Cindi Cook - Executive Administrative Assistant Kirk Meche - President, CEO David Schorlemer - Executive Vice President and Chief Financial Officer Todd Ladd - Executive Vice President and Chief Operating Officer.

Martin Malloy - Johnson Rice & Company JP Geygan - Global Value Investment Corp. John Deysher - Pinnacle.

Good morning and welcome ladies and gentlemen, to the Q3 2017 Gulf Island Fabrication, Inc. Earnings Conference Call. All participants will be in listen-only mode for the duration of the presentation. This call is being recorded. At this time, I would like to turn the conference over to Ms. Cindi Cook for opening remarks and introductions.

Please go ahead..

Thank you, Moneth. Good morning. I would like to welcome everyone to Gulf Island Fabrication’s 2017 third quarter teleconference. Please keep in mind that any statements made in this conference that are not statements of historical facts are considered forward-looking statements.

These statements are subject to factors that could cause actual results to differ materially from the results predicted in the forward-looking statements.

These factors include the timing and extent of changes in the prices of crude oil and natural gas, the timing of new projects and the company’s ability to obtain them and other details that are described under cautionary statements concerning forward-looking information and elsewhere in the company’s 10-K filed March 2, 2017.

The 10-K was included as part of the company’s 2016 Annual Report filed with the Securities and Exchange Commission earlier this year. The company assumes no obligation to update these forward-looking statements. Today, we have Mr. Kirk Meche, President, CEO sand Director; Mr.

David Schorlemer, our Executive Vice President and Chief Financial Officer; and Mr. Todd Ladd, our Executive Vice President and Chief Operating Officer. Mr.

Meche?.

Thank you, Cindi, and good morning to all of our listeners. After my opening remarks, we will follow our standard format with David providing the breakdown of the financials, followed by Todd as he provides an update on existing projects. I will have closing comments before we open the lines to analyst for questions.

Yesterday afternoon, we announced our third quarter results for 2017. 2017 continues and will continue to be a challenging year for our company, and this quarter’s results reflect these difficult times.

Underutilization within our divisions along with an adjustment to one of our complex projects within our Shipyards division put our financial results in a loss position for the quarter. However, we are pleased to report significant improvements in results sequentially compared to last quarter.

Additionally, the backlog numbers continue to improve with awards within our Services division and our Shipyards divisions. It should be noted that these projects will not start until later this year, and in some cases, mid-2018.

I’m also very pleased to announce that, earlier this week, we received notification from SeaOne Holdings, LLC that we have been selected as the prime contractor for the engineering, procurement, construction, installation, commissioning and startup also known as EPC ICS for its Caribbean fuel supply project.

While SeaOne selection of our company is non-binding and commencement of the project remains subject to a number of conditions, including agreement on terms of the engagement, we’re working to strengthen our internal project management capabilities to the hiring of additional personnel to service this potential project.

We look forward to providing additional information in the coming quarters, as we continue to work with SeaOne to enter into definitive agreements. We recognize this is a significant project and look forward to working with SeaOne. To continue with other news during this quarter, we experienced one of the most devastating hurricanes in U.S.

history to hit the Texas Gulf Coast. Hurricane Harvey made landfall to the Northeast of our Gulf Marine facilities in South Texas. With this, we experienced winds in excess of 135 miles per hour, but no flooding. Damage was suffered by most, if not to all of our buildings and some of our claims.

The insurance claims have been filed and we are awaiting final estimates on the total amount of damage experienced. We expect the dollar amount of damage to exceed $14 million and could be as high as $22 million. We fully expect to recoup this amount.

Hurricane Harvey didn’t stop and dumped more than 51 inches of rain on the Houston area, flooding most of Houston and the surrounding areas. Our corporate office did not have any issues, but several of our employees’ homes were affected by these flooded waters.

We have executed a letter of interest with a proposed buyer for the sale of our South Yard in Ingleside, Texas. While this LOI is non-binding, the proposed buyers will be conducting several surveys on the property during the next few months as part of their due diligence. I also want to provide some color on ongoing disputes with two of our customers.

First is the non-acceptance of the two offshore supply vessels that were completed and ready for delivery, but our customer cited design deficiencies. As per the contract, this has been submitted to the National Arbitration society and three arbitrators have been selected and we are in the process of discovery.

In recent weeks, the customer in question has named a new interim CEO. The interim CEO has made contact with me and we will be meeting to discuss possible ways to resolve these issues. Second is the non-payment of change orders associated with a large jacket built by our Fabrication division.

Trial dates have been set for January 2018 and discovery has begun. Let me now turn the call over to David, who’ll provide our earnings and segmented breakdown.

