Cindi Cook - Investor Relations Kirk Meche - President, Chief Executive Officer and Director David Schorlemer - Executive Vice President and Chief Financial Officer Todd Ladd - Executive Vice President and Chief Operating Officer.

Martin Malloy - Johnson Rice John Deysher - Pinnacle Jeff Geygan - Global Value Investment Corporation.

Good morning and welcome ladies and gentlemen to the Q1 2018 Gulf Island Fabrication, Inc. Earnings Conference Call. [Operator Instructions] This call is being recorded. At this time, I’d like to turn the conference over to Ms. Cindi Cook for opening remarks and introductions. Cindi, please go ahead..

Thank you, Lauren. Good morning. I would like to welcome everyone to Gulf Island Fabrication’s 2018 first quarter teleconference. A copy of the press release of our financial results for the quarter is available on our website at gulfisland.com. A replay of today’s call will be available on our website later today.

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 Form 10-K and subsequent SEC filings. Today, we have Mr.

Kirk Meche, President, CEO and 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. I want to hit a few highlights of the quarter before David reports on financial results for the quarter. On April 20, 2018, we completed the sale of our Texas South Yard located in the Ingleside for $55 million to a subsidiary of Buckeye Partners.

This is only one step in our strategic planning to improve our liquidity as we transition into diverse areas within our business sectors. Our North Yard in Texas remains for sale and we have several interested parties visit this location within the last several months, but currently do not have any buying offers.

During the first quarter of this year, we received a contract from the Navy for its T-ATS vessel program, which is subject to a bid process. The award is for 1 vessel and the contract has options for 7 additional vessels. Also during this first quarter of the year, we were awarded a MET tower for the U.S. offshore wind industry.

While this is not substantial as it relates to revenue, it does show Gulf Island’s continued efforts to diversify by being selected for a second U.S. offshore wind project.

In addition, as previously stated in our last quarter’s conference call, we have a nonbinding Letter of Intent with EEW as it relates to its Letter of Intent with their customer for structures off the coast of Maryland. Along with this LOI, we have executed a team agreement with EEW for future U.S. offshore wind projects.

Now on to matters as it relates to our Shipyard sector and the construction and delivery of 2 MPSVs for a particular customer. As previously reported, we received a purported termination letter from our customer, which we dispute.

Pending resolution of the dispute, all work has been stopped and the vessels and associated equipment and material are in our care and custody at our shipyard in Houma, Louisiana. I will now turn the call over to David who will provide details on our earnings and segment breakdowns.

David?.

buildup of cost for contracts and progress of $9.1 million; buildup of retainage on projects of $1.5 million; operating losses in excess of non-cash depreciation, amortization and impairment and stock compensation expense of approximately $3.8 million; payment of year end property taxes of approximately $2 million.

And these uses of cash were offset by $10 million advance on our revolver and another $2.2 million in the insurance proceeds received related to our South Texas property claim from Hurricane Harvey. We have a remaining outstanding claim request for Hurricane Harvey-related damages, which we hope to resolve during the second quarter of this year.

After the sale of our Texas South Yard and as of April 25, 2018, our cash balance was $55 million and amounts outstanding on our revolving line of credit was $10 million, with the remaining availability under our credit agreement of approximately $25 million for a total liquidity of $80 million.

I will 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 will begin with our Fabrication division. Mothballing activities for our GMF location are in its final stages as we are moving the last of our equipment out of the South Yard in preparation for a timely transition given the recent sale of the facility.

The North Yard will retain maintenance personnel for preservation of equipment and facilities, until a sale is secured. Our Louisiana fabrication facilities, has completed delivery of the Axiall, Lotte project. During this quarter, we delivered the last of 4 modules for this ethylene plant in Lake Charles.

This fourth and final module sailed from our facilities last weekend. We thank CB&I for the opportunity and look forward to assisting them with future endeavors. Our Services division had another strong quarter. Work associated with offshore tiebacks, upgrades and maintenance projects remain strong.

