Q1 2024 Gulf Island Fabrication Inc Earnings Call

Participants

Cindi Cook; Executive Administrative Assistant; Gulf Island Fabrication Inc

Richard Heo; President, Chief Executive Officer, Director; Gulf Island Fabrication Inc

Westley Stockton; Chief Financial Officer, Executive Vice President, Treasurer, Company Secretary; Gulf Island Fabrication Inc

Tom Spiro; Analyst; Spiro Capital

Presentation

Operator

Good afternoon, ladies and gentlemen, and welcome to Gulf Island's conference call to discuss first quarter 2024 results. All participants will be in a listen only mode for the duration of the call this call is being recorded.
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 2024 teleconference. Our results were released this afternoon and a copy of the press release is available on our website at Gulf Island.com. A replay of today's call will be available on our website after 7:00 PM 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 adjusted EBITDA adjusted revenue, 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, Cindy. 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, an update on the progress we have made on our strategic initiatives. West will then discuss our first quarter results in greater detail and provide some commentary on our outlook for 2024. We'll then open up the call for questions and end with them closing remarks.
The positive momentum we experienced during 2023 has carried into the new year as we posted another quarter of solid operating results and strong operational execution. We continue to make important progress on our strategic initiatives, putting us in a strong position to take advantage of the favorable end market trends in our core Gulf Coast region. Based on these positive trends, combined with our expectation for continued execution against our key initiatives, we are up optimistic regarding the business outlook and remain on track to achieve our full year 2024 financial targets.
Another important highlight from the first quarter was our strong financial position. Exiting the quarter West. We'll cover our balance sheet and liquidity in more detail, but we are very encouraged by our strong balance sheet with quarter ending cash of over $61 million. This gives us ample financial flexibility to pursue both organic and inorganic growth objectives.
Now turning to our segment results. First, looking at our Services division, our first quarter revenue increased 18% year over year, driven by continued strength in our offshore services markets, including further momentum in our Spark safety business.
The demand environment for our key oil and gas customers remain favorable as our customers are generating strong profitability, leading to a healthy maintenance capital spending environment. We are pleased with the continued traction for our Spark safety services offering as we continue to expand the base of new customers the biggest challenge in our services business remains the ability to attract and retain craft labor.
As a result, we remain focused on retaining our employees and finding creative ways to attract and develop new talent, including through M&A, similar to our acquisition of dynamics. That said, we remain encouraged by the trends in our service business and continue to expect a strong year in 2024.
Now moving on to fabrication, our reported revenue declines from last year, but this was entirely driven by the benefit of our large fabrication project and last year's results. The strong momentum in our small fabrication business continued during the first quarter as we saw solid year-over-year growth and strong execution in this business.
The demand trends in our legacy fabrication markets remain positive, including the opportunities we have discussed previously previously and the subsea market. A key aspect of our strategic plan is to target end markets outside of our traditional oil and gas markets. We have discussed the potential in adjacent markets such as LNG and petrochemical, and we continue to see attractive opportunities in these markets. We also continue to pursue new end markets where we can take advantage of our history of strong execution in our strategic locations.
Our contract for the fabrication of structural components for NASA, which was a key contributor to our strong growth in small-scale fabrication during the first quarter is an example of the opportunity to expand our end market focus. We are seeing that these end markets place a premium on quality and schedule certainty areas where Gulf Island is more than capable of delivering.
As a result, we believe we are in an attractive position to pursue these new end markets. We continue to pursue several attractive large fabrication projects. However, the regulatory uncertainty and uneven interest rate outlook is in many cases, extending the decision cycles and time lines of many of the large projects we are pursuing. We remain bullish on the potential for large fabrication awards, but the ability to predict timing is getting much more challenging.
However, given the meaningful growth in our small-scale business. We are now much less dependent on large orders, the strong market trends in our existing markets, as well as our opportunities in new end markets combined with the tight fabrication capacities give us confidence we are well positioned for growth in fabrication.
Finally, turning to our Shipyard Division. As we highlighted highlighted on our last call, we wrapped up our remaining operational shipyard obligations during the first quarter with the warranty period for our ferry projects being the final remaining items associated with the wind-down of the business, we are pleased to have the wind down in the shipyard behind us, and we are excited to put all of our energy and focus to growing our services and fabrication businesses to that end, we have increased our efforts to identify strategic partnerships and acquisition opportunities with our more stable Fabrication & Services platform.
Combined with our strong financial position, we are ideally suited situated to pursue strategic partnerships and acquisition opportunities that will enable us to grow our existing platform, expand our current capabilities and further penetrate new growth markets as we have done throughout our strategic transformation process, we will remain disciplined in our pursuit of both organic and inorganic growth opportunities.
In closing, we're very pleased by our strong start to the year, which was highlighted by the continued momentum in our services and small-scale fabrication businesses. These businesses combined to form a more stable and profitable base of business, which together with our strong financial position gives us an attractive platform to pursue our growth objectives. Our successful execution of our strategic objectives has put us in a strong competitive position, and we are excited by the opportunities we see in front of us.
I will now turn the call over to Wes to discuss our quarterly results in greater detail.

