Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is provided to assist readers in understanding our financial performance during the periods presented and significant trends that may impact our future performance. This discussion should be read in conjunction with our Financial Statements and the related notes thereto. References to “Notes” relate to the Notes to our Financial Statements in Item 1. Certain terms are defined in the “Glossary of Terms” beginning on page ii.
Cautionary Statement on Forward-Looking Information
This Report contains forward-looking statements in which we discuss our potential future performance. Forward-looking statements, within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, are all statements other than statements of historical facts, such as projections or expectations relating to timing of delivery of vessels related to the Active Retained Shipyard Contracts and subsequent wind down of our Shipyard Division operations; expected exposure in the event of an adverse outcome in the MPSV Litigation; diversification and entry into new end markets; improvement of risk profile; industry outlook; oil and gas prices; timing of investment decisions and new project awards; cash flows and cash balance; capital expenditures; liquidity; and tax rates. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “targets,” “intends,” “likely,” “will,” “should,” “to be,” “potential” and any similar expressions are intended to identify those assertions as forward-looking statements.
We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include: supply chain disruptions (including global shipping and logistics challenges), inflationary pressures, economic slowdowns and recessions, banking industry disruptions, natural disasters, public health crises (such as COVID-19), labor costs and geopolitical conflicts (such as the conflict in Ukraine), and the related volatility in oil and gas prices and other factors impacting the global economy; the cyclical nature of the oil and gas industry; outcome of the MPSV Litigation and our ability to resolve any other material legal proceedings; competition; reliance on significant customers; competitive pricing and cost overruns on our projects; performance of subcontractors and dependence on suppliers; timing and our ability to secure and commence execution of new project awards, including fabrication projects for refining, petrochemical, LNG, industrial and sustainable energy end markets, and the resumption of our suspended offshore jackets project; our ability to maintain and further improve project execution; nature of our contract terms and customer adherence to such terms; suspension or termination of projects; changes in contract estimates; customer or subcontractor disputes; operating dangers, weather events and limits on insurance coverage; the operability and adequacy of our major equipment; the final assessment of damage at our Houma Facilities and the related recovery of any insurance proceeds; our ability to raise additional capital; our ability to amend or obtain new debt financing or credit facilities on favorable terms; our ability to generate sufficient cash flow; our ability to obtain letters of credit or surety bonds and ability to meet any indemnification obligations thereunder; consolidation of our customers; financial ability and credit worthiness of our customers; adjustments to previously reported profits or losses under the percentage-of-completion method; our ability to employ a skilled workforce; loss of key personnel; utilization of facilities or closure or consolidation of facilities; failure of our safety assurance program; barriers to entry into new lines of business; weather impacts to operations; any future asset impairments; changes in trade policies of the U.S. and other countries; compliance with regulatory and environmental laws; lack of navigability of canals and rivers; systems and information technology interruption or failure and data security breaches; performance of partners in any future joint ventures and other strategic alliances; shareholder activism; focus on environmental, social and governance factors by institutional investors and regulators; and other factors described under “Risk Factors” in Part I, Item 1A of our 2022 Annual Report and as may be further updated by subsequent filings with the SEC.
Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the date the forward-looking statements are made, which we cannot control. Further, we may make changes to our business plans that could affect our results. We caution investors that we undertake no obligation to publicly update or revise any forward-looking statements, which speak only as of the date made, for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise, and notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes.
- 19 -
Overview
We are a leading fabricator of complex steel structures and modules and provider of specialty services, including project management, hookup, commissioning, repair, maintenance, scaffolding, coatings, welding enclosures, civil construction and staffing services to the industrial and energy sectors. Our customers include U.S. and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial and power operators; and EPC companies. We currently operate and manage our business through three operating divisions (“Services”, “Fabrication” and “Shipyard”) and one non-operating division (“Corporate”), which represent our reportable segments. Our corporate headquarters is located in The Woodlands, Texas, and our primary operating facilities are located in Houma, Louisiana (“Houma Facilities”). See Note 6 for further discussion of our reportable segments.
On April 19, 2021, we sold our Shipyard Division operating assets and certain construction contracts (“Shipyard Transaction”) and intend to wind down our remaining Shipyard Division operations (which exclude the projects that are subject to our MPSV Litigation) by the second quarter 2023 (subject to the potential schedule impacts discussed in Note 2). See Note 1 for further discussion of the Shipyard Transaction and Note 4 for discussion of our MPSV Litigation.
On December 1, 2021, we acquired a services and industrial staffing business (“DSS Acquisition,”) which increased our skilled workforce, further diversified our customer base and expanded our service offerings for our Services Division. See Note 1 for further discussion of the DSS Acquisition.
Impacts of Oil and Gas Price Volatility and Macroeconomic Conditions on Operations
Since 2008, the prices of oil and gas have experienced significant volatility, including depressed prices over extended periods, resulting in reductions in capital spending and drilling activities from our traditional offshore oil and gas customer base. Consequently, our operating results and cash flows were negatively impacted as we experienced reductions in revenue, lower margins due to competitive pricing and under-utilization of our operating facilities and resources. Beginning in 2020, the global coronavirus pandemic (“COVID-19”) added another layer of pressure and uncertainty on oil and gas prices (with oil prices reaching a twenty-year low and gas prices reaching a four-year low), which further negatively impacted certain of our end markets during the first quarter 2022. This volatility in oil and gas prices was compounded by Russia’s invasion of Ukraine in February 2022 (and the related European energy crisis), and the U.S. and other countries actions in response (with oil prices reaching an eight-year high and gas prices reaching a fourteen-year high), which positively impacted certain of our end markets. While oil and gas prices have somewhat stabilized, the duration of such stability is uncertain and difficult to predict.
In addition, global economic factors that are beyond our control, have and could continue to impact our operations, including, but are not limited to, supply chain disruptions (including global shipping and logistics challenges that began in 2020), inflationary pressures, economic slowdowns and recessions, bank failures, natural disasters, public health crises (such as COVID-19), and geopolitical conflicts (such as the conflict in Ukraine).