We will continue to pursue opportunities within the offshore and onshore plan expansion and maintenance programs as well as supporting the continued growth of developing shale infrastructure in West Texas.

In our Shipyard division, work continues on the 8-ship docking tug project in our Jennings location as well as servicing vessel repair needs in our Lake Charles facility. In our Houma location, work continues on the second Tidewater vessel, with delivery scheduled for the second quarter of this year.

It should be noted that our customers for the docking tugs, along with Tidewater, are extremely pleased with our performance and in Tidewater’s case, performance of the vessel which was delivered in the first quarter of this year. We also have 5 vessels for Tidewater that have recently been drystacked in our facilities. Engineering of the St.

Lawrence Seaway icebreaker-class tug is in progress, with fabrication scheduled to commence late in the second quarter of 2018. Design engineering verification for the research vessel for Oregon State continues, with fabrication not scheduled to commence until early third quarter 2018.

Our EPC division had received an early works purchase order from SeaOne. We continue to work with SeaOne on finalizing initial engineering design and project pricing. I will now turn the call over to Kirk for final comments..

Alright. Thank you, Todd. We remain focused on preserving our balance sheet as we continue to direct our efforts on various opportunities. We remain committed to cutting costs within the company, which starts at the board level, with our Board of Directors taking a pay adjustment along with executive management.

We will continue these efforts along all divisional lines while remaining focused on the needs for future growth of our company and the resources needs to obtain our goals. Lauren, you may now open the lines to questions from analysts..

Thank you, sir. [Operator Instructions] Our first question comes from Martin Malloy with Johnson Rice..

Good morning..

Hey, Martin. Good morning..

Congratulations on closing the sales of one of the yards in Texas..

Thank you. Yes..

First question just in terms of the bidding outlook, maybe if you could comment on what you are seeing out there in terms of additional modules, the SeaOne project, additional vessels, including tugs and maybe if you could outline for us the timing of how this bid protest will be figured out for the Navy vessel, then the potential timing of options being exercised?.

Okay. Marty, this is Todd. Real quick, yes. So, where we stand right now in regards to outlook and seeing other proposals that are out there, there is a lot of work that’s going to be happening all throughout the petrochemical industry for the Gulf Coast and other areas that we are seeing within the U.S. infrastructure.

We are definitely pursuing a lot of that work. It’s one of those items where some of this though might not be items that start for another 2 years because of the engineering cycles and things that’s out there.

But again, we are pursuing it and we are have – I mean we do have people that are out there looking to see everything that’s a possibility that works into our typical steel fabrication facilities that we have that’s already in place.

In regards to the items on the Shipyard side and what we are seeing, again, as far as the offshore industry, that’s extremely limited to any opportunities there. But when you start looking at things around like the service work that’s with the small docking tugs, there is still a lot of that that’s going on and we see that continuing.

We also see more items around brown water type work and also potential around maybe some LNG support type things with ATBs and all that maybe coming up. And on the wind industry, that’s one of the big items that we have really focused in on and seeing the opportunity there. A lot of leases have been obtained.

A lot of people are getting their funding in place and things that are starting to come to play. Some of it we may not see on our end as far as kind of moving into contractual statuses later this year and into next year and projects that will be coming.

But again this is something where we are going to see some continued growth and it’s going to go well on for a few years that we are going to see this continuing to mature and become an industry that we are going to be participating in..

And Marty, this is Kirk. So getting back to the Navy project, the latest is that mid-July will be the latest date in which they have to make the ruling as it relates to the protest that was lodged and timing, as the remaining backlog. The backlog itself for the 7 remaining vessels takes us all the way out through 2025..

And in terms of when those options might be exercised, is it one a year or is it would they exercise a group of them up closer to the front?.

So what it is, they are staggered and so we’ll see as they come, but it’s basically 8 of them over an 8-year period is what we are going to see. And so with that, they have an option on how they can move some things up or possibly move a little bit back, but in general, yes, it’s roughly 9 months to a year in between each one that gets released..

