Market Overview

Gulf Island Fabrication, Inc. Reports First Quarter Earnings

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Gulf Island Fabrication, Inc. (NASDAQ:GIFI) today reported a net loss
of $6.5 million ($0.44 basic and diluted loss per share) on revenue of
$38.0 million for the three months ended March 31, 2017, compared to net
income of $1.0 million ($0.07 basic and diluted earnings per share) on
revenue of $84.0 million for the three months ended March 31, 2016.

The net loss for the period is primarily attributable to an overall
decrease in work experienced in our facilities as a result of depressed
oil and gas prices and the corresponding reduction in customer demand
within all of our operating divisions. Additionally, included in this
quarter's results is $1.9 million of depreciation expense incurred by
our Fabrication Division with only $2.9 million in revenue generated
from our South Texas facilities as we wrap up fabrication projects in
South Texas. Our South Texas assets were reclassified to Assets Held for
Sale on February 23, 2017, and we have suspended depreciation expense on
a prospective basis. Also included within our results for three months
ended March 31, 2017, is approximately $1.0 million of quarterly
recurring holding costs for these facilities while they are being
marketed for sale.

The Company had revenue backlog of $113.2 million and labor backlog of
approximately 1.1 million hours at March 31, 2017, including formal
commitments received through April 26, 2017, compared to revenue backlog
of $133.0 million and labor backlog of 1.3 million hours reported as of
December 31, 2016.

    March 31, 2017     December 31, 2016
(in thousands)
 
Cash and cash equivalents   $ 34,663   $ 51,167
Total current assets 210,816 113,360
Property, plant and equipment, net 91,014 206,222
Total assets 304,660 322,408
Total current liabilities 27,880 35,348
Total shareholders' equity 256,000 263,032
 

Our balance sheet position at March 31, 2017, remains stable with $34.7
million in cash, no debt, and working capital of $182.9 million which
includes $110.5 million in Assets Held for Sale, primarily related to
our South Texas facilities. We continue to monitor and maintain a
conservative capital structure as we navigate through the current oil
and gas industry downturn. We also are currently in discussions with one
of our financial institutions to enter into a new revolving line of
credit with comparable availability, but with less restrictive financial
covenants and reduced fees as compared to our current revolving credit
facility. We expect to close on this new revolving credit facility and
terminate our existing revolving credit facility in the second quarter
of 2017.

Our cash at March 31, 2017, decreased approximately $16.5 million as
compared to December 31, 2016, primarily related to the following:

  • Operating losses for the quarter in excess of non-cash depreciation,
    amortization, impairment and stock compensation expense of
    approximately $3.7 million,
  • Payment of year-end bonuses related to 2016,
  • Progress on liabilities from assumed contracts in the LEEVAC
    transaction. While our purchase price for the acquisition of the
    LEEVAC assets during 2016 was $20.0 million, we received a net $3.0
    million in cash from the seller for assumed net liabilities and
    settlement payments on ongoing shipbuilding projects of $23.0 million
    that were assigned to us in the transaction. We have significantly
    progressed these contracts which, in turn, has resulted in utilization
    of the working capital and settlement payments received during 2016.
  • Fewer receipts from accounts receivable, primarily $4.6 million from
    one customer that refused delivery of a vessel on February 6, 2017,
    and has not paid. We have initiated arbitration proceedings during the
    quarter to enforce our rights under our construction contract.
  • Build-up of costs for contracts-in-progress related to a customer in
    our Shipyards division with significant milestone payments occurring
    in the later stages of the projects which are expected to occur
    beginning in the third quarter of 2017 through the first quarter of
    2018.

The management of Gulf Island Fabrication, Inc. will hold a conference
call on Thursday, April 27, 2017, at 9:00 a.m. Central Time (10:00 a.m.
Eastern Time) to discuss the Company's financial results for the quarter
ended March 31, 2017. Participants may also join the conference call by
dialing 1.888.670.2246 and requesting the "Gulf Island" conference call.
A digital replay of the call will be available from a link on our
website two hours after the call and ending May 4, 2017.

