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Operator: 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.

Cindi Cook: 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?

Richard Heo: Thank you, Cindi. Good afternoon, everyone, and welcome to our first 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 end market trends and an update on the progress we have made on our strategic initiatives. Wes will then discuss our first quarter results in greater detail. We’ll then open up the call for questions and end with closing remarks. We’re currently focused on the second phase of our business transformation which is based on generating stable, profitable growth. So we were very pleased to report another period of steady growth in our Services Division and small-scale fabrication business during the first quarter.

We continue to be encouraged by the favorable demand trends that are benefiting our key end markets in the Gulf Coast region which together with our strong competitive positioning should result in continued growth in services and small-scale fabrication during fiscal 2023. As we discussed last quarter, in late February, we received notice to suspend all project activities related to our large fabrication project. Unfortunately, we still have not received any further resolution on the status of the project and we continue to take steps to minimize the impact of the suspension while we await an update on the project. While this is disappointing, we remain encouraged by the bidding activity in the large fabrication market and are optimistic we will be able to replace this project in the event it is ultimately canceled.

We’re pursuing several large fabrication project opportunities, and we’re hopeful we will have news to share in the second half of 2023. As it relates to our Shipyard wind down, we are happy to be nearing the completion of our remaining Shipyard operating obligations as we expect to complete the North Carolina and Texas ferry contracts during the second quarter. We began the process of exiting the shipyard business just two years ago, and we look forward to being able to shift 100% of our focus to our services and fabrication businesses. Now turning to our segment results. First, looking at our Services Division. Our first quarter revenue grew almost 5%, which was all organic as we fully lapped the DSS acquisition last quarter. More importantly, the services operating income was almost — up almost 100% compared to last year, driven by significant margin expansion as we continue to shift our resources to higher-margin opportunities.

The opportunity to reallocate resources to higher return opportunities was a key priority following the acquisition of DSS. So our success on this objective provides further validation for the rationale of the acquisition. We remain excited by the steady margin growth of our services business, and we have quickly built a leading services platform in the Gulf of Mexico. Our success in the services business is a function of a skilled craft labor force that now numbers almost 600 employees. We are proud of our ability to maintain our services head count despite what continues to be a very competitive labor market. The demand trends for offshore services in our core Gulf of Mexico market remain attractive, driven by the favorable oil and gas market conditions.

We have also been very pleased with the positive reaction in the market to our new Spark Safety product offering which provides welding closures that create a safe environment for hot work to be carried out without the need to shut down operations. We commenced our second Spark Safety project in the first quarter and expect this business line to be a material contributor going forward. With the success of Spark Safety and the favorable market trends, we expect our services business to generate operating income growth in 2023. Now moving on to our Fabrication Division. During the first quarter, approximately $23 million of our revenue was attributable to our large fabrication project prior to its suspension. Absent this revenue contribution, we generated year-over-year revenue growth of almost 200% owing to the continued strength in our small-scale fabrication business.

The continued strength in our small-scale fabrication business is being driven by the favorable demand trends in our core markets, combined with our strategic location in Houma, strong customer relationships, and track record of quality and on-time completion of projects. While the year-over-year comparisons in our small fab business may vary from quarter-to-quarter, we still expect full year growth in small-scale fab for 2023. While the ongoing suspension of our large fabrication project is disappointing, we remain optimistic regarding the bidding environment in the large project fabrication market. Industry capacity remains limited and project activity in markets such as LNG, petrochemical and energy transition remains robust. The timing of a final decision on our existing large project is uncertain.

However, we are actively pursuing new opportunities to replace this backlog in the event that the contract is ultimately canceled, and we are hopeful that a replacement contract could be awarded in the second half of 2023. And just as a reminder, as we have stated, many times in the past, we will not chase backlog and we are committed to remaining disciplined to ensure that any large contract award is consistent with our financial and risk objectives, especially given the inflationary and labor challenges that we face today. Finally, turning to our Shipyard Division. We continue to make progress towards an efficient and safe wind-down of our shipyard operations. And as previously discussed, we expect to complete our remaining shipyard obligations by the end of the second quarter.

With respect to our 70-vehicle ferry project for the Texas DOT, the construction phase of the ferry is substantially finished as we detailed last quarter, the U.S. Coast Guard determined that the vessels wood consoles, which were contractually specified by the customer must be replaced or modified with metal consoles. Modifications have been completed and we are awaiting final approval and inspection from the U.S. Coast Guard and TxDOT in order to schedule delivery of the ferry this month. We’re continuing to work with the customer to minimize the financial impact of the delay as we work towards final delivery and commissioning in the second quarter. With respect to our 2 40-vehicle ferry projects for the North Carolina Department of Transportation, our teams continue to make progress.

One of the ferries was delivered during the first quarter, and we received conditional acceptance of the vessel. However, as discussed on our previous call, we encountered an equipment issue associated with the previously mentioned design efficiencies and are awaiting the replacement equipment to be delivered and installed. The repair should be completed this month as we work towards final acceptance. The last ferry is in the final outfitting stage, and we are targeting completion and delivery by the end of the second quarter. Separately, our lawsuit in North Carolina State Court seeking damages resulting from the design flaws for the vessels and the resulting delays is ongoing. Turning to the MPSV lawsuit with Hornbeck. As discussed on our previous call, on March 2, the appellate court reversed the trial court’s decision that had granted Hornbeck’s motions for partial summary judgment that was seeking dismissal of the claim by Gulf Island Shipyards that Hornbeck wrongfully terminated the vessel construction contracts.

As a result of the successful appeal, shipyards wrongful termination claim was reinstated. Following the appellate court ruling, the trial previously scheduled for March 6, 2023, was rescheduled to begin on October 16, 2023. On April 3, 2023, Hornbeck filed a writ application with the Louisiana Supreme Court relating to the March 2 appellate court decision. And on April 19, Gulf Island Shipyards filed its opposition to the writ applications. A decision is pending from the Louisiana Supreme Court concerning whether it will exercise discretion to review the appellate court’s decision. I would like to wrap up my comments with a quick update on our progress against our strategic initiatives. I’m very proud of our continued execution on our business transformation, which is evident by the strength of our recent financial results and has positioned us to take advantage of the favorable trends in our key end markets and pursue profitable growth.

As a reminder, the key aspects of the second phase of our strategy are based on pursuing growth opportunities in new end markets as well as our traditional offshore markets, growing and diversifying our services business, further strengthening project execution and expanding our skilled labor force. Some of our recent progress on these initiatives include the following: 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.

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

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

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

Richard Heo: 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.

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