication project.
As a result of the large projects suspension, we expect our results in the second quarter to be challenged relative to the first quarter and are working to mitigate the impacts of the suspension on the remainder of 2023.
For our shipyard division revenue for the first quarter of 2023 was entirely related to R. 70 vehicle ferry and $2 40 vehicle ferry projects, which is discussed by Richard are nearing completion.
Our loss for the quarter was primarily primarily related to vessel holding cost and legal and advisory fees associated with the <unk> litigation and the partial under recovery overhead costs due to the under utilization of our resources as we wind down our shipyard operations.
For our corporate Division General and administrative expense was $2.1 million for the first quarter of 2023.
Compared to $2 million for the prior year period with the increase largely due to timing of certain costs.
With respect to our liquidity, we ended the first quarter with a cash and investments balance of approximately $45 million consistent with our balance at year end.
At March 31, we have total receivables, a 15 and a half million dollars for our suspended large fabrication project, the majority of which relate to procurement activities.
Subsequent to quarter, and we received payments of $3 $1 million. However, our customer has indicated that any meaningful remaining payments may not be received until the third quarter of 2023.
Accordingly, we expect our cash balance to decline during the second quarter due to temporary working capital usage related to the anticipated payment delays.
We are working with our vendors to mitigate the second quarter cash flow impacts of the delayed payments and we have received a payment guarantee bond from our customer has security for a substantial portion of the remaining receivable balance.
This concludes our prepared remarks, operator, you may know open the lines for questions.
Okay.
Thank you we will now begin to question and answer session.
China question key.
Hi, everyone.
Keep that knowledge.
Knowledge and your request.
She isn't a speaker phone please pick up your handset.
Keith.
Julie J U a question please press star.
It.
Pause for a moment as colors.
First question comes from Tom.
From <unk>.
Please god.
Capital Good afternoon.
Tom Spyros parallel capital good afternoon.
Good afternoon Tom.
Just a couple of questions.
One on the large fabulous job now <unk> what is your ability to terminate it can you do it differently isn't there some kind of costs associated with it or a timing issue.
Well, how how how easily thank you Tony.
Yet.
This west it's not a function of I think you are asking in the context of thinking we might need to terminate it for some reason I am at this point, it's not impacting us and our ability to go pursue other work is not being impacted by the suspension at this point and we're still having conversations with our customer and do another small scopes of work with the customer on other things.
So.
If there's something more that you were wanting to get out and just just let me know and we can try to answer that a little bit more crystal Lee.
Oh no that's helpful. But if you are in the process of discussion another large project with someone else and that other <unk> hey can.
Can you get out of what you got now the suspended job what's your answer.
Yeah, We don't think would have a problem with that okay.
Okay.
Ah that's helpful. Thanks.
Especially to energy transition market is one of the opportunities.
Hardly an expert in all of that but I I hear a lot about hydrogen I hear about.
And capture I hear about energy storage Luckily in particular and the energy transition markets you feel represents.
Kennedy for the company.
Yes, we are actively pursuing right now.
Project on the hydrogen side of the business.
Essentially are modular capabilities are of interest to a particular client and so.
Hydrogen is one word chasing.
Actively and then obviously.
And markets like ammonia there are other similar types of opportunities.
And it seems like hydrogen and pneumonia.
Those.
You sound like a fairly near term opportunities I have the sense, sometimes when I read about energy transition.
234 years from now it sounds like it's not a shift.
Couple of ownership, how he might have something.
Yeah, that's that's correct.
Okay, Okay, well that's great. Thanks, so much good luck.
Sounds good thank you Tom Thanks, though.
Once again, if you have a question.
Please press done one the next question comes from.
John Gainshare from Senegal. Please go ahead.
Hey, good afternoon everybody.
Quarter.
One.
Question could you go over the.
Receivables.
<unk> from the.
Major customer.
And.
What the I guess.
Collected something in the.
Subsequent.
Gone to a quarter what were those numbers again please.
Yes, John Thank thanks for the question.
We have about 15, and a half million dollars of receivables at the end of the quarter, we collected approximately $3 million subsequent to the suspension and subsequent to the to the quarter.
One thing I do want to point out that the customer.
Our perception of the customers just manning managing its cash flow priorities on its various capital projects.
We're not in a dispute with the customer we have actually received a commitment letter from the customer acknowledging all the amounts do and then we do have our work.
Did receive.
A payment guarantee bond that provides a security for a substantial portion of that amount.
With that said, we do expect.
Temporary working capital impact in the second quarter because of the delays and then by the time, we get through the third quarter working capital B back to its normal what we believe would be back to its normal.
Position.
Do you expect to collect anything in the second quarter from them.
We haven't been told we won't but at this point, we wouldn't expect anything more meaningful other than the $3 million that I mentioned.
Okay. Okay.
Thank you very much.
Mhm.
Okay concludes.
The question and answer session.
Like to turn the conference back over to you.
Closing remarks.
In closing I want to thank our customers and shareholders for their continued support as well as recognize our employees who continue to demonstrate our commitment to Gulf Islands success for those on the call. Thanks again for your interest and I look forward to speaking with you on our second quarter results conference call and updating you on our progress be safe and take care.
This concludes Pickoff Island conference call, Thank you and goodbye.
Goodbye.
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Uh-huh.
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Okay.
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Mhm.
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