Gulf Island Fabrication, Inc.

All is being recorded. And at this time, I'd like to turn the floor over to Ms. Cindy Cook for opening remarks and instructions. Cindy, please go ahead.

Thank you, and good afternoon. I would like to welcome everyone to our second quarter 2021 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 2020 Form 10-K and subsequent SEC filings. Please also note that management may reference adjusted net income, EBITDA, adjusted 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 Hough, President and CEO, and Mr. Wes Stockton, Executive Vice President and CFO. Mr. Hough?

Thank you, Cindy. Good afternoon, everyone, and welcome to our second quarter discussion of our strategic priorities, financial results, and business trends. 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 an update on the progress we've made on our strategic priorities, including an overview of the next phase of our business transformation, the status of our key projects and wind down of the shipyard business, in the current business environment, and in market opportunities. Wes will then discuss the financial impact of the shipyard transaction, which closed in April, and review our quarter results in greater detail. We will then open up the call for questions and conclude with some closing remarks. First, as announced last week, the SBA approved our request to forgive $8.9 million of our PPP loan. and the subsequent forgiveness was critical for our turnaround through a very uncertain and challenging period for everyone. It allowed us to retain employees and have the liquidity necessary to execute our initiatives to place the company on a path to profitability. Moving on to the quarter, overall, we're encouraged by the second quarter results. While we're not seeing the full benefit in our financial results just yet, we're making significant progress on our strategic priorities which will continue to help improve our financial results. We continue to see improved project performance and we're optimistic about the in-market trends and our positioning to take advantage of an improving bidding environment. With the successful completion of the shipyard transaction, we are now strategically positioned as a focused fabrication and services business and we're excited about the opportunities that lie ahead. Last year, we highlighted a plan that was focused on improving our financial strength and business execution in order to establish a stronger foundation to pursue profitable growth. Over the last 18 months, we have made significant progress on the strategic initiatives underlying this plan, and we are ready to move to the next phase of our plan. However, before highlighting the next phase, I'll provide an update on the progress we have achieved on the initial phases of our plan. One of our initiatives was to improve our risk profile. The successful completion of the shipyard transaction was critical to this initiative as we were able to divest our higher risk long-term construction contracts with durations through 2024. These contracts represented 90% of our backlog and were generally break even or in a lost position. In addition, the previous closures of our other shipyard facilities and ultimate wind down of our shipyard operations will further reduce our risk profile. Another focal point was to strengthen our liquidity. As a result of the shipyard transaction, cost reduction measures, and the sale of our underutilized assets, we were able to exit the quarter with nearly $75 million in cash. In addition, the shipyard transaction significantly reduced our bonding and letters of credit requirements. A third initiative was to improve our resource utilization and project execution. Through the rationalization and integration of our facilities, personnel enhancements, and implementation of improved processes, we have reduced our overall cost structure and improved our fabrication and services project execution, which has resulted in four consecutive quarters of positive EBITDA. Importantly, we have been able to generate this positive EBITDA and improve margins despite lower revenues. And lastly, We have been focused on reducing our reliance on the offshore oil and gas market. We have focused our fabrication business development efforts on onshore growth in markets with an emphasis on projects associated with the LNG and petrochemical build-out along the Gulf Coast. Within services, we're broadening our services capabilities to target customers outside of our core offshore energy customers while growing with our existing customer base. I am very proud of the accomplishments made so far and feel that we have come a long way during a very challenging time. We'll continue to build on these initiatives, but with the significant progress we've made to this point, we are now shifting our focus to the next phase of our strategic plan, which is centered on generating predictable and profitable growth. We'll accomplish this goal by focusing on the following additional initiatives. Pursuing new growth in markets, diversifying and growing our services business, further strengthening project execution, and expanding our skilled labor workforce. I'll provide a brief overview of each aspect of our plan, and we will provide more details and updates in the coming quarters. First is pursuing new growth in markets. Our team is focusing its near-term business development efforts on higher growth in markets, such as LNG and petrochemicals. Given our capabilities and geographic location, we are well positioned to pursue these market opportunities along the Gulf Coast and have begun bidding on such opportunities. Over the longer term, we'll expand our core fabrication capabilities to include sustainable energy in markets as well. Second, we'll look to diversify and expand our services business. With recent new master service agreements in place, we have already started expanding our customer base for our existing offshore services business. The next step will be to broaden our offshore services offerings as well as expand our services capabilities to target onshore customers. An example of an exciting near-term opportunity is to expand our services offering by building relationships with the OEMs of specialized equipment used by our customers. As our customers continue to evaluate ways to consolidate their contractor base, Our relationship with the key OEMs will allow us to cross-sell and provide additional value to our customers. Third, we'll further strengthen our execution. While we have made significant progress in our project execution, we are focused on further strengthening our project management, process and procedures, which will drive higher margins and improve new award win rates. Finally, we'll expand our skilled labor force. We continue to focus on ways to enhance and add to our strong base of loyal and high-quality craft personnel, as a strong labor force will be a key differentiator in pursuing and executing on new project awards given the scarcity of available skilled labor. Moving on to a review of the project performance of our backlog, our 70-vehicle ferry project for the Texas Department of