The ultimate business and financial impacts of oil and gas price volatility and macroeconomic conditions on our business and results of operations continues to be uncertain, but the impacts have included, or may continue to include, among other things, reduced bidding activity; suspension or termination of backlog; deterioration of customer financial condition; and unanticipated project costs and schedule delays due to supply chain disruptions, labor and material price increases, lower labor productivity, increased employee and contractor absenteeism and turnover, craft labor hiring challenges, increased safety incidents, lack of performance by subcontractors and suppliers, and contract disputes. We continue to monitor the impacts of oil and gas price volatility and macroeconomic conditions on our operations, and our estimates in future periods will be revised for any events and changes in circumstances arising after the date of this Report. See Note 1 for further discussion of the impacts of oil and gas price volatility and macroeconomic conditions and Note 2 for further discussion of the impacts of the aforementioned on our projects. See also “Risk Factors” in Part I, Item 1A of our 2022 Annual Report.
Other Impacts to Operations
Hurricane Ida – On August 29, 2021, Hurricane Ida made landfall near Houma, Louisiana as a high-end Category 4 hurricane, with high winds and heavy rains causing damage to buildings and equipment at our Houma Facilities and resulting in significant debris throughout the facility. See Note 2 for further discussion of the impacts of Hurricane Ida.
Ferry Projects – We have experienced construction challenges and previous cost increases on our seventy-vehicle ferry project and two forty-vehicle ferry projects. See Note 2 for further discussion of our project impacts.
- 20 -
Initiatives to Improve Operating Results and Generate Stable, Profitable Growth
We previously outlined a strategy to address our operational, market and economic challenges and position the Company to generate stable, profitable growth. Underpinning the first phase of our strategic transformation was a focus on the following initiatives:
•Mitigate the impacts of COVID-19 on our operations and workforce;
•Reduce our risk profile;
•Preserve and improve our liquidity;
•Improve our resource utilization and centralize key project resources;
•Improve our competitiveness and project execution; and
•Reduce our reliance on the offshore oil and gas construction sector and pursue new growth end markets, including:
oFabricating modules, piping systems and other structures for onshore refining, petrochemical, LNG and industrial facilities in our core Gulf Coast region, and
oFabricating foundations, secondary steel components and support structures for offshore wind developments.
With the significant progress achieved on these objectives, we have shifted our focus to the next phase of our strategic transformation, which is focused on generating stable, profitable growth. Underpinning this strategy is a focus on the following initiatives:
•Expand our skilled workforce;
•Further strengthen project execution and maintain bidding discipline;
•Diversify our offshore services customer base, increase our offshore services offerings and expand our services business to include onshore facilities along the Gulf Coast;
•Continue to pursue opportunities in our traditional offshore fabrication markets; and
•Pursue additional growth end markets and increase our T&M versus fixed price revenue mix, including:
oFabricating structures in support of our customers as they transition away from fossil fuels to green energy end markets, and
oFabricating structures that support commercial construction activities outside of energy end markets.
Progress on our Strategic Transformation Initiatives
Efforts to mitigate the impacts of COVID-19 on our operations and workforce – We continue to take actions to mitigate the impacts of COVID-19 on our operations and maintain a safe work environment for our workforce, including maintaining protocols for handling employees who have tested positive for COVID-19 or have come in contact with individuals that have tested positive for COVID-19. In addition, we have protocols for employees to return to work that test positive for COVID-19, including requiring a negative COVID-19 antigen test prior to returning to work.
Efforts to reduce our risk profile – The completion of the Shipyard Transaction improved our risk profile by removing potential future risks associated with certain construction contracts that represented approximately 90% of our backlog with durations that extended through 2024. We are completing construction of the Active Retained Shipyard Contracts within our Houma Facilities and are winding down our Shipyard Division operations, which is currently anticipated to occur by the second quarter 2023 (subject to the potential schedule impacts further discussed in Note 2). The wind down of our Shipyard Division operations does not include our contracts and related obligations for the projects that are subject to our MPSV Litigation. See Note 1 for further discussion of the Shipyard Transaction and Note 4 for further discussion of our MPSV Litigation.
- 21 -
Efforts to preserve and improve our liquidity – We continue to take actions to preserve and improve our liquidity, including cost reduction initiatives, monetization of under-utilized assets and facilities, and an ongoing focus on project cash flow management. In addition, as a result of the Shipyard Transaction and anticipated wind down of our Shipyard Division operations (which exclude the projects that are subject to our MPSV Litigation), our bonding, letters of credit and working capital requirements for our remaining Shipyard Division operations were significantly reduced. See Note 1 for further discussion of the Shipyard Transaction, Note 3 for further discussion of our outstanding bonds and letters of credit and Note 4 for further discussion of our MPSV Litigation.
Efforts to improve our resource utilization and centralize key project resources – We have improved our resource utilization and centralized key project resources through the rationalization and integration of our facilities and operations.
•Consolidation of our fabrication activities – In the first quarter 2022, we combined all of our fabrication activities within our Fabrication Division to improve utilization and operational efficiency.
•Sublease and lease termination of previously closed facilities – In the first quarter 2022, we entered into a sublease arrangement for a previously closed leased facility associated with our Shipyard Division operations that will recover our lease costs for the facility for the duration of our lease. In the third quarter 2022, we also terminated a lease for a previously closed facility associated with our Shipyard Division operations that eliminated our future lease obligations for the facility.
•Completion of Shipyard Transaction and anticipated wind down of our Shipyard Division operations – In the second quarter 2021, we completed the Shipyard Transaction and intend to wind down our Shipyard Division operations upon completion of the Active Retained Shipyard Contracts (which exclude the projects that are subject to our MPSV Litigation), which is currently anticipated to occur by the second quarter 2023 (subject to the potential schedule impacts further discussed in Note 2). The Shipyard Transaction and wind down of our Shipyard Division operations is expected to reduce overhead costs, improve utilization and enable senior management to focus on existing and new higher-margin markets associated with our other operating divisions. See Note 1 for further discussion of the Shipyard Transaction and Note 4 for further discussion of our MPSV Litigation.
•Sale of assets – In the third quarter 2022, we sold (for $1.9 million, net of transaction and other costs) a purchase option entered into in connection with the DSS Acquisition that provided us with a right to buy a leased fabrication and operating facility for a nominal amount. Further, the fabrication activities previously performed at the facility were moved to our Houma Facilities to improve utilization and operational efficiency. In addition, we entered into a separate lease arrangement for a smaller and more cost-effective office and warehouse facility to accommodate our services activities performed at the previous facility. See “Overview” above and Note 1 for further discussion of the DSS Acquisition.