Westley 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 and full year financial outlook.
Now turning to our quarter results. Consolidated revenue for the first quarter 2024 was $42.9 million down from $62.2 million in the prior year period. The decrease was driven by the contribution of our large fabrication project in the prior year quarter, which was canceled in July 2023, partially offset by growth in both our Services segment and small-scale fabrication business.
Consolidated adjusted EBITDA was $3.7 million for the first quarter of 2024, essentially flat from the prior year period. Consolidated adjusted EBITDA reflects the removal of the operating results of our Shipyard Division for both periods. The current quarter also reflects the removal of a gain from the sale of excess property in the prior year quarter reflects the removal of insurance gains related to Hurricane Ida adjusted EBITDA for the current quarter compared to prior year reflects higher results for both services and small-scale fabrication, offset by the prior year results benefiting from our canceled large fabrication projects.
Specifically for the Services division, revenue for the first quarter 2024 was $25.5 million, an increase of 18% compared to the prior year period, primarily due to higher offshore services work including incremental revenue associated with the Spark safety business line services EBITDA for the first quarter 2024 was $3.3 million, up 20% from the prior year period and EBITDA margin was 13.1% for the current quarter compared to 12.9% for the prior year period.
For our Fabrication Division, revenue for the first quarter 2024 was $17.1 million, a decrease of $22.5 million from the prior year period, primarily due to the prior year, including the previously mentioned benefit of our large fabrication project fabrication adjusted EBITDA, which excludes a gain of $2.9 million from the previously mentioned property sale with $2.5 million for the first quarter, adjusted EBITDA was down only modestly from the prior year period despite the contribution of the large fabrication project and last year's results as our first quarter 2024 benefited from growth in small-scale fabrication, strong execution and a more favorable project margin mix for our corporate division, EBITDA was a loss of $2.1 million for the first quarter compared to a loss of $2 million in the prior year period.
With respect to our liquidity, we ended the first quarter with cash and investments balance of just over $61 million, up $13.4 million from December 31, owing to our solid first quarter operating results and the proceeds from our property sale at March 31. Our debt obligation associated with the resolution of our MPSV litigation remains at $20 million with annual payments of approximately $1.7 million beginning on December 31st, 2020 for our cash balance and the long duration of our debt puts us in a strong liquidity position and provides us ample flexibility to pursue our growth objectives.
Turning to our earnings outlook for 2024. We are reiterating our previously provided segment full year guidance for our Services segment. We expect 2024 EBITDA of approximately $14 million, driven primarily by growth in our Spark safety business line.
For our fabrication segment, we expect 2024 adjusted EBITDA of approximately $8 million, which includes year-over-year growth in our small-scale fabrication business, but excludes the potential benefit of any large project award. Our adjusted EBITDA forecast excludes the gain from the previously mentioned property sale and for our corporate segment we expect an EBITDA loss for 2024 of approximately $8 million.
Our capital spending plans for 2024 are also consistent with our previous expectations for full year. Capital expenditures anticipated to be approximately $5 million to $5.5 million, of which approximately $3.5 million relates to upgrades to our home facilities and investments in more technologically advanced equipment, and the remainder reflects our more typical maintenance CapEx requirements.
Our capital expenditures for 2024 will be partially supplemented by insurance proceeds of $2 million received in January 2024 associated with damage previously caused by Hurricane Ida.
Lastly, during the first quarter, we repurchased approximately 61,000 shares of our common stock for approximately $300,000 under our share repurchase program commenced in mid-December. And at March 31, we had remaining authorization to purchase [4.6 million] of our common stock under the program This concludes our prepared remarks.
Operator, you may now open the line for questions.

Question and Answer Session

Operator

(Operator Instructions)
Tom Spiro, Spiro Capital.

Tom Spiro

Good afternoon.

Richard Heo

Good afternoon, Tom.

Tom Spiro

Richard, you often mentioned that your view and how location gives us a strategic advantage. And it wasn't clear to me whether you mean a strategic advantage just for large said, projects are also small small-scale fab job or even the service businesses where where's the advantage?

Richard Heo

Well, I think it's all of the the the airlines that are the items that you outlined. It's both small-scale fabrication, obviously, our services business is benefited from the close proximity of where we fabricate and ship our ship, our fabricated materials. But what we're alluding to is mostly on the larger fab fabrication projects, especially around the water access and close proximity to lock in some of these large capital projects that we've talked about in Louisiana and Texas.

Tom Spiro

Sure, has helped bank share and on the services side, we seem to be doing quite well offshore with our traditional customers. And that's that's great. No complaints here. Are we making any progress in expanding into the onshore opportunities?

Richard Heo

We are. But we're being strategic and concerted in that effort and time because of the the the challenges with getting labor. So what we're looking for are opportunities where we can get substantial amount of scale and consistency of work rather than a project-specific work. We're buoyed by the volatility of cycles of projects going up and down. And so we are being more conservative and our extent expansion efforts on onshore.

Tom Spiro

Is labor as difficult an issue today as it was a year ago?

Richard Heo

Absolutely. I think I think the labor today is probably as difficult or maybe even worse than it was a year ago.

Tom Spiro

While while I had just a couple of housekeeping items on ships, just to be sure I understand we've now received final acceptance of all the vessels. They're all they're all they've all been finally accepted, is that right?

Richard Heo

That's correct.

Tom Spiro

That's great. And end of the warranty claims Have any been filed or are we aware of any warranty claims that are pending?

Richard Heo

No, nothing material down.

Tom Spiro

Okay. Okay. This is most helpful. Thanks a lot. Thank you.

Operator

(Operator Instructions) I'm showing no further questions in the queue. I'd like to hand the call back over to Richard for any closing comments.

Richard Heo

Yes. 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 golf and success for those on the call. Thanks again for your interest in Gulf Island. During the second quarter, we'll be attending the Sidoti MicroCap Conference on May 9, in the Northland Investor Conference on June 25. If you if we are not able to connect at either these events, I look forward to speaking with you on our next conference call and updating you on our progress. Be safe and take care.

Operator

Thank you. This does conclude the call filing conference call. Thank you and good.