Transportation was impacted by an extension of schedule due to the client-directed changes, higher forecast costs to launch the vessel, and lower than anticipated progress on the project due in part to COVID impacts. This resulted in forecasted liquidated damages and increased duration-related costs, including project supervision and subcontracted services. We submitted a claim to our customer to extend the project schedule and recover the increased forecast costs associated with client-directed changes and COVID impacts. this initial claim was not accepted and we continue to work collaboratively in an attempt to reach an equitable contract adjustment associated with these impacts the ferry is currently on track to be completed in the second quarter of 2022 with respect to our 240 vehicle ferry projects our teams continue to make progress the second ferry is in the water going through the commissioning process however Due to additional design challenges which are resulting in problems with certain equipment performance, delivery has been pushed back modestly. We are working with the customer and equipment manufacturers to remedy the issues in our targeting delivery in the third quarter. On the first ferry, we have commenced the rebuild of the hull and continue to work with the customer on the challenges in construction from the deficiencies in their design. We remain on track with the rebuild and currently expect the first vessel to be completed in the second quarter of 22. We have filed a lawsuit in North Carolina for a breach of contract based on the deficiencies in design and to recover the increased cost and extensions of schedule resulting from the design-related impacts. While the challenges experienced on the remaining shipyard projects are disappointing, they are at a manageable scale. We're evaluating all possibilities to ensure we safely deliver a quality product to the customer and minimize the financial impact to Gulf Island. Now turning to our Fabrication and Services Division. We are encouraged by the improving bidding activity, but the highlight of the quarter was another period of strong project execution by the Fabrication and Services teams. This is exciting as improving execution was a key component of our strategic initiatives, and we're extremely pleased with the progress that has been made, and we expect the improvements to continue. As previously stated, the strong project execution allowed the segment to deliver positive EBITDA for the fourth consecutive quarter, an accomplishment we are very proud of given the depressed levels of revenues we're currently experiencing. we think it is important to highlight that the improved project execution and reduced overhead cost structure positions us to generate solid operating performance as volumes recover. The strong execution was consistent across the broader fabrication services business with project delivering results better than as sold estimates and most projects generating double-digit project gross margins. The business recorded 1.9 million of project improvements in the quarter from our offshore module, material supply and subsidy structures contracts, which demonstrates our capabilities executing against our plan and outperforming our initial project estimates. The strong project execution in recent quarters highlights the strategic benefits of our key resources, including our large lay down and covered facilities, which helps us ensure projects stay on schedule and deliver financial performance consistent with our expectations. Given we are beginning to transition our focus to generating profitable growth, we're very pleased to see our improved project performance coincide with the pickup and bidding activity in many of our key markets. Specifically, our business development efforts in the fabrication business are focused on expanding into adjacent end markets, and given our geographic location, key resources in our home or yard, and our skilled craft labor force, we believe we are well positioned to win these markets. The LNG market represents our most attractive opportunity in the near term. As most of you are probably aware, there are a number of large LNG projects in Texas and Louisiana that could provide attractive opportunities for the company, and we're beginning to build on some of these projects. As we have discussed in the past, there can potentially be multiple opportunities for success on each of these projects depending On the facility and project, we're often bidding on numerous scopes to different contractors for the entire complex. The scale of opportunity will allow us flexibility and multiple potential awards on the larger capital projects. We're excited about the prospects for the LNG market and are hopeful we will have some good news to share in the near quarters. With respect to our services business, we're pleased with the early progress we have made in growing this business. which is a key part of our growth strategy. Given the more stable and predictable nature of the business, we have begun to see an increase in activity from our existing offshore customer base and are also seeing some opportunities with new customers. However, the biggest hurdle for success may be the availability of craft labor, which is a similar challenge to what many industrial firms are facing. We are working with the local trade schools to ensure that we have a quality pipeline of the next generation of craft professionals, along with investigating opportunities to tap into other geographic markets to recruit seasoned craft professionals looking to capitalize on the anticipated near-term growth. As we highlighted last quarter, we also strengthen our selling efforts for our services business by hiring a dedicated business development professional to supplement our current staff. This individual has been tasked with expanding our services offering by working with OEMs of specialty equipment to become their preferred service provider. We have made nice progress on this initiative, which provides us an attractive opportunity to cross-sell these services to our existing customer base and attract new customers who need the specialized service necessary for the specialty equipment. This initiative will help us improve our value proposition, which is important as our customers look to consolidate the contractor base. We are still in the very early stages of our strategic growth plan, but we are encouraged by the improving market trends and the initial progress we have made on our initiatives. Our second quarter fabrication and services new awards were up sequentially and represented the highest quarter of awards in the last year. We're also hosting record levels of site inspection visits for our customers, which support the volume of work we anticipate in the next six to 24 months. Before turning the call over to Wes, I'd like to provide an update on our MPSV dispute. Discovery in connection with the lawsuit is ongoing, and in June, a scheduling conference was held with the judge with the preliminary trial date scheduled for March 2023. I will now turn the call over to Wes to discuss our quarterly results in greater detail.