•Sublease of our corporate office – In the third quarter 2022, we entered into a sublease arrangement with a third-party for the remainder of our corporate office, which will partially recover our lease costs for the office for the duration of our lease. In addition, we entered into a separate lease arrangement for a smaller and more cost-effective office to accommodate our corporate activities.
Efforts to improve our competitiveness, project execution and bidding discipline – We have taken, and continue to take, actions to improve our competitiveness and project execution by enhancing our proposal, estimating and operations resources, processes and procedures. Our actions include strategic changes in management and key personnel, the addition of functional expertise, project management training, development of a formal “lessons learned” program, and other measures designed to strengthen our personnel, processes and procedures. Further, we are taking a disciplined approach to pursuing and bidding project opportunities, putting more rigor around our bid estimates to provide greater confidence that our estimates are achievable, increasing accountability and providing incentives for the execution of projects in line with our original estimates and subsequent forecasts, and incorporating previous experience into the bidding and execution of future projects. Additionally, we are focused on managing the risks associated with long-term fixed price contracts given the unpredictability of labor availability and labor and material costs, with a priority on increasing the mix of T&M contracts in our backlog.
Efforts to expand our skilled workforce – We are focused on ways to improve retention and enhance and add to our skilled, craft personnel, as we believe a strong workforce will be a key differentiator in pursuing new project awards given the scarcity of available skilled labor. The DSS Acquisition in the fourth quarter 2021 nearly doubled our skilled workforce and expanded our geographic footprint for skilled labor, which we believe will contribute to the retention and recruitment of personnel. We have successfully maintained our headcount levels for our Services Division and have opportunistically looked to shift our workforce to higher margin opportunities given the industry-wide labor constraints. See “Overview” above and Note 1 for further discussion of the DSS Acquisition.
- 22 -
Efforts to diversify our offshore services customer base, increase our offshore services offerings and expand our services business to include onshore facilities along the Gulf Coast – We believe diversifying and expanding our services business will deliver a more stable revenue stream while providing underpinning work to recruit, develop and retain our craft professionals. The DSS Acquisition in the fourth quarter 2021 accelerated our progress in this initiative and provides a stronger platform to continue such progress. Further, in the third quarter 2022, we made capital and other investments to expand our offshore services offering to include welding enclosures, which provides a safe environment for welding, cutting and burning without the need to shut down operations. We are also pursuing opportunities to partner with original equipment manufacturers to provide critical services to our customers along the Gulf Coast and strategic partnership opportunities with engineering companies to provide turnkey solutions. See “Overview” above and Note 1 for further discussion of the DSS Acquisition.
Efforts to pursue opportunities in our traditional offshore fabrication markets – We continue to fabricate structures associated with our traditional offshore markets, including subsea and associated structures. During the third quarter 2022, we were awarded a large contract for the fabrication of jacket foundations for an offshore project (which is currently suspended). See “New Project Awards and Backlog” below and Note 2 for further discussion of the suspension of our offshore jackets project.
Efforts to reduce our reliance on the offshore oil and gas construction sector, pursue new growth end markets and increase our T&M versus fixed price revenue mix – While we continue to pursue opportunities in our traditional offshore markets, we are pursuing initiatives to grow our business and diversify our revenue mix.
•Fabricate onshore modules, piping systems and structures – We continue to focus our business development efforts on the fabrication of modules, piping systems and other structures for onshore refining, petrochemical, LNG and industrial facilities. We are having success with smaller project opportunities and our volume of bidding activity for onshore modules, piping systems and structures continues to be strong. We continue to believe that our strategic location in Houma, Louisiana and track record of quality and on-time completion of onshore modules position us well to compete in the onshore fabrication market. We intend to remain disciplined in our pursuit of future large project opportunities to ensure we do not take unnecessary risks generally associated with the long-term, fixed-price nature of such projects. The timing of any future large project opportunities may be impacted by ongoing uncertainty created by oil and gas price volatility and macroeconomic conditions. See Note 1 for further discussion of the impacts of oil and gas price volatility and macroeconomic conditions. We continue to strengthen our relationships with key customers and strategic partners and enhance and rationalize our resources as discussed above.
•Fabricate offshore wind foundations, secondary steel components and support structures – We continue to believe that current initiatives, and potential future requirements, to provide electricity from renewable and green sources will result in growth of offshore wind projects. Furthermore, we believe that we possess the expertise to fabricate foundations, secondary steel components and support structures for this emerging market. This is demonstrated by our fabrication of wind turbine foundations for the first offshore wind project in the U.S. and the fabrication of a meteorological tower and platform for an offshore wind project. While we believe we have the capability to participate in this emerging market, we do not expect meaningful opportunities in the near-term.
•Fabricate structures in support of our customers as they transition away from fossil fuels to green energy end markets – We believe that our expertise and capabilities provide us with the necessary foundation to fabricate steel structures in support of our customers as they transition away from fossil fuels to green energy end markets. Examples of these opportunities include refiners who are looking to process biofuels, customers looking to embrace the growing hydrogen economy, and customers using carbon capture technologies to offset their carbon footprint.
•Fabricate structures that support commercial construction activities outside of energy end markets – We believe our expertise and capabilities for the fabrication of steel structures will enable us to successfully serve the commercial construction market. Examples of these opportunities include the fabrication of structures for data centers and semiconductor manufacturing sites.
