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spk04: Good afternoon, ladies and gentlemen, and welcome to Gulf Islands conference call to discuss fourth quarter 2021 results. All participants will be in a listen-only mode for the 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.
spk03: Thank you, and good afternoon. I would like to welcome everyone to our fourth 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 Huff, President and CEO, and Mr. Wes Stockton, Executive Vice President and CFO. Mr. Huff?
spk02: Thank you, Cindy. Good afternoon, everyone, and welcome to our fourth 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 an update on the progress we've made on our strategic priorities, including an increased focus on our expanded services platform, in-market opportunities, and the status of our key projects and wind down of the shipyard business. Wes will then discuss our quarter results in greater detail. We will then open up the call for questions and conclude with some closing remarks. 2021 was an important year in our strategic transformation, and I am extremely proud of the meaningful progress we made on our key initiatives despite a number of challenges during the year, including the disruptions from Hurricane Ida, volatile in-market trends, and more recently, the ongoing supply chain, labor, and inflationary challenges. The progress we made this year is a true testament to the hard work and dedication of our team as we continue building a solid foundation of operational excellence. We finished the year with a continued strong execution from an operational perspective, as we reported solid project performance in our fabrication and services division, which resulted in another quarter of positive EBITDA after excluding Hurricane Ida and acquisition costs. I'm excited about the improving momentum in our small-scale fabrication and services business, which allowed us to generate year-over-year revenue growth in our fabrication and services division for the first time in two years. I'm particularly enthusiastic about the strong platform we're building in our services business, which was further strengthened following our recent services acquisition that closed in December. We were seeing improved activity in the legacy services business prior to the acquisition and our improved competitive position following the transaction gives me confidence that we are well positioned for profitable growth in these markets. Activity in the large fabrication market continues to improve with early decisions being made on contractor selection on a number of large LNG projects. However, we believe there is still excess capacity in the market resulting from unattractive pricing dynamics. We remain committed to taking a measured and disciplined approach when bidding on large projects as we have no intention of derailing all that we have accomplished over the last two years by booking large project awards on terms that don't meet our risk parameters. These are long-term fixed price contracts, and we are unwilling to commit our resources to any project that does not meet our return hurdles, particularly given the current uncertain business environment. We will remain measured in our approach and accelerate our focus to our growing services and small-scale fabrication business, which are both currently benefiting from favorable trends. If challenges in the large project market remain in place, we will look to optimize our asset base for the potential changes in our business mix and focus over time. With that as a background, I will now provide an update on the important progress we have achieved on our strategic transformation, which includes some of our changing priorities around growth and our increased focus on services work and smaller scale fabrication. As I have discussed all year, we made considerable progress on the first phase of our strategic plan during 2021, which included improving our risk profile, strengthening our liquidity, improving our resource utilization and project execution, and reducing our reliance on fabrication for offshore oil and gas. We'll continue to build on these initiatives, but we are now focused on leveraging our improved foundation to pursue predictable and profitable growth. As previously communicated, we will accomplish this goal by pursuing new growth in markets, continuing to diversify and grow our services business, further strengthening project execution, and expanding our skilled craft workforce. I will now provide an update on the progress we have made on these four key objectives over the last three months and our objectives for the future. In terms of the new growth in markets, the company has been focusing its near-term business development efforts on higher growth in markets such as LNG and petrochemicals, but with an ultimate goal of shifting our focus to the rapidly growing energy transition market over time. As I've already discussed, While there are large LNG and petrochem fabrication opportunities in the market, there is still too much industry capacity and inflationary cost risk, so the pricing environment is such that we don't feel we're seeing the appropriate return profile to compensate us for the risk inherent in these long-term fixed-price contracts. As a result, we're aggressively focusing on small-scale fabrication market as well as our strong services platform. We are seeing positive trends in these markets, and we are able to generate solid returns with better predictability and much lower risk. In addition, we are already beginning to see increased inquiries and bidding activity in hydrogen, renewable fuels related to rapidly growing energy transition initiatives, and U.S. wind projects, so we are more quickly shifting our focus to these opportunities. Given our capabilities and geographic location, We are strategically situated to pursue these market opportunities along the Gulf Coast, and we are excited about our prospects. Some of our prospects associated with hydrogen and renewable fuels could reach FID by the end of the year, whereas the larger opportunities with U.S. wind would likely not materially impact our backlog until the second half of 2023. Second, we are focused on growing and diversifying our services business and even more so given some of the challenges in the