Good afternoon, ladies and gentlemen. Welcome to Gulf Island's conference call to discuss First Quarter 2023 Results [Operator Instructions]. At this time, I would like to turn the floor over to Ms. Cindi Cook for opening remarks and introductions. Cindi, please go ahead..

Thank you, and good afternoon. I would like to welcome everyone to our first quarter 2023 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 7:00 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, 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 Heo, President and CEO; and Mr. Wes Stockton, Executive Vice President and CFO. Mr.

Heo?.

First, in terms of our pursuit of project opportunities in traditional offshore markets as well as new growth end markets, we continue to generate strong growth from our traditional markets and our small-scale fab business and we expect this momentum to continue.

In addition, we're pursuing several projects in new end markets, and we have recently announced an award for structural components for NASA's Artemis program.

We're confident that our strategic location in Houma and our track record of high-quality, on-time execution on complex projects is transferable to a wide range of end markets and believe we are well positioned to take advantage of the favorable trends in the ancillary markets. Second, we continue to make progress on expanding our services business.

We're very pleased that we have been able to maintain our head count given the competitive labor market and continue to look for ways to expand and retain our skilled craft headcount. Our most notable near-term success in services has been the rapid growth of our new Spark Safety business.

We began our second project during the first quarter and interest from the customers remain high due to the additional safety features of our system. We expect the success of this new business to be a key contributor to the growth of our Services Division going forward.

Lastly, we remain committed to maintaining bidding discipline in our large fabrication business as we pursue new awards.

While we are eager to replace our large fabrication project in the event is terminated, given the ongoing inflationary pressures and challenges with the availability of skilled labor, we will not enter into an agreement that does not meet our return objectives and risk tolerances as we continue to assess the overall return on investment of our fabrication asset.

In closing, I'm pleased by our first quarter results and remain encouraged by the favorable end market trends. We expect to generate continued profitable growth in our Services Division and small-scale fabrication business, and we are encouraged by the active bidding environment in the large project market.

I'll now turn the call over to Wes to discuss our quarterly results in greater detail..

Thanks, Richard, and good afternoon, everyone. I will discuss our consolidated results and then provide some additional details regarding our segment results, putting in context the factors mentioned by Richard and their impacts on the quarter. I will then conclude with a discussion of our liquidity.

Consolidated revenue for the first quarter of 2023 was $62.2 million, an increase of over 115% from the first quarter of 2022, driven by continued growth in small-scale fabrication revenue related to our large fabrication project prior to its suspension and growth for our Services Division attributable to our new Spark Safety business line.

Consolidated net income for the first quarter was $641,000 and EBITDA was $1.7 million. Our consolidated results reflect the positive contributions from our Services and Fabrication Divisions. Offset by costs associated with our Corporate Division and legal and advisory fees attributable to our remaining shipyard operations.

Specifically for the Services Division, Revenue for the first quarter 2023 was $21.6 million, an increase of 4.5% compared to the same period last year. The increase was driven by the contribution of our Spark Safety business line, which we launched in the third quarter of 2022.

While our core services revenue was down modestly from last year, excluding Spark Safety, we continue to take advantage of the tight labor market by allocating our skilled labor workforce to higher-margin project opportunities.

As a result, services EBITDA for the quarter was $2.8 million or 12.9% of revenue, up from $1.5 million or 7.5% of revenue for the prior year period. Operating results for the quarter benefited from our Spark Safety business line and a more favorable project margin mix.

We continue to expect organic growth and strong operating results for the division in 2023 based on the strength of our end markets, favorable competitive position and contribution of our Spark Safety business line.

For our Fabrication Division, revenue for the first quarter of 2023 was $39.7 million, up significantly from first quarter 2022 revenue of $5.6 million. The increase was attributable to strong growth in small-scale fabrication and revenue related to our large fabrication project prior to its suspension.

As noted by Richard, total revenue associated with our large project was approximately $23 million for the quarter and a significant portion of which was related to procurement activities, which generated limited gross margins. Fabrication EBITDA for the first quarter was $3.1 million versus a loss of $2.1 million for the prior year period.

The improved profitability in 2023 was the result of higher revenue and a decrease in the under-recovery of overhead costs due to improved utilization of our facilities and resources and recoveries associated with our large fabrication project.