- 23 -
Operating Outlook
Our focus remains on securing profitable new project awards and backlog and generating operating income and cash flows, while ensuring the safety and well-being of our workforce. Our success, including achieving the aforementioned initiatives, will be determined by, among other things:
•Our ability to hire, develop, motivate and retain key personnel and craft labor to execute our projects in light of industry-wide labor constraints, and maintain our expected project margins if such constraints result in labor cost increases that cannot be recovered from our customers;
•Oil and gas prices and the level of volatility in such prices, including the impact of macroeconomic conditions, geopolitical conflicts (such as the conflict in Ukraine and the related European energy crisis) and any current or future public health crises (such as COVID-19);
•The level of fabrication opportunities in our traditional offshore markets and the new markets that we are pursuing, including refining, petrochemical, LNG and industrial facilities, green energy and offshore wind developments, and the impact of any climate related regulations;
•The outcome of our MPSV Litigation, for which an unfavorable outcome could have a material adverse effect on our financial condition, results of operations and liquidity. See Note 4 for further discussion of our MPSV Litigation;
•The timing of recognition of our backlog as revenue, including the impact of the customer directed suspension of our offshore jackets project. See Note 2 and “New Project Awards and Backlog” below for further discussion of the suspension of our offshore jackets project;
•Our ability to secure new project awards through competitive bidding and/or alliance and partnering arrangements;
•Our ability to execute projects within our cost estimates and successfully manage them through completion (including the Active Retained Shipyard Contracts);
•The successful wind down of our Shipyard Division operations;
•Consideration of organic and inorganic opportunities for growth, including, but not limited to, acquisitions, mergers, joint ventures, partnerships and other strategic arrangements, transactions and capital allocations;
•The operability and adequacy of our major equipment; and
•The successful restoration of our Houma Facilities within our insurance coverage amounts, resulting from damage previously caused by Hurricane Ida.
In addition, the near-term utilization of our Fabrication Division will be impacted by the timing of new project awards and their execution, and the suspension of our offshore jackets project, and our operations may continue to be impacted by inefficiencies and disruptions associated with employee turnover, craft labor hiring challenges, engineering delays, and supplier and subcontractor disruptions. Our results may also be adversely affected by (i) costs associated with the retention of certain personnel that may be temporarily under-utilized as we evaluate our resource requirements to support our future operations, (ii) investments in key personnel and process improvement efforts to support our aforementioned initiatives, and (iii) higher costs and availability of craft labor due to industry labor constraints. See Note 1 for further discussion of the impacts of oil and gas price volatility and macroeconomic conditions, “Results of Operations” below and Note 2 for further discussion of our project impacts, and “New Project Awards and Backlog” below and Note 2 for further discussion of the project suspension.
Critical Accounting Policies
For a discussion of critical accounting policies and estimates used in the preparation of our Financial Statements, refer to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 included in our 2022 Annual Report. There have been no changes to our critical accounting policies and estimates since December 31, 2022.
- 24 -
New Project Awards and Backlog
New project awards represent expected revenue values of commitments received during a given period, including scope growth on existing commitments. A commitment represents authorization from our customer to begin work or purchase materials pursuant to a written agreement, letter of intent or other form of authorization. Backlog represents the unrecognized revenue for our new project awards and at March 31, 2023, was consistent with the value of remaining performance obligations for our contracts required to be disclosed under Topic 606 and presented in Note 2. In general, a performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. We believe that backlog, a non-GAAP financial measure, provides useful information to investors as it represents work that we are obligated to perform under our current contracts. New project awards and backlog may vary significantly each reporting period based on the timing of our major new contract commitments.
Projects in our backlog are generally subject to delay, suspension, termination, or an increase or decrease in scope at the option of the customer; however, the customer is required to pay us for work performed and materials purchased through the date of termination, suspension, or decrease in scope. Depending on the size of the project, the delay, suspension, termination or increase or decrease in scope of any one contract could significantly impact our backlog and change the expected amount and timing of revenue recognized. New project awards by operating segment for the three months ended March 31, 2023 and 2022, are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Services |
|
$ |
21,472 |
|
|
$ |
19,402 |
|
Fabrication |
|
|
16,706 |
|
|
|
8,296 |
|
Shipyard |
|
|
(122 |
) |
|
|
— |
|
Eliminations |
|
|
(428 |
) |
|
|
(92 |
) |
Total |
|
$ |
37,628 |
|
|
$ |
27,606 |
|
Backlog by Division at March 31, 2023 and December 31, 2022, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|
|
Amount |
|
|
Labor Hours |
|
|
Amount |
|
|
Labor Hours |
|
Services |
|
$ |
1,207 |
|
|
|
18 |
|
|
$ |
1,322 |
|
|
|
20 |
|
Fabrication |
|
|
87,331 |
|
|
|
588 |
|
|
|
110,287 |
|
|
|
613 |
|
Shipyard |
|
|
1,803 |
|
|
|
9 |
|
|
|
3,272 |
|
|
|
22 |
|
Total(1),(2) |
|
$ |
90,341 |
|
|
|
615 |
|
|
$ |
114,881 |
|
|
|
655 |
|
(1)We expect to recognize revenue of $14.4 million during the remainder of 2023 associated with our backlog at March 31, 2023 based on our current estimates. Such estimates exclude potential revenue of $75.9 million associated with our backlog for our offshore jackets project given the uncertainty with respect to when such amounts will be recognized, if at all (discussed further below). Certain factors and circumstances, including the suspension, could result in changes in the timing of recognition of our backlog as revenue and the amounts ultimately recognized.
(2)At March 31, 2023, our significant projects in backlog included the following:
(i)Construction of a forty-vehicle ferry for our Shipyard Division that is being performed primarily on a fixed-price basis. We estimate completion of the vessel in the second quarter 2023, subject to the potential schedule impacts discussed in Note 2;
(ii)Construction of a seventy-vehicle ferry for our Shipyard Division that is being performed primarily on a fixed-price basis. We estimate completion of the vessel in the second quarter 2023, subject to the potential schedule impacts discussed in Note 2; and
(iii)Fabrication of jacket foundations for an offshore project for our Fabrication Division that is being performed primarily on a T&M and cost-reimbursable basis. In February 2023, we received direction from our customer to suspend all activities on the project. No duration of the suspension or timing of potential recommencement of the project has been provided. The estimated completion of the structures will be impacted by the timing of recommencement of project activities and the start of fabrication, if at all, the ultimate scope of the project, and the duration of the project, which may be impacted by, among other things, the status of engineering and size of the structures, timing and availability of materials, and availability and productivity of labor. See Note 2 for further discussion of the project suspension.