large fabrication project market, our recent services acquisition accelerated the progress on these initiatives and positions Gulf Island as one of the leaders in these attractive services and markets. As a quick reminder, the services acquisition closed on December 1st. The transaction brought Gulf Island a number of attractive benefits including the following. First, it expanded our customer base for existing services offerings in the Gulf of Mexico. Second, it expanded the company's services offerings to include new services such as coatings, scaffolding, and specialty services such as torquing and hydrotesting, which also complements our efforts on developing OEM relationships to increase services we offer to our customers. Third, the deal allows for the potential to cross-sell our expanded offshore services offerings to a broader customer base, which also providing the opportunity to pull through small-scale fabrication work to DSS's customers. And last, but certainly not least, the transaction nearly doubled our craft labor headcount, giving us the necessary scale to flex our resources. I am happy to report that our integration is going well, as our two cultures are very similar. The two organizations have similar experience craft professionals with long tenure who are committed to delivering safe and reliable services to our customers. The acquisition has proved timely as we are seeing rapidly improving trends in our services business, and with the expanded skilled workforce, we are well positioned to take advantage of these trends. Our third strategic initiative is to continue to make progress on operational performance in our fabrication and services division. The division's projects continue to deliver better than their as-sold estimates. We're focused on the continued strengthening of our project management processes and procedures, which will drive higher margins and improve new award win rates. We're also looking for ways to improve our efficiency of production. We're recently awarded a government grant for automated welding equipment, which will help improve the quality of our welds and allow for a more efficient and safe transition from carbon to alloy welding. while allowing us to monitor and share data with our customers on a real-time basis. The automated equipment could improve efficiency by as much as 50%. We'll continue to evaluate the latest technologies to ensure that we are improving our competitiveness. Lastly, we're focused on finding ways to expand our skilled craft workforce. Similar to other industries that rely on skilled labor, we are faced with the challenges of attracting strong craft professionals and are continuing to look for creative ways to retain and grow our skilled craft workforce. Our services acquisition helped us take a big step towards achieving this goal, as the transaction allowed us to nearly double our skilled craft workforce, including an expanded footprint through entry into south Texas and western Louisiana. The expansion of our services business has also benefited our efforts to attract new craft labor since the services business is more predictable and provides the assurance of underpinning work, providing more certainty for our skilled craft labor, which helps drive recruitment and retention. Moving on, I'd like to provide additional detail on activity we're seeing in our fabrication and services in markets. We're encouraged by the trends in our target end markets as bidding activity has continued to gain momentum in recent months. We have experienced success in the market for small module work and pull-through fabrication from our existing base of services customers. But as we have discussed, we have had not much luck in the large project market, and some of this is by design. We'll continue to be patient until the right opportunities arise while continuing to right-size our organization. While LNG and petrochemicals represents the best near-term opportunities for new awards, we believe the energy transition movement will provide an opportunity for growth in the coming years, and perhaps sooner than we initially thought. We are seeing bidding activity in sustainable energy and markets pick up, and we have started to engage the end users and licensors to demonstrate Gulf Islands' value proposition to their projects. Many of the customers see our ability to scale up and our proximity to project locations and nearby ports as opportunities where we bring value. Specifically, we are seeing activity and interest in hydrogen projects and other sustainable technologies such as carbon capture, renewable fuels, and U.S. wind projects. There have been recent announcements of large capital projects in Louisiana focused on these green initiatives, and we're very well positioned to participate as these prospects further develop in our backyard. And as with the rest of our business, we will evaluate these prospects with a focus on bidding and winning work with the right risk profile. For our services business, the increase in crude and natural gas prices in the second half of 2021 was beginning to drive improved spending by customers in our traditional markets. Our acquisition puts us in an even better position to address this opportunity and serve our customers. We will not lose sight of our longer-term goals and will continue our business development efforts on our existing customer base as well as expanding into adjacent end markets focused on customers who value our commitment to safety and quality, geographic location, and key resources in our home yard and our skilled craft labor force. Now turning to the Shipyard Division. Our 70-vehicle ferry project for the Texas Department of Transportation was 82% complete at our year end and remains on track to be completed in the third quarter of 2022. The ferry was impacted by increased forecast costs and forecast liquidated damages, primarily associated with increased craft labor, materials, and subcontracted services costs, and extensions of schedule. We have submitted claims to our customer to extend our project schedule and recover the increased forecast costs associated with the impacts of previous customer-directed changes and COVID-19 and Hurricane Ida. We're continuing to work with the customer to reach a favorable resolution. The continued delays and