Gulf Island Fabrication Inc (GIFI) 2003 Q2 法說會逐字稿

Good morning and welcome ladies and gentlemen to the Gulf Island Fabrication Second Quarter Earnings Conference Call. At this time, I’d like to inform you that this conference is being recorded and that all participants are in a listen-only mode.

At the request of the company we will open the conference up for question and answers after the presentation. I would now turn the conference over to Deborah Knoblock, please go ahead Ms. Knoblock.

I would like to welcome everyone to Gulf Island Fabrication 2003 second quarter Teleconference. Please keep in mind that any statements make in this conference that are not statements of historical fact are considered forward-looking statements. These statements are subject to factors that could cause actual results to differ materially from the results predicted in the forward-looking statements.

These factors include the timing and expense of changes in the price of the crude oil and natural gas, the timing of new project and the company’s ability to obtain them and other details that are described under, cautionary statements concerning forward-looking information and elsewhere in the company’s Form 10-K filed March 27, 2003.

The Form 10-K was included as part of the company’s 2002 annual report filed with the Securities and Exchange Commission earlier this year. The company assumes no obligation to update these forward-looking statements.

Today we have Mr. Kerry Chauvin, President and CEO and Mr. Duke Gallagher, our CFO.

I will now turn the conference over to Mr. Duke Gallagher. Please go ahead sir.

Good morning everyone. Just want to do a quick review of the 10-Q—I mean of the press release. On the front page as indicates at June 30th we had backlog of $98.6m and approximately 1.2m man hours remaining to work.

Selected balance sheet information indicates cash and short-term investments of about $13.8m, our debt remains at zero and our computation of our working capital works out to $47.6m at June 30th and a current ratio of 3.4 to 1. Going to the second page of the press release, the first quarter affirmation of, just to let everybody know the man-hours we sold in the first quarter was 592,000 man hours compared to 497,000 man-hours for June for the second quarter of last year.

Revenue compared to $44.6m of revenue compared to $33m last year, that’s a 34% increases in revenue quarter over quarter. Gross profit was $4.6m at 10.4% of revenue compared to last year’s quarter of $3.5m of gross profit at 10.5% of revenue. G&A expense of $1.2m this year, this quarter of which is 2.6% of revenue compared to last years $1m of G&A, which is 3.1% of revenue. Other income we were able to -- only able to make $36,000 with the cash down and interest rates down put a damper on that compared to a $159,000 last year.

Income before taxes of $3.5m this year or 7.9% of revenue compared to $2.6m, last year which also was 7.9% of revenue. Both periods had effective tax rate of 34% which gave us net income for this quarter of $2.3m or 5.2% of revenues compared to last year’s $1.7m, which was also 5.2% of revenue. That’s a 34% increase in net income.

Going down to diluted earnings per share of 20 cents for this quarter compared to 15 cents last quarter. In both quarters we are using an adjusted weighted average share of 11.9 million shares and I also indicated a depreciation of $1.3m for the 2003 second quarter compared to $1.1m of last year’s quarter.

Moving over to the year-to-date information the six months, direct labor hours worked in the first six months was 1.1 million hours compared to 865,000 hours last year’s six months, gave us revenue of $84.2m for this year, this six months compared to 60.3 million for last year. That’s a 40% increase in revenue.

Our gross profit was $10.6m for this quarter, which equals 12.6% of revenue compared to $6.3m, which was 10.4% of revenue. G&A expense for this year’s six months was 2.8% of revenue off $2.3m compared to $1.9m, which was equal to 3.2% of revenue.

Other income for the six months was $112,000 for this year compared to $367,000 last year. Income before tax was $8.4m or 10% of revenue for these six months compared to $4.7m or 7.8% of revenue for last year’s six months. Once again, both periods had an effective tax rate of 34% and this brings us down to net income before the cumulative effect of change in accounting principles of $5.5m or 6.6% of revenues compared to $3.1m or 5.2% of revenue for last year.