- 25 -
Results of Operations
Comparison of the Three Months Ended March 31, 2023 and 2022 (in thousands in each table, except for percentages):
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Favorable (Unfavorable) |
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
New project awards |
|
$ |
37,628 |
|
|
$ |
27,606 |
|
|
$ |
10,022 |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
62,168 |
|
|
$ |
28,686 |
|
|
$ |
33,482 |
|
Cost of revenue |
|
|
57,134 |
|
|
|
29,106 |
|
|
|
(28,028 |
) |
Gross profit (loss) |
|
|
5,034 |
|
|
|
(420 |
) |
|
|
5,454 |
|
Gross profit (loss) percentage |
|
|
8.1 |
% |
|
|
(1.5 |
)% |
|
|
|
General and administrative expense |
|
|
5,067 |
|
|
|
4,110 |
|
|
|
(957 |
) |
Other (income) expense, net |
|
|
(361 |
) |
|
|
452 |
|
|
|
813 |
|
Operating income (loss) |
|
|
328 |
|
|
|
(4,982 |
) |
|
|
5,310 |
|
Interest (expense) income, net |
|
|
320 |
|
|
|
(40 |
) |
|
|
360 |
|
Income (loss) before income taxes |
|
|
648 |
|
|
|
(5,022 |
) |
|
|
5,670 |
|
Income tax (expense) benefit |
|
|
(7 |
) |
|
|
(5 |
) |
|
|
(2 |
) |
Net income (loss) |
|
$ |
641 |
|
|
$ |
(5,027 |
) |
|
$ |
5,668 |
|
References below to 2023 and 2022 refer to the three months ended March 31, 2023 and 2022, respectively.
New project awards – New project awards for 2023 and 2022 were $37.6 million and $27.6 million, respectively. New project awards for 2023 and 2022 were primarily related to:
•Small-scale fabrication work for our Fabrication Division, and
•Offshore services work for our Services Division.
Revenue – Revenue for 2023 and 2022 was $62.2 million and $28.7 million, respectively, representing an increase of 116.7%. The increase was primarily due to:
•Higher revenue for our Services Division of $0.9 million, primarily attributable to incremental revenue associated with our welding enclosures business line (commenced in the third quarter 2022), and
•Higher revenue for our Fabrication Division of $34.0 million, primarily attributable to:
−Revenue for our offshore jackets project prior to its suspension (primarily related to procurement activities), and
−Increased small-scale fabrication project activity, offset partially by,
•Lower revenue for our Shipyard Division of $1.2 million, primarily attributable to our seventy-vehicle and two forty-vehicle ferry projects, which are nearing completion.
Gross profit (loss) – Gross profit for 2023 was $5.0 million (8.1% of revenue) and gross loss for 2022 was $0.4 million (1.5% of revenue), respectively. Gross profit for 2023 was primarily impacted by:
•A strong market and demand for the services provided by our Services Division, offset partially by,
•Low margin associated with procurement activities for our offshore jackets project (prior to its suspension) for our Fabrication Division,
•The partial under-recovery of overhead costs due to the under-utilization of our facilities and resources for our Fabrication Division, and
•Holding costs of $0.2 million related to the two MPSVs that remain in our possession and are subject to our MPSV Litigation for our Shipyard Division.
- 26 -
The gross profit for 2023 relative to the gross loss for 2022 was primarily due to:
•Higher revenue for our Fabrication Division and Services Division,
•A higher margin mix relative to 2022 for our Services Division, and
•A decrease in the under-recovery of overhead costs for our Fabrication Division, offset partially by,
•A lower margin mix relative to 2022 for our Fabrication Division.
See “Operating Segments” below and Note 2 for further discussion of our project impacts.
General and administrative expense – General and administrative expense for 2023 and 2022 was $5.1 million and $4.1 million, respectively, representing an increase of 23.3%. The increase was primarily due to higher legal and advisory fees associated with our MPSV Litigation for our Shipyard Division.
General and administrative expense included legal and advisory fees of $1.7 million and $0.7 million for 2023 and 2022, respectively, associated with our MPSV Litigation, which are reflected within our Shipyard Division. See Note 4 for further discussion of our MPSV Litigation.
Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was income of $0.4 million and expense of $0.5 million, respectively. Other (income) expense, net generally represents recoveries or provisions for bad debts, gains or losses associated with the sale or disposition of property and equipment, and income or expense associated with certain nonrecurring items. Other income for 2023 and expense for 2022 was primarily due to gains of $0.2 million and charges of $0.3 million, respectively, related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities for our Fabrication Division. See Note 2 for further discussion of the impacts of Hurricanes Ida.
Interest (expense) income, net – Interest (expense) income, net for 2023 and 2022 was income of $0.3 million and expense of less than $0.1 million, respectively. Interest (expense) income, net for both periods included the net impact of interest earned on our cash and short-term investment balances and interest incurred on the unused portion of our LC Facility and on our Insurance Finance Arrangements. The income for 2023 relative to expense for 2022 was primarily due to higher interest earned on our cash and short-term investment balances for the 2023 period.
Income tax (expense) benefit – Income tax (expense) benefit for 2023 and 2022 represents state income taxes. No federal income tax expense was recorded for our income for 2023 as it was fully offset by the reversal of valuation allowance on our net deferred tax assets, and no federal income tax benefit was recorded for our losses for 2022 as a full valuation allowance was recorded against our net deferred tax assets generated during the period.
Operating Segments
Services Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Favorable (Unfavorable) |
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
New project awards |
|
$ |
21,472 |
|
|
$ |
19,402 |
|
|
$ |
2,070 |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
21,587 |
|
|
$ |
20,664 |
|
|
$ |
923 |
|
Gross profit |
|
|
2,987 |
|
|
|
1,928 |
|
|
|
1,059 |
|
Gross profit percentage |
|
|
13.8 |
% |
|
|
9.3 |
% |
|
|
|
General and administrative expense |
|
|
710 |
|
|
|
729 |
|
|
|
19 |
|
Other (income) expense, net |
|
|
(64 |
) |
|
|
12 |
|
|
|
76 |
|
Operating income |
|
|
2,341 |
|
|
|
1,187 |
|
|
|
1,154 |
|
References below to 2023 and 2022 refer to the three months ended March 31, 2023 and 2022, respectively.
New project awards – New project awards for 2023 and 2022 were $21.5 million and $19.4 million, respectively, and were primarily related to offshore services work, with the increase due to incremental new project awards associated with our welding enclosures business line (commenced in the third quarter 2022).