increased costs on Texas Department of Transportation are disappointing, but they remain manageable. The ferry is substantially finished with the construction phase, and we are moving into outfitting. getting us closer to completing the final contract obligations. I am confident we are on track to successfully drive this project to completion. With respect to our 240 vehicle ferry projects, our teams continue to make good progress. At December 31, the second vessel was approximately 96% complete and is forecast to be completed in the second quarter of 2022, and the first vessel was approximately 66% complete, and is forecast to be completed in the third quarter of 2022. The delay in delivery of the second vessel from Q1 to Q2 was a result of challenges during sea trials in January 2022 in which one of the propulsion systems unexpectedly shut down, causing the vessel to veer off course and run aground, causing damage to the hull. We are currently assessing the full extent of the damage However, deductible associated with our insurance coverages for such an incident is approximately $100,000. We currently believe the system shutdown was due to deficiencies in the design of the vessel, which is subject to a lawsuit pending in North Carolina State Court. As a reminder, in July, we filed a lawsuit for a breach of contract based on deficiencies in design of the vessels in an attempt to recover the increased cost and extensions of schedule resulting from the design-related impacts. We remain focused on safely and efficiently completing our remaining shipyard contracts with our current cost estimates while trying to minimize the impacts to the projects and our ongoing core business during the wind down of our shipyard operations. We have the right teams in place and are confident we are on track to successfully complete the wind down of the shipyard business. Once complete, we look forward to redeploying these assets and focusing 100% of our time and energy on profitably growing our fabrication and services business. Overall, 2021 was a very successful year for the company, both in terms of the execution of our strategic plan, as well as the solid operating performance of our fabrication and services division. which enabled it to generate positive EBITDA for the year despite the ongoing volume challenges. I'm extremely proud of everything we've accomplished during the year as we continue to de-risk our business through the shipyard transaction in April, improved our project execution, significantly expanded our services business through our services acquisition, and made further progress on our targeted growth markets, including the important success we achieved in building out our services platform. While we are disappointed to not have been awarded any large-scale fabrication work, we'll continue to remain disciplined and maintain our focus on markets that meet our risk and return objectives. We have made significant progress in positioning the company for profitable growth over the last two years, and we will continue to maintain our focus on improving shareholder value as we implement our growth strategy. I will now turn the call over to Wes to discuss our quarterly results in greater detail.
spk00: Thanks, Richard, and good afternoon, everyone. I will discuss our consolidated results and then provide some additional details regarding our segments, putting in context the factors mentioned by Richard and their impact on the quarter. I will then conclude with the discussion of our liquidity and outlook. Please note that unless otherwise specified, all financial information referenced relates only to our continuing operations. Consolidated revenue for the fourth quarter of 2021 was $25.8 million, a 13% increase from the fourth quarter of 2020, with a year-over-year increase attributable to our Fabrication and Services Division. Consolidated operating loss for the fourth quarter was $6.2 million, and EBITDA was a loss of $5.1 million, which included costs related to Hurricane Ida and our services acquisition of $3.9 million. Our consolidated results reflect a positive contribution from our fabrication and services division absent the IDA and acquisition cost, offset by the impact of our corporate division and losses attributable to our retained shipyard operations. Specifically for the fabrication and services division, revenue for the fourth quarter 2021 was $23.5 million, an increase of 11% compared to the fourth quarter 2020. The increase was driven by higher small-scale fabrication activity and the contribution from our services acquisition, partially offset by lower revenue for our larger fabrication projects, which were completed in the quarter. Fabrication and services EBITDA for the fourth quarter was a loss of $1.8 million and was impacted by acquisition costs of approximately $500,000 and charges of $3.2 million associated with insurance deductibles and unrecoverable costs attributable to damage caused by Hurricane Ida. Operating results for the quarter benefited from strong project performance and a favorable margin mix. However, these benefits were partially offset by low volume levels and the under-utilization of the Division's facilities and resources. The Division's utilization for the fourth quarter was comparable to the trailing quarter, but lower than the prior year period due to the completion of our larger fabrication projects and backlog. We expect utilization levels in the first quarter 2022 to be similar to the fourth quarter due to our low fabrication backlog going into the new year. As in recent quarters, although the Division's overall utilization continues to be challenged, our cost reduction initiatives and consolidation efforts have enabled us to partially mitigate the impact of the low utilization rates, allowing us to generate year-over-year margin improvement despite lower revenue volume. We continue to look for opportunities to reduce overhead costs and rationalize our resources to improve our operating leverage as volumes recover. Now turning to our shipyard division, revenue was $2.3 million for the fourth quarter 2021 and relates entirely to our three ferry projects. Operating loss for the quarter was $1.6 million and included project charges of approximately $700,000 associated with our 70-vehicle ferry project, charges