Diluted income per share also before the cumulative effect of a change in accounting principles is 47 cents a share for the 2003 six months compared to 26 cents a share last year and for this six months the adjusted weighted average shares was $11.9m compared to $11.8m adjusted average shares last year and this is another quick note, for the six months 33% of our revenue was derived from deep-water projects and 26% was derived from foreign projects or projects were foreign destinations, and there was no overlap in these two numbers so 59% of our revenue was derived from deep water and foreign projects. With that being said, we were going to, Kerry is here and we’re going to open up the line to questions from the analysts.

Morning guys. It’s Jim Rollinson (ph) for Raymond James.

Morning Jim.

Kerry if you-- if you look at your quarterly performance, your man hours were up. Your revenues were up a bit and you usually see a seasonal pickup in margins normally. In the last three quarters you kind of had mid-teens gross margins and you were back in the 10% range, what happened this quarter, do you think?

Well it was pretty easy to explain. June was the second wettest month in recorded history for our area and we missed it by about a tenth of an inch of rain. Essentially June was a – it rained not every day, but pretty close to two thirds of the month. Not only did it rain during the daytime but also it rained at night. And what that did, that threw us into a situation where we had to attempt to get contract labor in to meet some pretty short term deliveries because most of our deliveries are in the summer time.

And we put on extra contract labor which is not as productive as our labor but it also cost us more money to put contract labor on. And needless to say that the amount of rain that we had that month that really it really cut into our profitability and what it did we missed one project of (---) there was a million dollar bonus for one particular project concluding in June and with all the rain that we’ve had we were not able to attain that date we just couldn’t finish the painting in that time frame.

So therefore the rain really killed us during the month and June.

I figured it might has been as much. What are you seeing so far in July unfortunately the last storm didn’t go your way so what will you see for weather so far this month?

Well it hasn’t been as bad we’ve been shutting down probably about every third day around 2:30 pm or 3:00 in the afternoon but it hasn’t really as bad as what we saw in June and probably the first week of July. It was absolutely horrible but if it wouldn’t have been for that we would’ve met our expectations, it was just a bad situation for us.

Of course it threw some of our project schedules further into the future we’re looking at that right now and how the contract label may cut into the profitability (indiscernible) this quarter.

Sure and any risk you think of missing out on any bonuses on delivery schedules going forward at the point?

Well we don’t think so, we feel pretty comfortable with where we are now. We have our backlog we feel real comfortable with. It’s fairly high, it’s higher than it was last quarter. It’s more Gulf of Mexico type work, a shallow water type work and not as much international, which is normally more profitable for us.

Yes, actually speaking of that, your absolute dollar backlog shot up nicely and the fact if I recall it’s about the second highest backlog you guys have ever had. And your man-hours only went up slightly which is I guess implies pricing is at least in backlog has picked up quite a bit. Is that what you guys are seeing?

Well that’s somewhat true and our backlog will work down, you have to understand that some of contract labor hours worked off some of the previous backlog and its back up, those levels and hopefully we can work more of our own man hours and not as many contract man hours going forward in the future.

Okay. Thanks.

Okay. Anyone else? Any other analysts?

Hey, Kerry this is Brent Rakers (ph).

Hey Brent.

Hey. I wanted to follow up a little bit on this rainfall- these rainfall numbers. You commented about June and then you kind of alluded to the fact that July has been pretty bad too. I mean, just kind of looking at some of the rainfall totals in Homa, it really doesn’t just- It looks like July has been maybe more of a normal month that - -more of a bad month. Is that correct or do you think it has been worse than a normal July?

No I think it’s more of a normal July. We just started off- June carried into the first week of July and after that it’s been more normal. We would hope- in summertime you have to expect some rain, especially afternoon showers.

June was all day and all night rains, which really really killed us. But in July we’re seeing the- more of the trend back to summer where you get the afternoon showers. Now as long as it doesn’t happen every day, you’re in pretty good shape. We are still working some night crews, not as many as we were working in June but we are working some night cruise and we haven’t seen as much rain at night.

I guess, last question Kerry is there- have you run into any jobs, other than the rainfall issues that have been under-performers and I guess, how has your execution been on the living quarters business? I know that’s kind of maybe it’s the first big ramp-up in that’s business you really had since you moved into Houma. Any comments there?

Well we don’t into jobs specifics. You know that Brent but basically, our execution on all our projects we’re pretty satisfied with right now. Like I said, if it wouldn’t have been for that rain, the execution would have been excellent. We would have real good performance but that rain just killed us.