Revenue – Revenue for 2023 and 2022 was $21.6 million and $20.7 million, respectively, representing an increase of 4.5%. The increase was primarily due to incremental revenue associated with our welding enclosures business line (commenced in the third quarter 2022).
- 27 -
Gross profit – Gross profit for 2023 and 2022 was $3.0 million (13.8% of revenue) and $1.9 million (9.3% of revenue), respectively. The increase in gross profit for 2023 relative to 2022 was primarily due to:
•A higher margin mix relative to 2022 (including the benefit of our welding enclosures business line).
General and administrative expense – General and administrative expense for 2023 and 2022 was $0.7 million and $0.7 million, respectively, representing a decrease of 2.6%.
Fabrication Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Favorable (Unfavorable) |
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
New project awards |
|
$ |
16,706 |
|
|
$ |
8,296 |
|
|
$ |
8,410 |
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
39,662 |
|
|
$ |
5,617 |
|
|
$ |
34,045 |
|
Gross profit (loss) |
|
|
2,462 |
|
|
|
(2,021 |
) |
|
|
4,483 |
|
Gross profit (loss) percentage |
|
|
6.2 |
% |
|
|
(36.0 |
)% |
|
|
|
General and administrative expense |
|
|
520 |
|
|
|
625 |
|
|
|
105 |
|
Other (income) expense, net |
|
|
(302 |
) |
|
|
287 |
|
|
|
589 |
|
Operating income (loss) |
|
|
2,244 |
|
|
|
(2,933 |
) |
|
|
5,177 |
|
References below to 2023 and 2022 refer to the three months ended March 31, 2023 and 2022, respectively.
New project awards – New project awards for 2023 and 2022 were $16.7 million and $8.3 million, respectively, and were primarily related to small-scale fabrication work.
Revenue – Revenue for 2023 and 2022 was $39.7 million and $5.6 million, respectively, representing an increase of 606.1%. The increase was primarily due to:
•Revenue for our offshore jackets project prior to its suspension (primarily related to procurement activities), and
•Higher small-scale fabrication project activity.
Gross profit (loss) – Gross profit for 2023 was $2.5 million (6.2% of revenue) and gross loss for 2022 was $2.0 million (36.0% of revenue). Gross profit for 2023 was primarily impacted by:
•Low margin associated with procurement activities for our offshore jackets project prior to its suspension, and
•The partial under-recovery of overhead costs due to the under-utilization of our facilities and resources due to low work hours.
The gross profit for 2023 relative to the gross loss for 2022 was primarily due to:
•A decrease in the under-recovery of overhead costs due an increase in work hours associated with our small-scale fabrication work and recoveries associated with our offshore jackets project prior to its suspension, offset partially by higher property and equipment insurance costs, and
•A lower margin mix relative to 2022 associated with our small-scale fabrication work.
The Fabrication Division utilization for 2023 and 2022 benefited by $0.1 million and $0.2 million, respectively, from providing resources and facilities to our Shipyard Division for our seventy-vehicle ferry and two forty-vehicle ferry projects. See Note 2 for further discussion of our project impacts.
General and administrative expense – General and administrative expense for 2023 and 2022 was $0.5 million and $0.6 million, respectively, representing a decrease of 16.8%. The decrease was primarily due to various cost savings.
Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was income of $0.3 million and expense of $0.3 million, respectively. Other income for 2023 and expense for 2022 was primarily due to gains of $0.2 million and charges of $0.3 million, respectively, related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities.
- 28 -
Shipyard Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Favorable (Unfavorable) |
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
New project awards |
|
$ |
(122 |
) |
|
$ |
— |
|
|
$ |
(122 |
) |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,347 |
|
|
$ |
2,497 |
|
|
$ |
(1,150 |
) |
Gross loss |
|
|
(415 |
) |
|
|
(327 |
) |
|
|
(88 |
) |
Gross loss percentage |
|
|
(30.8 |
)% |
|
|
(13.1 |
)% |
|
|
|
General and administrative expense |
|
|
1,713 |
|
|
|
746 |
|
|
|
(967 |
) |
Other (income) expense, net |
|
|
75 |
|
|
|
115 |
|
|
|
40 |
|
Operating loss |
|
|
(2,203 |
) |
|
|
(1,188 |
) |
|
|
(1,015 |
) |
References below to 2023 and 2022 refer to the three months ended March 31, 2023 and 2022, respectively.
New project awards – New project awards for 2023 were negative $0.1 million and were due to liquidated damages for our seventy-vehicle ferry and forty-vehicle ferry projects.
Revenue – Revenue for 2023 and 2022 was $1.3 million and $2.5 million, respectively, representing a decrease of 46.1%. The decrease was primarily due to:
•Lower revenue for our forty-vehicle ferry project that was substantially completed in the fourth quarter 2022,
•Lower revenue for our remaining forty-vehicle ferry project, which is nearing completion, and
•Lower revenue for our seventy-vehicle ferry project, which is nearing completion.
Gross loss – Gross loss for 2023 and 2022 was $0.4 million (30.8% of revenue) and $0.3 million (13.1% of revenue), respectively. The gross loss for 2023 was primarily due to:
•Holding costs of $0.2 million related to the two MPSVs that remain in our possession and are subject to our MPSV Litigation, and
•The partial under-recovery of overhead costs due to the under-utilization of our resources due to low work hours as our remaining projects are nearing completion.
The increase in gross loss for 2023 relative to 2022 was primarily due to an increase in the under-recovery of overhead costs due to a decrease in work hours as our remaining projects are nearing completion. See Note 2 for discussion of the status of our ferry projects and Note 4 for further discussion of our MPSV Litigation.
General and administrative expense – General and administrative expense for 2023 and 2022 was $1.7 million and $0.7 million, respectively, representing an increase of 129.6%. General and administrative expense relates to legal and advisory fees associated with our MPSV Litigation. See Note 4 for further discussion of our MPSV Litigation.
Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was expense of $0.1 million and $0.1 million, respectively.
