Gulf Island Fabrication, Inc.

Good afternoon, ladies and gentlemen, and welcome to Gulf Islands Conference Call to discuss third quarter 2024 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 Cindy Cook for opening remarks and introductions. Cindy, please go ahead.

Thank you, and good afternoon. I would like to welcome everyone to our third quarter 2024 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 most recent Form 10-K and subsequent SEC filings. Please also note that management may reference EBITDA, adjusted EBITDA, adjusted revenue, 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 third 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 segment performance and in-market trends, and an update on the progress we have made on our strategic initiatives. Wes will then discuss our third quarter results in greater detail and provide some commentary on our outlook for 2024. We'll then open up the call for questions and end with closing remarks. The third quarter results demonstrate the improved durability of our operating model as we generated 11% year-over-year growth in adjusted EBITDA and strong free cash flow conversion despite headwinds in our services division, which included customer-driven project delays and lost revenue due to hurricane activity in the Gulf of Mexico during the quarter. We're very proud of these results, which would not have been possible if not for our strategic decision to build a more stable operating foundation made up of our small-scale fabrication and services business. Our fabrication adjusted EBITDA nearly doubled from the prior year, and while our services division continued to face some headwinds during the quarter, the business still generated nearly $2 million in third quarter EBITDA, highlighting the resilience of this business. Now turning to our segment results. First, looking at our services division, While the overall spending environment in our key offshore services market remains relatively strong, we continue to be impacted by customer-driven project delays for our Spark Safety business. As we discussed last quarter, these projects have not been lost, but the project start dates continue to be delayed due to some customer-specific issues. In addition, we were impacted by lost revenue during the third quarter due to the hurricane activity in the Gulf of Mexico in September. Luckily, we did not experience any significant damage to our HOMA facility from the recent hurricanes, including Hurricane Francine that made landfall less than 50 miles from our facility as a Category 2 storm. But our services operations were impacted due to the temporary removal of our personnel from customer offshore platforms as the storms approached and passed through the Gulf. While we are disappointed By the recent impacts in services, we remain encouraged by the strategic positioning of our services business, and we continue to invest in our key growth initiatives to further strengthen our competitive position and ensure that we can endure customer and market driven fluctuations. To that end, last quarter, we highlighted our decision to make incremental growth investments in support of our new cleaning and environmental services business line, or CES. This new offering expands our service portfolio to better support decommissioning activity in the Gulf of Mexico, which we believe represents a meaningful potential opportunity for our company. Bidding and project activity for our CES business line is beginning to increase, and we are poised to benefit as the decommissioning activity in the Gulf of Mexico inevitably gains momentum. Now turning off to fabrication. where our revenue increased 14% from last year driven by continued strength in our small-scale fabrication business. The demand environment in small-scale fab remains active, including pull-through fabrication from our services customers, and we benefited from improved facility utilization during the quarter, driving our third quarter fabrication adjusted EBITDA to nearly double compared to last year. Our fabrication bid activity remains strong, and we expect the positive momentum to continue into 2025. A key priority and longer-term focus for our fabrication business is expanding our exposure to markets outside of oil and gas, such as infrastructure, clean energy, and high-tech manufacturing. Our contract for the fabrication of structural components for NASA highlights the potential benefits as we expand our in-market focus outside our traditional oil and gas markets. These end markets place a premium on quality and schedule certainty areas where we have proven record of delivering. As it relates to the large fabrication market, unfortunately, there has not been much of a change. We believe that there are a lot of capital decisions that have been put on hold given the uncertain political landscape and we're hopeful that today's election will remove the uncertainty and benefit the bidding environment. Overall, Our optimism for the large fabrication market has not changed as the favorable structural drivers remain in place. There is limited capacity in the market, and there are numerous potential large capital projects that could be moving forward in our backyard. While it remains difficult to predict timing, we remain optimistic in our ability to secure a large award. And in the meantime, we will build on the foundation of small-scale fabrication while we wait for the right large project opportunity. As it relates to our shipyard division, as we have discussed, we substantially completed our remaining operational shipyard obligations during the fourth quarter of last year, with the warranty periods for our ferry projects being the final remaining items associated with the wind down of the business. The warranty period for our 70 vehicle ferry project ended in the third quarter of 2024. As it relates to the 40 vehicle ferries, the warranty period for one of the ferries ended in the second quarter of this year, and the last vessel's warranty period ends in the first quarter of 2025. Last quarter, we noted that we submitted our final claim to the North Carolina Department of Transportation. Our claim was rejected, which was not a surprise, and we have moved forward with legal avenues to recover previously incurred costs associated with the 40 vehicle ferry projects resulting from the customer's design deficiencies on the vessels. Overall, we're pleased with our third quarter results as our ability to generate year-over-year EBITDA growth and strong cash generation despite several market headwinds highlights the resilience of our operating model. We remain optimistic regarding the market drivers of our small fab and services business and we are excited by the potential for our Spark Safety and CES offerings. In addition, we are in an extremely attractive financial position with over $60 million of available liquidity to pursue our growth initiatives. This provides us with several avenues for potential value creation, and as we continue to execute on our strategic plan, we're committed to pursuing the best path to deliver shareholder value which could also include capital return opportunities if we're not able to find sufficient growth investment opportunities that satisfy our risk return hurdles. Prior to turning the call over to Wes, I'd like to comment on our announced chairman of the board transition. Our current board chair, Bill Childs, will retire at the end of term in May 2025, and we expect to reduce our board size to five directors at that time. As a result, and consistent with our goal of right-sizing our board and maintaining an optimal leadership structure, on November 30th, I will assume the board chair role along with my current CEO duties. My assumption of the chair role next month, along with Bill's continuation on the board at the end of his term, will provide for an orderly transition of his responsibilities. I'd like to express my gratitude to Bill for his commitment to Gulf Island for over a decade I look forward to working with the board to continue to advance the company's strategic initiatives. And I'll turn the call over to Wes to discuss our quarterly results in greater detail.