Any comments - - I guess there’s one more question, are there any comments on delivery schedules for the third quarter, is there a heavy (inaudible) delivery schedules in any sense for how much this rain has pushed you back and could it impact those delivery time-tables as well.

we don’t think it’s going to impact those delivery time schedules, in fact we have some projects that are about ready to go out but the insulation contract is not ready to take the amount.

Okay.

So, you know, we feel pretty comfortable about our schedules, you know, baring another unusual rain situation like we had, we feel pretty confident about all our schedules.

Great, okay thanks Kerry.

Okay Brent. Anyone else.

Kerry, Joe Agular (ph) here.

Hey Joe.

How you doing?

Good.

I guess I was trying to, you know, kind of figure out, the new building that you recovered area, has that not helped at all or is that not up and running enough to offset some weather effect?

Well Joe, all the projects that were really affected right at the end for delivery are out in the yard right now and in the final stages of stages of painting and, you know, some final welding and touch-up and pick-ups, and we awfully do have some work in the shops at this point in time, we boost working in June, and we were able to do a small amount of work in the facilities at that point in time, but it’s really just starting to ramp up in the buildings. Unfortunately when you’re ready for load outs, you’re out near the waterfront and subject to these weather conditions.

So, then the basically what you’re saying is that - - I mean I guess I was, you know, kind of pleased with where you’re revenues looked in the quarter, but it sounds like maybe your revenues would have been a lot higher had you not been hampered by the rain. You would have delivered more in Q2?

Well I don’t think that’s the case because you have to understand that most of our projects are fixed priced type projects. And so what I did has affected the cost side more than the revenue side of – you know we may have had a small amount of revenues increase but it was basically our cost increase far more percentage wise than what our revenue would have increases.

So just basically you have the same people working on the job and on the clock. They are just not working?

Well we have some of that sometimes you know if it starts to rain you keep your labor around 1 or 2 hours hoping that it will stop raining especially when you have some delivery schedules to meet. And if it doesn’t stop raining you shut them and send them home.

And then you have other situations where you send them home, you thing it’s going to rain all day and then all of a sudden the sum comes out. So it really gave us some real head aches during the month of June.

You know another subject I was curious if you all are looking at any projects yet out of Mexico?

We’re not biding any of this point in time. We are in discussions like I think every body is about the future work in Mexico. There are some projects I think most of them are being delayed some what. At least 30 to 60 days from the initial schedules we have seen. Most of the projects in the earl stages in Mexico will go to local contractors down in Mexico. And so we have to let those contractors get full and then we’ll probably see some biding activity in Mexico. I think probably around – well toward the end of the third quarter into the fourth quarter we’ll see more biding activity for projects in Mexico to be built in the United States.

Okay thats it.

Thanks. Anyone else?

Morning guys this is Blake Hutchinson (ph).

Hi Blake.

Just one quick question here trying to take the comments that you have made so far regarding whether some of the added contract lever and the (indiscernible) that kind of spill over here into the third quarter. Knowing what you know and if the weather pattern from this point kind of continues as is. Are you necessarily prohibited or is it possible that you guys can get back to the mid teens type of margins that we’ve seen over the previous few quarters?

Well we think we can get past – if the weather straightens out on us we think we can be back to where we were.

So the spill over isn’t some thing that necessarily you know hindered you to the extent that you know it’s going to be having noticeable effect on this quarter as well.

Well we would hope not. And that quarter hasn’t happen yet but we would sure hope not.

Understood great that’s all I have thanks.

Okay. Any other questions from the analysts? Tiffany you can open up the line to the general audience.

Thank you sir. The question and answer session will begin at this time. If you’re using a speaker phone please pick up the hand set before pressing any numbers. Should you have any question please press star 1 on your push button telephone. If you would like to withdraw your question please press star 2. Your questions will be taken in the order that it is received. Please stand by for your first question.

Once again ladies and gentlemen if you wish to ask a question please press star 1 on you push button telephones at this time. At this time there are no further questions in queue.

Operator. (Indiscernible) the conference call we appreciate every body calling in. And we’ll talk to you all next quarter. Thank you.

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