Corporate Division
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
Favorable (Unfavorable) |
|
|
|
2023 |
|
|
2022 |
|
|
Change |
|
New project awards (eliminations) |
|
$ |
(428 |
) |
|
$ |
(92 |
) |
|
$ |
(336 |
) |
|
|
|
|
|
|
|
|
|
|
Revenue (eliminations) |
|
$ |
(428 |
) |
|
$ |
(92 |
) |
|
$ |
(336 |
) |
Gross profit |
|
|
— |
|
|
|
— |
|
|
|
— |
|
General and administrative expense |
|
|
2,124 |
|
|
|
2,010 |
|
|
|
(114 |
) |
Other (income) expense, net |
|
|
(70 |
) |
|
|
38 |
|
|
|
108 |
|
Operating loss |
|
|
(2,054 |
) |
|
|
(2,048 |
) |
|
|
(6 |
) |
References below to 2023 and 2022 refer to the three months ended March 31, 2023 and 2022, respectively.
General and administrative expense – General and administrative expense for 2023 and 2022 was $2.1 million and $2.1 million, respectively, representing an increase of 5.7%.
- 29 -
Liquidity and Capital Resources
Available Liquidity
Our primary sources of liquidity are our cash, cash equivalents and scheduled maturities of our short-term investments. At March 31, 2023, our cash, cash equivalents, short-term investments and restricted cash totaled $44.7 million as follows (in thousands):
|
|
|
|
|
|
|
March 31, 2023 |
|
Cash and cash equivalents |
|
$ |
28,520 |
|
Short-term investments(1) |
|
|
14,989 |
|
Available cash, cash equivalents and short-term investments |
|
|
43,509 |
|
Restricted cash, current |
|
|
1,197 |
|
Total cash, cash equivalents, restricted cash and short-term investments |
|
$ |
44,706 |
|
(1)Includes U.S. Treasuries with original maturities of four months.
Our available liquidity is impacted by changes in our working capital and our capital expenditure requirements. Fluctuations in our working capital, and its components, are not unusual in our business and are impacted by the size of our projects and the mix of our backlog. Our working capital is particularly impacted by the timing of new project awards and related payments in advance of performing work, and the subsequent achievement of billing milestones or project progress on backlog. Working capital is also impacted at period-end by the timing of contract receivables collections and accounts payable payments on our projects.
At March 31, 2023, our working capital was $57.4 million and included $44.7 million of cash, cash equivalents, short-term investments and restricted cash. Excluding cash, cash equivalents, short-term investments and restricted cash, our working capital at March 31, 2023 was $12.7 million, and consisted of: net contract assets and contract liabilities of $1.2 million; contract receivables and retainage of $43.5 million; inventory, prepaid expenses and other current assets of $8.5 million; and accounts payable, accrued expenses and other current liabilities of $40.4 million. The components of our working capital (excluding cash, cash equivalents, short-term investments and restricted cash) at March 31, 2023 and December 31, 2022, and changes in such amounts during the three months ended March 31, 2023, were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
|
Change(4) |
|
Contract assets |
|
$ |
5,538 |
|
|
$ |
4,839 |
|
|
$ |
699 |
|
Contract liabilities(1) |
|
|
(4,388 |
) |
|
|
(8,196 |
) |
|
|
3,808 |
|
Contracts in progress, net(2) |
|
|
1,150 |
|
|
|
(3,357 |
) |
|
|
4,507 |
|
Contract receivables and retainage, net(3) |
|
|
43,545 |
|
|
|
29,427 |
|
|
|
14,118 |
|
Prepaid expenses, inventory and other current assets |
|
|
8,460 |
|
|
|
8,074 |
|
|
|
386 |
|
Accounts payable, accrued expenses and other current liabilities(3) |
|
|
(40,443 |
) |
|
|
(22,593 |
) |
|
|
(17,850 |
) |
Total |
|
$ |
12,712 |
|
|
$ |
11,551 |
|
|
$ |
1,161 |
|
(1)Contract liabilities at March 31, 2023 and December 31, 2022, includes accrued contract losses of $1.0 million and $1.6 million, respectively, associated primarily with the Active Retained Shipyard Contracts.
(2)Represents our cash position relative to revenue recognized on projects, with contract assets representing unbilled amounts that reflect future cash inflows on projects, and contract liabilities representing (i) advance payments that reflect future cash expenditures and non-cash earnings on projects and (ii) accrued contract losses that represent future cash expenditures on projects.
(3)Contract receivables and retainage, net and accounts payable at March 31, 2023, include $15.5 million and $12.1 million, respectively, related to our suspended offshore jackets project for our Fabrication Division. See “New Project Awards and Backlog” above and Note 2 for further discussion of the project suspension.
(4)Changes referenced in the “Cash Flow Activity” section below may differ from the changes in this table due to non-cash reclassifications and due to certain changes in balance sheet accounts being reflected within other line items on the Statement of Cash Flows, including bad debt expense, gains and losses on sales of fixed assets and other assets, and accruals for capital expenditures.
- 30 -
Cash Flow Activity (in thousands)
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, |
|
|
|
2023 |
|
|
2022 |
|
Net cash provided by (used in) operating activities |
|
$ |
1,296 |
|
|
$ |
(11,351 |
) |
Net cash used in investing activities |
|
|
(5,219 |
) |
|
|
(415 |
) |
Net cash used in financing activities |
|
|
(1,184 |
) |
|
|
(59 |
) |
Operating Activities – Cash provided by operating activities for the three months ended March 31, 2023 was $1.3 million and cash used in operating activities for the three months ended March 31, 2022 was $11.4 million, and was primarily due to the net impacts of the following:
2023 Activity
•Net loss adjusted for depreciation and amortization of $1.3 million, gain on insurance recoveries of $0.2 million, gain on the sale of fixed assets of $0.1 million, and stock-based compensation expense of $0.5 million;
•Increase in contract assets of $0.7 million related to the timing of billings on projects, primarily due to increased unbilled positions on various projects for our Fabrication Division, offset partially by decreased unbilled positions for our forty-vehicle ferry projects for our Shipyard Division;
•Decrease in contract liabilities of $3.8 million, primarily due to a decrease in advance billings on our offshore jackets project (which has been suspended) for our Fabrication Division and accrued contract losses on our forty-vehicle ferry projects for our Shipyard Division;
•Increase in contract receivables and retainage of $14.5 million related to the timing of billings and collections on projects, primarily due to increased receivable positions on our offshore jackets project (which has been suspended) and various other projects for our Fabrication Division;
•Decrease in prepaid expenses, inventory and other assets of $0.1 million, primarily due to prepaid expenses and the associated timing of certain prepayments. The change differs from the table above primarily due to the Insurance Finance Arrangements discussed further in Note 3;
•Increase in accounts payable, accrued expenses and other current liabilities of $18.2 million, primarily due to the timing of payments and increased accounts payable positions on our offshore jackets project (which has been suspended) and various other projects for our Fabrication Division. The change differs from the table above primarily due to the Insurance Finance Arrangements discussed further in Note 3; and
•Change in noncurrent assets and liabilities, net of $0.2 million.