David?.

operating losses exclusive of depreciation and amortization for the quarter of $2.2 million; CapEx of $2.7 million, build up of costs for contracts and progress related to a customer in our Shipyards division was significant milestone payments occurring in the later stages of the projects, which are expected to occur later in 2017 through the first-half of 2018, and partially offset by insurance proceeds received of $1.5 million.

I’ll now turn the call over to Todd, who will provide an update on our operations and major projects.

Todd?.

Thanks, David, and good morning to everyone. I’ll begin with our Fabrication division. More falling activities for our South Texas locations, including the evaluation of existing assets have slowed as we have to secure the location following the impact of Hurricane Harvey.

Our Louisiana fabrication facilities continues to perform work on the actual [indiscernible] module fabrication project. The project’s first module is scheduled for delivery in November 2017, having the subsequent modules delivering in early 2018.

With our Services division, we have secured some offshore platform facility expansion work, which entails the onshore fabrication of structural and production components, as well as the offshore installation and hookup scopes of work.

We have also been successful in securing of opportunities within the onshore plant expansion and maintenance programs.

Our Shipyards division continues with fabrication of two MPSVs scheduled for delivery in 2018, where we successfully launched the second vessel at our Jennings location and have subsequently moved this vessel to our home location for final outfitting.

Our Jennings facility has now commenced with the fabrication of eight harbor tugs due for staggered deliveries through the end of 2019. Engineering for the Oregon State University Research Vessel continues, where the fabrication of this vessel will commence in the second quarter of 2018.

Last, our backlog of work continues to grow with the recent award of an ice class, Z-drive tug for the Saint Lawrence Seaway Development Corporation set for delivery in the second quarter of 2019. I will now turn the call back over to Kirk for closing comments.

Kirk?.

Thank you, Todd. We remain focused on managing our balance sheet and rebuilding backlog. We’re working to position the company return to growth in 2018 and beyond. As we evaluate our organization, capital structure and operational capacities, we’re making changes to ensure our ability to execute on our existing and anticipated projects going forward.

Remainder of 2017 and early 2018 will remain challenging given our current backlog and histograms. Moneth, you may now open the line for questions from analysts..

Thank you. The question-and-answer session will be conducted electronically. [Operator Instructions]. We’ll take your first caller from Martin Malloy with Johnson Rice..

Good morning..

Hey, Marty, good morning..

It sounds like an exciting opportunity here with the SeaOne project.

Anything else you can tell us about the project regarding the timing of it potentially moving forward, what steps that we should look for from the project donors side to indicate that it’s moving forward and then the potential scope here, it looks like a fairly large project and I don’t know if there is any help you can give us on the potential scope of work for Gulf Island?.

Sure, Marty, so this is Kirk. Well, first of all, when you want to give I guess the best information on the project, the thing to do is go on to see one’s website and did they post updates and status of where they are with the project, that’s probably the best indicator as to what the project is doing.

Second of all, you are absolutely correct; this could be one of the largest projects that Gulf Island could sign in the history of our company. And as we develop scope of with SeaOne on exactly SeaOne on exactly which phases we end up doing with these guys and right now we are looking at Phase 1, 2, and 3.

But again there are lot of things that need to happen, I would hope that some type of formal Letter of Intent will be issued hopefully in the coming months, and as SeaOne continues to push forward to make sure that they’ve got everything lined up with their investors and whatnot, I would anticipate that sometimes in the mid to latter part of 2018 might be a good time frame for Gulf Island to begin work, but certainly if anything materializes beyond this selection as a fabricator, we certainly will keep the investors posted..

Okay, great.

And then next question just on the sales process for the Texas facilities and the damage from Harvey, how extensive was the damage from Harvey and maybe if you could just update in terms of expected timing for how long the sales process is going to last?.

Yes, Marty this is Todd. In regards to the damage that we incurred, pretty much every building on both locations that we have in South Texas had incurred some damage.

Some was just superficial where we may have just had some exterior skin of the building that might’ve gotten pealed back and needs replacement, and others were pretty significant damage to the main structural components of the buildings themselves.

Unfortunately the two office buildings did incur a roof damage, so we did get a lot of water intrusion and things where we’re going through and just making assessments again whether it’s a complete loss or we can do some rebuilding of those particular buildings.

It’s still in process, we have secured everything, so we have everything to where it needs to be, where it’s safe for anyone to be within in the facilities and then now it’s just a process of going through insurance, assessments things of that nature.

I’ll just say, so in regards to the sales item and what we are looking at there, again, we’re going through a period right now like that we have with the potential buyer and there’s an exclusive period that we’re working with these individuals, it’s something that probably timing we’re looking at is going to be early 2018 in regards to formalizing a sales agreement and defining the exact time of closing..