of approximately $200,000 associated with Hurricane Ida, and vessel holding costs and legal fees of approximately $400,000 associated with our NPSV contract dispute. For our corporate division, operating loss for the fourth quarter was $1.7 million, benefiting from year-end true-ups associated with the finalization of our incentive plan obligations. With respect to our liquidity, we ended the year with a cash balance of almost $55 million which is consistent with our expectations after giving effect to the services acquisition purchase price and partial post-acquisition working capital increases for the acquired business. At year end, we continue to have approximately $9 million of net liabilities attributable to our shipyard operations. We expect to satisfy most of these liabilities over the next nine months as we complete our active shipyard contracts and wind down our shipyard operations. These obligations exclude future vessel holding costs and legal expenses associated with our ongoing MPSV dispute, which we expect to increase in 2022 as trial preparation ramps up in advance of the trial, which is currently scheduled for the first quarter of 2023. Turning to our outlook for 2022, we continue to be encouraged by the progress of our strategic initiatives and are optimistic about the opportunities in our small-scale fabrication business and our growing services platform. But in the near term, given our current low fabrication backlog levels and typically cyclical lower services activity in the first quarter, we anticipate continued near-term underutilization of our facilities and resources, which will result in a consolidated operating loss for the first quarter. As it relates to the full year, For our fabrication and services division, we expect a positive EBITDA contribution from our services-related business, which for 2021 was approximately $8 million on a pro forma basis, including the acquired services business. While we expect improvement in such results for 2022, in the absence of any large fabrication new awards in the near term, The under-utilization associated with our fabrication business may offset the positive services contribution. Finally, with respect to our near-term cash flow expectations, we are forecasting to exit the first quarter with a cash balance of 40 to 45 million, reflecting the anticipated impact of an operating loss for the quarter and a non-recurring increase in working capital, primarily associated with the remaining post-acquisition increase for our acquired services business and the partial satisfaction of the previously referenced liabilities for our shipyard operations. We expect working capital to stabilize by the end of the first quarter and represent more normalized levels going forward. This concludes our prepared remarks. Operator, you may now open the line for questions.
spk04: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. And if you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. Pause just a moment to allow everyone an opportunity to signal for questions. And we will go to our first question from Martin Malloy of Johnson Rice.
spk01: Good afternoon.
spk02: Good afternoon, Martin. Good afternoon.
spk01: I just want to maybe ask a few questions here about the award outlook in your end market. And I think previously you talked about the LNG and the petrochemical plants along the Gulf Coast within a reasonable geographic range of your facilities, that there were a number of opportunities. Have those opportunities that were nearby in Louisiana, have they been awarded to others at this point?
spk02: Yeah, some of them have been awarded here. very recently in the local area.
spk01: Okay. And then I was wondering if you might be able to expound on some of the energy transition type areas that you spoke about in terms of hydrogen, wind, renewables, renewable fuels, I'm sorry. And I guess in particular, the hydrogen and renewable fuels sound like there may be nearer term opportunities with FIDs on some projects that you're looking at. by the end of this year, and then maybe you could tell us about what you're doing on wind. Is this onshore, offshore? Is it the towers?
spk02: Yeah, so those are good questions, Marty. On the first part, in terms of the renewable energy piece, and more specifically hydrogen and biodiesel type of work, these are smaller modules, and we are bidding on those activities currently. And we're expecting, while they're not as large in terms of volume of work in terms of man hours or tons of steel, we believe that to be an attractive market. And we're anticipating those in kind of near term being by the end of this year and hopefully no later than the first part of next year. As far as the wind, it's all offshore. We're actively working with partners on wind projects that have been announced, and we're basically, as you can imagine, working on just the fabrication or jackets and deck-type structures in support of the offshore wind build-outs. Those projects, unfortunately, are a little bit longer in the future. We talk about back end, earliest back end of 2023, where we might add those to the backlog. And some of them, I think, are probably more 24-ish type timeframe.
spk01: Okay. And my last question, maybe I missed, but do you have an end-of-quarter backlog number?
spk00: Marty, it's around $17, $18 million. The FAB element of it's six or seven. That's not atypical on the services side because typically that's a book and burn business. We carry very little backlog on the services side, but we just know that it's going to be there. So that backlog I mentioned is all attributable to our FAB board.
spk01: Okay. Thank you. I'll turn it back. Thanks, Marty.
spk04: And as a reminder, you may press star one if you have a question at this time. We will pause a moment.
spk05: And at this time, there are no other questions in the queue.
spk02: Thank you. 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's success. For those on the call, Thanks again for your interest, and I look forward to speaking with you on our first quarter results conference call and updating you on our progress. Be safe and take care. Thank you.
spk04: And so this concludes today's call. Thank you for your participation, and you may now disconnect.
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