Gulf Island Fabrication Inc (GIFI) 2003 Q4 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to the Gulf Island Fabrication fourth-quarter earnings conference call. (OPERATOR INSTRUCTIONS). I will now turn the conference over to Ms. Knoblock.

I would like to welcome everyone to Gulf Island Fabrication's 2003 fourth-quarter teleconference.

Please keep in mind that any statements made 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 extent of changes in the prices of crude oil and natural gas, the timing of new projects 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 10-K filed March 27th, 2003.

The 10-K was included as part of the Company's 2002 annual report filed with the Securities and Exchange Commission last 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.

Thank you, Ms. Knoblock. I will now turn the conference over to Mr. Duke Gallagher. Please go ahead, Mr. Gallagher.

Good morning everyone. I am just going to do a quick review of the press release. On the first page, we indicated we had a revenue backlog of $99.2 million and a labor backlog of approximately 1.3 million man-hours remaining to work. Our cash and short-term investments at 12/31/03 was 22 million, our debt remains at zero, and shareholders equity was about 112 million. That gives us a current ratio of 3.9 to 1 and a working capital of $60.7 million.

Going to the second page of the press release, comparing the quarters, the fourth quarters of 2003 to 2002 is not on there, but the dollar per labor hour works for the fourth quarter of 2003 was 593,000, and for the fourth quarter of 2002 was 473,000. That was about (technical difficulty)-- percent more hours.

Revenue for our 2003 fourth quarter was 56.2 million compared to 42.4 million, which is a 33 percent increase in revenues for the quarter. Gross profit, 11.0 million at 19.6 percent of revenue compared to last year's 6.2 million at 14.7 percent of revenue, which is a 77 percent increase in gross profit.

Income taxes for both the quarters has an effective rate of 34 percent, which gives us income of 6.2 million or 11.1 percent of revenue for 2003 compared to 3.4 millions or 8 percent of revenue for 2002, which is an 84 percent increase in net income. Diluted earnings per share for 2003 fourth quarter was 52 cents compared to 29 cents last year. Using an adjusted weighted average share of 11.9 million for the 2003 compared to 11.8 million for our last year's fourth quarter. Depreciation was 1.4 million for this quarter compared to 1.1 million last year's quarter.

Moving on to the twelve-month information, income statements. Direct labor hours for 2003 we worked 2.3 million hours compared to 1.9 million hours last year. That is a 21 percent increase in hours. Revenue was 204 million last year compared to 143 million -- I mean 204 million this year compared to 143 million last year, a 43 percent increase in revenues. Gross profit for 2003 was 28.9 million at 14.2 percent of revenues compared to last year's 19.3 million or 13.5 percent of revenue, a 50 percent increase in gross profit.

Once again, income tax effective rates were 34 percent for both years. That gives us a net income for our 2003 of 15.8 million or 7.8 percent of revenue compared to last year's net income before cumulative effect of change in accounting principles of 10.3 million or 7.2 percent of revenue, which is a 53 percent increase in revenues.

Diluted income per share $1.33 for this year compared to last year's 87 cents. Adjusted weighted average shares for 2003 is 11.9 million shares compared to last year's 11.8 million weighted average shares. Depreciation for 2003 was 5.3 million compared to 4.6 million last year.

Another note we wanted to make was that for 2003 41 percent of our revenues was derived from work for deepwater projects, and 24 percent of our revenues was derived from work for foreign installations, and there is no overlap in those numbers. So actually 65 percent of our revenues was derived from these two sources outside of the Gulf of Mexico. I am sorry -- yes, deepwater could be Gulf of Mexico. So the deepwater in the foreign equals 65 percent of revenues.

With that being said, I am going to open up the lines to questions from the analysts.

(OPERATOR INSTRUCTIONS).

Good morning. Darren Horwitz here with Raymond James. First of all, congratulations on a great quarter. Clearly last quarter was also a great quarter, and you guys certainly blew that one away handily. But with that being said, one thing that we saw last quarter obviously considering, or I should say contributing to the upside was a lot of the pass-through revenue and obviously better project timing, in addition to a good amount of labors and materials. I am assuming this quarter is more of the same, maybe a little bit more. Could you expand on that?

Pretty much. We had some projects that ended in the fourth quarter. More often than not, when we have projects that end, the profit levels near the end of the project tend to grow a bit better. In other words, any contingencies we may have had at the beginning of the project we did not use, so it was basically just projects getting better.

We did considerably more man-hours than we did the fourth quarter of the previous year. Our labor is up during the year, up to about 1100 employees at this point in time and the same at year-end where we only had a little over 900 employees at the beginning of last year. So our manpower rate went up considerably.