As a result of the large project suspension, we expect our results in the second quarter to be challenged relative to the first quarter and are working to mitigate the impacts of the suspension on the remainder of 2023.

For our Shipyard Division, Revenue for the first quarter 2023 was entirely related to our 70-vehicle ferry and two 40-vehicle ferry projects, which as discussed by Richard, are nearing completion.

Our loss for the quarter was primarily related to vessel holding costs and legal and advisory fees associated with the MPSV litigation and the partial under-recovery of overhead costs due to the underutilization of our resources as we wind down our shipyard operations.

For our Corporate Division, general and administrative expense was $2.1 million for the first quarter 2023 compared to $2 million for the prior year period, with the increase largely due to timing of certain costs.

With respect to our liquidity, we ended the first quarter with a cash and investments balance of approximately $45 million consistent with our balance at year-end. At March 31, we had total receivables of $15.5 million for our suspended large fabrication project the majority of which relate to procurement activities.

Subsequent to quarter end, we received payments of $3.1 million. However, our customer has indicated that any meaningful remaining payments may not be received until the third quarter 2023. Accordingly, we expect our cash balance to decline during the second quarter due to temporary working capital usage related to the anticipated payment delays.

We are working with our vendors to mitigate the second quarter cash flow impacts of the delayed payments and we have received a payment guarantee bond from our customer as security for a substantial portion of the remaining receivable balance. This concludes our prepared remarks. Operator, you may now open the line for questions..

[Operator Instructions] The first question comes from Tom Spiro from Spiro Capital..

Tom Spiro, Spiro Capital. Just a couple of questions. One on the large fab job that's now under suspension.

What is your ability to terminate it? Can you do it freely? Is there some kind of cost associated with it or a timing issue -- how easily can you terminate?.

It's not a function of -- I think you're asking in the context of thinking we might need to terminate it for some reason. At this point, it's not impacting us and our ability to go pursue other work is not being impacted by the suspension at this point.

And we're still having conversations with our customer and doing other small scopes of work with the customer on other things. So if there's something more that you are wanting to get at, just let me know and we can try to answer that a little bit more crystally..

But if you're in the process of discussing another large project with someone else and that other fellow says, hey, can you get out of what you got now the suspended job, what's your answer?.

We don't think we'll have a problem with that ultimately..

In the press release you refers to energy transition markets as one of the opportunities for the company. I'm hardly an expert in all of that. But I hear a lot about hydrogen. I hear about carbon capture, I hear about energy storage.

What -- in particular, in the energy transition markets that you feel represents opportunity for the company?.

Yes, we're actively pursuing right now a project on the hydrogen side of the business, where essentially, our modular capabilities are of interest to a particular client. And so Hydrogen is one we're chasing actively. And then obviously, in markets like ammonia, there are other similar types of opportunities..

And things like hydrogen and ammonia and are those -- they sound like they're fairly near-term opportunities. I have a sense sometimes when I read about energy transition that it's two, three, four years from now, it sounds like it's not. It's a couple of quarters from now, you might have something..

Yes, that's correct, Tom..

[Operator Instructions] The next question comes from John Deysher from Pinnacle..

Solid quarter, I just have one quick question. Wes, could you go over the receivables balance from the major customer? And what the -- I guess, you collected something in the subsequent to quarter end.

What were those numbers again, please?.

We have about $15.5 million of receivables at the end of the quarter. We collected approximately $3 million subsequent to the suspension and subsequent to the quarter. One thing I do want to point out that the customer -- our perception is the customer is just managing its cash flow priorities on its various capital projects.

We're not in a dispute with the customer. We've actually received a commitment letter from the customer acknowledging all the amounts due. And then we do have or did receive a payment guarantee bond that provides us security for a substantial portion of that amount.

With that said, we do expect a temporary working capital impact in the second quarter because of the delays and then by the time we get through the third quarter, our working capital will be back to its normal what we believe would be back to its normal position..

Do you expect to collect anything in the second quarter from them?.

We haven't been told we won't. But at this point, we wouldn't expect anything more meaningful other than the $3 million that I mentioned..

This concludes the question-and-answer session. I would like to turn the conference back over to Richard Heo for closing remarks..

In closing, I want 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 success.

For those on the call, thanks again for your interest and I look forward to speaking with you on our second quarter results conference call and updating you on our progress. Be safe and take care. Thank you..

This concludes the Gulf Island conference call. Thank you, and goodbye..