Okay.

And then on the MPSV situation, where you stopped work on the two, can you outline for us maybe how this might get resolved and potential timeline?.

Marty, I think at this point in time I think its best just to say that we are having conversations with the customer as well as the bonding company. And so I don’t anticipate anything moving very quickly. And I think at this point in time, I guess that’s the latest update and status of it. The work has stopped. The vessels are in the facilities.

And again, we try and push to try and get some resolution for this, but currently, there is discussion going on I think is the best way to just leave it there..

Okay, great. Thank you..

You’re welcome. Thank you, Marty..

[Operator Instructions] We will take our next question from John Deysher with Pinnacle..

Hi, good morning everyone..

Hey, good morning, John..

I was just curious, Kirk, on the MPSVs how much of that is in the backlog right now? You said the total was $94 million regarding the two projects. I think the Navy vessel was around $64 million.

So does that imply backlog of $30 million or so for the MPSVs in the backlog?.

Marty [ph], this is David. You are typically pretty good with numbers, but I think we would prefer not to say at this point given the ongoing dispute resolution that we have with that particular customer. John, I am sorry. I am sorry, John..

No worries.

How much of non-recurring costs were embedded in the first quarter results because of that dispute for legal for whatever you want to include there?.

Well, I think it’s got a multiple numbers on it. There are legal costs associated with it, but there were also some cost associated with performing the work up until the stop-work order was issued. So John, I apologize, I don’t have that number right in front of me..

Okay, no worries. I will circle back with you.

And I guess finally with the delivery of the second Tidewater vessel in the second quarter, will we get any money once we deliver that and if so, how much?.

Yes. So again, it’s milestone-driven payments on Tidewater as it is mostly shipyard contracts and I believe it’s roughly another $2 million or so..

You said $2 million?.

$2 million, yes, John, $2 million..

$2 million. Okay, got it. That’s it. Thank you..

Okay, thank you, John..

And we will take a follow-up question from Martin Malloy with Johnson Rice..

Just want to follow-up on the SeaOne project and maybe any events that we should be looking for there that would help us get more comfortable with the timeline for this project moving forward.

Should we be looking out for announcements from the customer there as far as financing and off-take agreements being signed? I think you mentioned before that there is – you were likely to – that there is the potential for the contract to be signed this year for the EPC?.

So Marty, I think if you track the website for SeaOne as well as the Biloxi, the Port of Biloxi, as we understand it, SeaOne is waiting to take I guess ownership of the ports facility in terms of the leasing. There was some site work that had to be completed prior to SeaOne taking over that. They would have some weather delays in that respect.

So I think once you see that they have completed that and SeaOne has taken the lease of the facilities, I think that probably would be a good trigger as to the next chain of events that’s going to happen within SeaOne. So I think if you log on to their website, you will be able to see some of those data they post..

Okay.

That’s on the port website?.

Well, either the port website and/or I believe SeaOne has website as well..

Okay, thank you..

You’re welcome..

Our next question comes from Jeff Geygan with Global Value Investment Corporation..

Hey, good morning gentlemen. Thanks for taking my questions here..

Good morning, Jeff..

Backing up a little bit, it’s been a fairly challenging environment over the last 2, 3 years. Congratulations you weathered it, although it’s been a little bit challenging.

I am curious about your view and the board’s view of the company and the opportunities that exist in both oil and gas and energy generally onshore and offshore and how we as shareholders should think about the evolution of the company as we go into the next cycle?.

Okay. So Jeff, this is Kirk. You are absolutely right. But I think you have seen Gulf Island as we call it the pivot. As we continue to diversify our sectors, our segments, our divisions, we have created an EPC division to actually go after the markets not really traditionally associated with oil and gas.