Okay great, and then switching over to Shipyard division, it is encouraging to see the losses on the two vessels going down this quarter, could you maybe give us an update on approximately how percentage – what percentage you are in terms of completion of these projects, these two vessels?.

Yes, so where we’re at right now and rather than just giving you numbers just to look at it, so of the first vessel itself, again structurally, we are right about 90% complete overall and it’s – and it’s completion phase where we’re in there actually doing some final painting in certain sections, but a lot of it is right now to where we have turned it over to the subcontractors, where we are doing a lot of internal completion of architectural work, as well as electric components and things of that nature.

So, it’s well along its way, it’s at least 70% complete overall in construction.

The second vessel as I noted, we had just launched it about a month ago and brought it to Houma, so we can go into its outfitting stage, but we still have some structural components of the superstructure or the main control section that you would see on a vessel that’s above the hull that we’re installing right now, getting those complete and then we’ll be moving on to the other phases where we’re actually doing the outfitting again bringing in the subcontractors who do all the architectural and the electrical works and things of that nature..

Okay, great.

And then just with the issues that have gone on in the Shipyard division over the last year or so [indiscernible] these vessels, could you maybe talk about what you’ve learned from these vessels and maybe how you’re applying it to the bidding that you’re doing now and maybe just giving us some comfort with the awards that you’ve announced recently that the risks have been appropriately evaluated?.

Yes, so with those vessels and one of things that we’re seeing and this is a pivot that has changed in roughly the last 5 to 6 years within the industry and the vessels themselves are getting just very complex on the way the equipment that’s put in and the electronics and things of that nature.

So a lot of the way previous business was done around OSVs and they were pretty straightforward and simple vessels have now taken themselves to being very complex type units with a lot of electronics and things on it that get a little bit above and beyond typical what we would’ve seen for just meeting regulation and so some of that’s causing some challenges to just what needs to be done for the vessels themselves and getting them to meet the operational needs of the operators.

With that and what we’re doing around new bidding and things going forward, these vessels we’re seeing now are taking on kind of a new life where the engineering aspects upfront and the amount of modeling and computer generated somewhat building the vessel in a computer first and having everything 100% engineered prior to start of a vessel is where we’re see and again segregating what is typical, standard, small construction to what complex vessels are and these complex vessels we’re identifying upfront and in the bidding process what we’ve done is, we’ve actually segregated a section of our staff to where we’re going to have a technical group of guys who are part of our bidding process and they do evaluation of the contracts, understanding what needs to be done in the bid and also the engineering aspects that must be done on these vessels before we can begin construction..

Marty, this is Kirk and Todd is absolutely right and one thing to add to that is that we have opened an office in Metairie, Louisiana where we’ve draw upon a talent mostly from UNO with – they’ve architectural program they have and so we’ve opened official engineering office in Metairie and currently I think we have about 10 folks in that facilities and as Todd said, their primary mission is to evaluate the bids when they come in and then – but more importantly than that is to provide engineering services to the respected Shipyard divisions prior to start of construction of the vessels..

Great, thank you, I’ll turn it back..

Okay Marty, thank you..

[Operator Instructions] We’ll move next to JP Geygan from Global Value Investment Corp..

Hey good morning gentlemen, it sounds like things are generally starting to improve, which is an encouraging sign.

First, I have a few questions on all your properties and this is really a three parted question; part one, you indicated that a Letter of Intent had been signed for the Ingleside property, does that also apply to the Aransas Pass property, is that still held for sale? Part two, as you had previously indicated that you had hired some advisors to give some suggestions on deploying that pursuit of those sales, do you have an update on that? And then part three would be, at least the Prospect yard and it was my impression that one of the Tidewater vessels were parked there and that would terminate on December 31, 2017 the latest, can you provide an update on that please?.

Sure Jeff, so this is Kirk, I’ll give you an update on questions one and three, and I’ll let David to get number two.

So, number one, again just to make sure it’s clear, it’s a letter of interest on the yard, it’s not a Letter of Intent, and as far as that goes, it is to South yard only, so this party’s interest is in the South yard and so consequently the property in North yard remains – or both properties remain on the marketplace, but the North yard, in particular the 30 acres adjacent to the North yard at this time would not be part of that transaction.

The second part of the – or second question you had was prospect. You were correct. What we had with the previous owner or who has the facilities, we made an agreement with them to reduce the rent that we had an obligation to pay through – it was May of this year.

So we’ve reduced that rent monies and our obligation ends at December 31 with the facilities. We still had some and still have some assets still remaining in the facilities. We had a dry dock there, which we moved to our home location and there’s still some small machinery that we have in the facilities. So that obligation will end December 31.

And then, David, if you want to address the update on advisers..