2022 Activity
•Operating loss adjusted for depreciation and amortization of $1.3 million and stock-based compensation expense of $0.6 million;
•Decrease in contract assets of $2.1 million related to the timing of billings on projects, primarily due to decreased unbilled positions on various projects for our Fabrication Division;
•Decrease in contract liabilities of $2.5 million, primarily due to a decrease in accrued contract losses and the unwind of advance payments on our forty-vehicle ferry projects for our Shipyard Division;
•Increase in contract receivables and retainage of $7.7 million related to the timing of billings and collections on projects, primarily due to increased receivable positions on various projects for our Services Division;
•Increase in prepaid expenses, inventory and other assets of $2.1 million, primarily due to prepaid expenses and the associated timing of certain prepayments and insurance receivables related to Hurricane Ida;
•Increase in accounts payable, accrued expenses and other current liabilities of $2.1 million, primarily due to the timing of payments and increased accounts payable positions on various projects for our Services Division and Fabrication Division; and
•Change in noncurrent assets and liabilities, net of $0.1 million.
Investing Activities – Cash used in investing activities for the three months ended March 31, 2023 and 2022 was $5.2 million and $0.4 million, respectively. Cash used in investing activities for 2023 was primarily due to net purchases of short-term investments of $5.1 million and capital expenditures of $0.5 million, offset partially by recoveries from insurance claims and proceeds from the sale of fixed assets. Cash used in investing activities for 2022 was primarily due to capital expenditures of $0.4 million.
- 31 -
Financing Activities – Cash used in financing activities for the three months ended March 31, 2023 and 2022 was $1.2 million and $0.1 million, respectively. Cash used in financing activities for 2023 was primarily due to payments on our Insurance Finance Arrangements of $1.0 million. See Note 3 for further discussion of our Insurance Finance Arrangements.
Credit Facilities
See Note 3 for discussion of our LC Facility, Surety Bonds, Insurance Finance Arrangements, Mortgage Agreement and Restrictive Covenant Agreement.
Registration Statement
We have a shelf registration statement that is effective with the SEC that expires on November 27, 2023. The shelf registration statement enables us to issue up to $200.0 million in either debt or equity securities, or a combination thereof, from time to time subsequent to the filing of a prospectus supplement, which among other things, identifies the underwriter, dealer or agent, specifies the number and value of securities that may be sold, and provides a time frame over which the securities may be offered.
Liquidity Outlook
We have made significant progress in our efforts to preserve and improve our liquidity, including cost reductions, the sale of under-utilized assets and facilities, an improved overall cash flow position on our projects in backlog and the completion of the Shipyard Transaction. The primary uses of our liquidity for the remainder of 2023 and the foreseeable future are to fund:
•Overhead costs associated with the under-utilization of our facilities and resources for our Fabrication Division until we secure and begin to execute sufficient backlog to fully recover our overhead costs;
•Capital expenditures, including expenditures to maintain, upgrade and replace aged equipment;
•Accrued contract losses for the Active Retained Shipyard Contracts;
•Working capital requirements for our projects, including the unwind of advance payments on projects and the payment of vendor obligations prior to receipt of payment from our customer for our suspended offshore jackets project. See “New Project Awards and Backlog” above and Note 2 for further discussion of the project suspension;
•Remaining liabilities of the Shipyard Division operations that were excluded from the Shipyard Transaction;
•Legal and other costs associated with our MPSV Litigation, including losses, if any, resulting from the ultimate resolution of the litigation. An unfavorable outcome could have a material adverse effect on our financial condition, results of operations and liquidity. In the event of an unfavorable outcome, we believe, after consultation with external legal counsel, that our ultimate exposure is unlikely to exceed our indemnification obligations under the Performance Bonds; however, we can provide no assurance that any such exposure will be limited to our indemnification obligations. See Note 4 for further discussion of our MPSV Litigation;
•Corporate administrative expenses (including the temporary under-utilization of personnel as we evaluate our resource requirements to support our future operations);
•Initiatives to diversify and enhance our business; and
•Costs associated with the impacts of Hurricane Ida, including insurance deductibles and uninsured losses, if any, as well as repair costs for buildings and equipment for which insurance payments have previously been received from our insurance carriers.
We anticipate capital expenditures of $3.5 million to $4.0 million for the remainder of 2023, excluding any future expenditures for deductibles and uninsured losses, if any, associated with damage caused by Hurricane Ida, that may be determined to be capital items. Further investments in facilities may be required to win and execute potential new project awards, which are not included in these estimates.
We believe that our cash, cash equivalents and short-term investments at March 31, 2023, will be sufficient to enable us to fund our operating expenses, meet our working capital and capital expenditure requirements, and satisfy any debt service obligations or other funding requirements, for at least twelve months from the date of this Report. Our evaluation of the sufficiency of our cash and liquidity is primarily based on our financial forecast for 2023 and 2024, which is impacted by our existing backlog and estimates of future new project awards and may be further impacted by the ongoing effects of oil and gas price volatility and macroeconomic conditions, as well as the outcome of our MPSV Litigation and any related indemnification obligations to the Surety. We can provide no assurances that our financial forecast will be achieved or that we will have sufficient cash and short-term investments to meet planned operating expenses and unforeseen cash requirements. Accordingly, we may be required to obtain new or additional credit facilities, sell additional assets or conduct equity or debt offerings at a time when it is not beneficial to do so.
- 32 -
Off-Balance Sheet Arrangements
We are not a party to any contract or other obligation not included on our Balance Sheet that has, or is reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.