When you look at the EPC group we’ve formed, that EPC group primarily is focused currently on onshore module fabrication as well as East Coast development with the wind industry. We are not in the business to go and compete for the huge projects with deepwater as it relates to some of our competitors.

So I think that would give you an indication of where we as management and the board feel that the company is heading as we continue to go through these marketplaces. I hope that answers the question. And again – well and Shipyard sectors as well. So we are trying to get our Shipyard sectors where it needs to be, as Todd has said earlier in the call.

There is not much opportunity as it relates to supply boats or OSUs or anything else associated with the oil and gas industry, but there is a tremendous amount of interest coming up as it relates to the offshore wind projects, because of Jones Act protection of the vessels.

And so we are heavily, I won’t say engaged, but we have a lot of conversation with our customers – potential customers as they try and figure out ways to make sure that Jones Act compliance is met as well as the opportunities for new construction or modifications to existing vessels.

Now on our services group, as David has said in the call, the services group had another strong performance this quarter and we forecast that to continue on through the year. But we plan on expanding that division into other sectors, which include onshore and which may include other sectors.

Again, I don’t want to get too far ahead of myself in terms of wind opportunities and whatnot. But certainly, in the distant future, someone needs to maintain those structures offshore as well.

So we think we have got a good model as it relates to the future for diversification within the companies, but again not losing sight of the core business that we enjoy for all of these years has been pretty dormant over the last 3 years.

And I think with our location in Louisiana, we are geared and ready to get back in action should that market improve, but currently, we don’t see much improvement, especially through 2018..

That’s helpful. I appreciate it.

And specifically to the SeaOne contract, what can you tell us about the financing on their part and what that implies in terms of the outlook for us? How are we gearing up anticipating they do have that financing? And in the event that, that doesn’t materialize, what impact will that have on our EPC division?.

Well, as it relates to their financing, I don’t have anything definitive, but I can tell you where they stand with their financing other than I think what we have reported on other conference calls in terms of some of the large investors they have told us. So, we have to assume that they are continuing on with their investment portfolio.

Again, as Todd has said earlier, we did get an early works commitment from those guys for about $1 million. Again, that will cover the cost associated with our EPC group for several months to come.

In the event that SeaOne would delay or not happen at all, again when we look at the EPC group we have, that group is easily rolled into other sectors of the business in terms of our future models, which includes offshore wind. So, it’s not a huge staff we have here in Houston.

We have limited the hiring process until we get firm commitments from SeaOne. But certainly, those folks that we have hired to put into this group are multitalented and have the ability to cross lines not only as SeaOne, but it’s a different market. So look, I look at it as a positive.

If SeaOne would not happen, for whatever reason, again it’s much needed horsepower we need within this company. So, I think as shareholders and management I think we really will benefit from these guys being part of our staff going forward..

I appreciate the additional color. Thank you and good luck..

Okay, thank you..

We will go next to a follow-up question from John Deysher with Pinnacle..

Hi.

Just a quick follow-up on the proceeds from the South Yard, congratulations again on getting that over the finish line, but what are the thoughts in terms of how that’s going to be deployed going forward? Obviously, you have got some short-term issues and some funding requirements, but what else are you thinking about with respect to those proceeds?.

Well, John, this is David. I think that we are going to be very protective of our liquidity and we want to maintain a very strong position as we bring on some of these contracts that we have been able to add to our backlog over the last year and also as we continue to invest in our EPC division.

So, I think what you will see is we will be very protective of that liquidity position over the next several quarters. If we identify some potential growth opportunities, those will be done in conjunction with greater visibility to earnings and just making sure that we have a very strong balance sheet going forward into the next year..

Great. That’s good to hear. Thank you..

It appears there are no further questions at this time. This concludes today’s question-and-answer session. At this time, I would like to turn the conference back to management for any additional comments..

This will conclude our first quarter 2018 conference call. Again, thank you for joining us and we invite you to join us for our second quarter 2018 call in August. Have a nice day..

This concludes today’s conference. Thank you for your participation. You may now disconnect..