Gulf Island Fabrication, Inc. is a leading fabricator of complex steel
structures and marine vessels used in energy extraction and production,
petrochemical and industrial facilities, power generation, alternative
energy projects and shipping and marine transportation operations. The
Company also provides related installation, hookup, commissioning,
repair and maintenance services with specialized crews and integrated
project management capabilities. The Company is currently fabricating
complex modules for the construction of a new petrochemical plant,
completing newbuild construction of a technologically advanced offshore
support and two multi-purpose service vessels and recently fabricated
wind turbine pedestals for the first offshore wind power project in the
United States. The Company also constructed one of the largest lift
boats servicing the Gulf of Mexico ("GOM"), one of the deepest
production jackets in the GOM and the first SPAR fabricated in the
United States. The Company's customers include U.S. and, to a lesser
extent, international energy producers, petrochemical, industrial, power
and marine operators. Our corporate headquarters is located in Houston,
Texas, with fabrication facilities located in Houma, Jennings and Lake
Charles, Louisiana, and Aransas Pass and Ingleside, Texas.

   

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

 
Three Months Ended
March 31,   March 31,   December 31,
2017 2016 2016
Revenue (1) $ 37,993 $ 83,979 $ 55,461
Cost of revenue 42,890   78,278   55,633  
Gross profit (4,897 ) 5,701 (172 )
General and administrative expenses 3,930 4,485 5,037
Asset impairment 389  

-

 

-

 
Operating income (9,216 ) 1,216 (5,209 )
Other income (expense):
Interest expense (59 ) (50 ) (84 )
Interest income

-

6 4
Other income, net 9   398   (358 )
Total other income (expense) (50 ) 354   (438 )
Income before income taxes (9,266 ) 1,570 (5,647 )
Income taxes (2) (2,812 ) 581   (2,092 )
Net income $ (6,454 ) $ 989   $ (3,555 )
Per share data:
Basic and diluted earnings per share - common shareholders $ (0.44 ) $ 0.07   $ (0.24 )
Cash dividend declared per common share $ 0.01   $ 0.01   $ 0.01  
(1)   Revenue for the three months ended March 31, 2017 and 2016 and
December 31, 2016, includes the recognition of $1.5 million, $1.2
million and $1.1 million in non-cash amortization of deferred
revenue related to the values assigned to contracts acquired in the
LEEVAC transaction, respectively.
 
(2) We adopted Accounting Standards Update (ASU) No. 2016-09 on January
1, 2017, which requires the recognition of the excess tax benefit or
deficiency related to the difference between the deduction for tax
purposes and the compensation cost recognized for financial
reporting purposes created when stock grants vest as an income tax
benefit or expense in the Company's statement of income. Under
previous GAAP, this difference was recognized in additional paid-in
capital. During the three months ended March 31, 2017, we recorded
tax expense of $210,000 (approximate $0.01 loss per share) related
to the adoption of this ASU. Future effects to the Company's income
tax expense (benefit) in any given future period to the Company's
future income tax expense (benefit) in any given future period
cannot be reasonably estimated.

Operating Segments

Backlog (in thousands)

    March 31, 2017   December 31, 2016

Segment

$'s (1)   Labor hours (1) $'s   Labor hours
Fabrication $ 54,022 582 $ 65,444 707
Shipyards 45,592 295 59,771 457
Services 14,829 201 7,757 101
Intersegment eliminations (1,226 )

-

-

 

-

Total backlog (1) $ 113,217   1,078 $ 132,972   1,265

Results of Operations (in thousands, except percentages)

During the three months ended March 31, 2017, management restructured
its review and allocation of its corporate expenses such that a
significant portion of its corporate expenses are retained in its
corporate entity in order to individually evaluate costs related to the
corporate entity and not overly burden our operating divisions with
costs that do not directly relate to their operations. In addition, it
has also allocated certain personnel previously included in the
operating divisions to within the corporate entity. In doing so,
management believes that it has created a fourth reportable segment with
each of its three operating divisions and its corporate entity each
meeting the criteria of reportable segments under GAAP. We have recast
our 2016 segment data below in order to conform to the current period
presentation.