Yes, Jeff, we received some recommendations that were really developed by the management team as well in consultation with the advisers. We presented that to our Board of Directors and they received that. And I think at this point, that’s certainly something that we’re incorporating into our future strategy.

But in the meantime, we’re going to be maintaining a very conservative capital structure. We’ve got a lot of large project opportunities that we’re evaluating. And we want to make sure that we have the financial position to help support those going forward. Kirk mentioned some investment being made on the human capital side.

So that that’s going to be our first priority is just to maintain a very conservative capital structure..

Okay. Second question, and I know you spoke on the two multi-purpose offshore vessels at length, but I did want to revisit the financing.

And those – I believe on last quarter’s call, you indicated that you had $55 million left to bill on those two vessels and $40 million in costs suggesting that there might be an opportunity for some recuperation of losses previously recognized.

Can you provide an update on the outlook?.

Yes. We’ve incurred greater losses than we had anticipated since the last quarter, but those losses are in the past. And so based on our current estimates and cost to complete, we believe that cost to complete the vessels will be a little over $30 million, and we still have milestone payments in excess of $50 million.

And so, from this point forward, we still have positive residual cash flow opportunity. So we’re going to be continuing to move forward to make that a reality to the extent we can..

Excellent. Final question would be on offshore wind and it’s something that we identified as pretty significant opportunity going forward after you worked on the Block Island wind farm.

Can you talk about any strategic relationships that you have developed or continue to develop with developers of offshore wind farms? And then if you have any sort of update on any specific projects?.

Sure. Jeff, so this is Kirk. First of all, when we talk about our partnering ability for our future projects, we are still maintaining a relationship with the partners that we had on Block Island, which included EEW, which is a German firm.

And so that relationship continues and collectively we were pursuing two projects, in particular, one for deepwater wind and another project that is currently being bid by the majors, which includes Dong Energy and others for project of the coast of Rhode Island.

And so we are in the process of, as I said, providing updated estimates to these two projects. These projects still a little ways off in terms of being awarded, I still think, they’re about a year out.

But nonetheless, Gulf Island, I think is well-positioned for these projects, including trying to establish local content within the regions that these units are going in. And so consequently, we’ve been focusing a little bit of effort along the East Coast looking for different facilities, as well as fabricators to assist us in these projects..

Excellent. Again, thank you for your time. Congratulations on the contract wins and look forward to speaking next quarter..

Sounds good, Jeff. Thank you..

We’ll move next to John Deysher from Pinnacle..

Hi, good morning, everyone..

Good morning, John..

A quick question, Kirk, on the insurance recovery from the hurricanes.

How much was that again? What are your claims in terms of dollars for that?.

Well, what we’re looking at right now John is, it’s a range. It – like I said, we have not gotten finalization with adjusters, but we believe it could be anywhere from a low number of $12 million to high number of somewhere is around $22 million. Some of that is being driven by damage that we’ve experienced to our cranes.

And so, again, that that’s the process with the cranes. The buildings were a little bit easier to make this estimates and whatnot. The cranes were a little more complex, as you can imagine, because of as much electronics in those cranes and make sure that there wasn’t any damage to structural part of the crane.

Last thing you want to do is use the cranes and hurt someone. So there’s an ongoing inspection on the cranes to determine the exact, or the amount of damage that was done to them. So that’s really the open port of our claim as we said now. And one thing to remind you, John, we did receive insurance proceeds.

During this quarter, about $1.5 billion in advance, just lets you know. Since then, we’ve collected a total of about $3.3 million in insurance claims and we have a request for additional $2.7 million just as an initial cash outlay from the insurance companies which they have agreed to do. So about $3.3 million to-date has been received on a claim..

Okay, great.

So that, I’m sorry, the $12 million to $2 million that was for buildings only, that was excluding cranes?.

No, that was building any cranes..

And cranes, okay..

Yes..

So I guess, the question is, if you get $20 million or $22 million, you don’t necessarily have to spend that.

Do you? You don’t have to necessarily replace damaged equipment and damaged property? Is that fair?.

Well, that is correct. And of course, we’ve got to make sure that anyone who has any potential interest in the facilities, that we have to see the needs that they have in terms of what they need the facilities for. And certainly, we believe at this point in time that, we were not going to spend that for money to get the facilities back up and running.

But again, I’d like to be a little cautious in that respect, as we get our final numbers in and make our final termination, we certainly will share that with the marketplace..

Okay, great. Thanks for the color. Good quarter..

Yes. Thanks, John..

[Operator Instructions] And at this time, there are no additional callers on the queue. I would like to turn the conference back over to Kirk Meche for any additional comments..

This will conclude our third quarter 2017 conference call. Again, thank you for joining us, and we invite you to join us for our fourth quarter 2017 call in February..

That does conclude today’s teleconference. We thank you all for your participation..