   

Fabrication

Three Months Ended
March 31,

2017   2016
Revenue $ 10,209 $ 23,829
Gross profit (loss) (2,966 ) 86
Gross profit percentage (29.1 )% 0.4 %
General and administrative expenses 821 795
Operating income (loss) (3,787 ) (709 )
 

Shipyards

Three Months Ended
March 31,
2017 2016
Revenue (2) $ 18,422 $ 34,120

Gross profit (loss) (2)

(1,704 ) 2,375
Gross profit percentage (9.2 )% 7.0 %
General and administrative expenses 964 1,296
Asset impairment 389

-

Operating income (loss) (2)

(3,057 ) 1,079
 

Services

Three Months Ended
March 31,
2017 2016
Revenue $ 10,712 $ 26,559
Gross profit 33 3,376
Gross profit percentage 0.3 % 12.7 %
General and administrative expenses 666 726
Operating income (633 ) 2,650
 

Corporate

Three Months Ended
March 31,
2017 2016
Revenue $

-

$

-

Gross loss (260 ) (136 )
Gross profit percentage n/a n/a
General and administrative expenses 1,479 1,668
Operating income (1,739 ) (1,804 )
(1)   Includes commitments received through April 26, 2017.
 
(2) Revenue for the three months ended March 31, 2017, and 2016,
includes $1.5 million and $1.2 million of non-cash amortization of
deferred revenue related to the values assigned to the contracts
acquired in the LEEVAC transaction, respectively.

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

We adopted Accounting Standards Update (ASU) No. 2016-09 on
January 1, 2017, which clarifies that cash paid by the Company to
taxing authorities on behalf of an employee from the value of
vested shares withheld from the employee to satisfy the income tax
withholding obligations should be classified as a financing
activity in the Company's statement of cash flows. We have
reported $880,000 within financing activities within our Statement
of Cash Flows for the three months ended March 31, 2017, as a
result of adoption of this ASU. We have also recast our Statement
of Cash Flows for the three months ended March 31, 2016, which
resulted in the reclassification of $145,000 from cash used in
operating activities to cash used in financing activities to
conform with the current period presentation.

    Three Months Ended March 31,
2017   2016
(in thousands)
Cash flows from operating activities:
Net income (loss) $ (6,454 ) $ 989
Adjustments to reconcile net income (loss) to net cash used in
operating activities:
Bad debt expense

-

30
Depreciation and amortization 4,700 6,567
Amortization of deferred revenue (1,552 ) (1,160 )
Asset impairment 389

-

Gain on sale of assets

-

(360 )
Deferred income taxes (3,035 ) 544
Compensation expense - restricted stock 459 728
Changes in operating assets and liabilities:
Contracts receivable and retainage (892 ) 5,268
Contracts in progress (3,551 ) (1,069 )
Prepaid expenses and other assets 871 650
Inventory 175 51
Accounts payable (520 ) (10,679 )
Advance billings on contracts 785 604
Deferred revenue (4,115 ) (1,623 )
Deferred compensation 196

-

Accrued expenses (2,498 ) 1,471
Accrued contract losses 66 (3,636 )
Current income taxes and other (108 ) 49  
Net cash used in operating activities (15,084 ) (1,576 )
Cash flows from investing activities:
Capital expenditures (391 ) (724 )
Net cash received in acquisition

-

1,588
Proceeds on the sale of equipment

-

  5,377  
Net cash (used in) provided by investing activities (391 ) 6,241
Cash flows from financing activities:
Tax payments made on behalf of employees from withheld, vested
shares of common stock
(880 ) (145 )
Payments of dividends on common stock (149 ) (146 )
Net cash used in financing activities (1,029 ) (291 )
Net change in cash and cash equivalents (16,504 ) 4,374
Cash and cash equivalents at beginning of period 51,167   34,828  
Cash and cash equivalents at end of period $ 34,663   $ 39,202  

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