Now we still had a lot of contract labor on the payroll during the fourth quarter. Now that cut into our margins. Even though we still had good margins, we could have had better margins. But we still were working a lot of contract labor hours, which is pretty much a pass-through.

Right. That actually was going to be my next question because the gross margin, as you guys reported a shade over 19 percent, were some of the best, if not the best, in company history. I was just wanted to -- I know that there was some decent amount of contract labor out there in the third quarter, but we were expecting that to taper off into the fourth, and I was wondering if that had affected any potential end of project bonuses this quarter or possibly even into the first quarter?

Well, in the fourth quarter, we did not have any bonuses at all. But we had some delivery schedules to meet that were pretty critical, so we did work a lot of hours in doing that.

There are some potential bonuses in 2004. We are not considering any of that right now. A lot depends on the weather conditions and things of that nature.

We have scaleback contract labor. We are down to only right now about 90 contract laborers on the facility where we were at levels approaching 400. We have reduced the contract labor over the last two or three months, and we will continue to do that and use more of our employees on these projects as needed.

Good. That actually brings me to the backlog question. Obviously the current bidding activity question, I am sure are two things everybody out there wants to hear about. Given that the backlog is the highest year-end backlog in company history, I was just curious as to the composition of that backlog? And secondly, the current bidding activity, obviously as you have mentioned earlier, with the larger percentage coming from international, I was curious as to opportunities in Trinidad, possibly even West Africa and certainly from Pemex?

Well, the backlog is not the highest we have ever had, but it is close at 99 million. We've got a little over 100 million before, so we are real close.

But the backlog is pretty consistent with what we saw our revenues for last year, mainly deepwater and international projects. There are some shelf projects. We are bidding right now and have some shelf projects in our backlog, but by and large, the greater majority of it, probably even more than 65 percent, is international and/or deepwater.

We are bidding -- have been bidding work in Trinidad, and we will continue to do that. We see that as one of the bright spots in the industry. West Africa. We will be in West Africa and also bidding work for Canada. So Canada had some activity, and we have been active in that market. Those are the main areas that we see, and they are a few deepwater projects for the Gulf of Mexico.

As far as LNG, that is (inaudible) word that most people are concerned with these days. These projects are delayed a little. We would see probably some work in LNG probably in the second half of this year but nothing for the first half of this year. We hope that there would be increased activity in the shelf, but we have not seen that yet. At least, the bidding activity has not reflected that.

We have noted, however, that the engineering firms that were pretty slack and did not have very much work in the fourth quarter have picked up some work and are doing some studies now on potential projects. So this could probably develop into some projects hopefully for the second half of 2004.

This is Joe Agular. (multiple speakers). Just to follow up on what you just just mentioned on LNG work. What type of work would you be doing? Are you referring to platforms for LNG developments overseas?

No. We would be mainly dealing on LNG developments hopefully in the Gulf of Mexico as they develop because there would be some platform work jackets, specifically that would be required for some loading docks, and we would be looking at that end of the business more so than doing the process train. We are doing some projects for Trinidad, and of course, some of these projects are associated with LNG, but not specifically loading terminals for LNG tanks.

Okay. That is interesting. How is Frontrunner coming along?

Well, Frontrunner is doing fine. It is scheduled to leave our facility in the very near future, and we hope that that happens. It is pretty much on schedule. There are no real problems with it. We are coming to an end on that project. So we should be ramping off that project very shortly.

So that would be a first quarter event completion?

I am not sure if it is first quarter or early second quarter.

The other question I guess I had going forward here 2004, I guess last year at the end of '02 your backlog was, what, low 90s, I think 92 million, something like that?

Correct.

And you ended up doing 200 million in revenue in '03 and (inaudible) $204 million. Given your backlog at $99 million, can we project the same revenue level in' 4?

We always hoped to beat what we did in the previous year, but there is still a lot of uncertainty in the market. Some of our larger competitors are coming off of a backlog of work, and we will be in the market very actively seeking whatever develops.

So there is a lot -- and some of our smaller competitors right now are really struggling for work. They don't have very much work in their backlog. So we see a lot of pressure on the bidding activity in the very near future to where the pricing probably will be somewhat a little more suppressed than what we have seen in the past, and it is uncertain right now what is going to happen. But I would venture to say that it will a little more competitive this year than what we saw last year.

As far as work you have in backlog, you feel good about the margins on that work?

We normally don't bid work unless we have some work in it. (multiple speakers). Whether or not we can make the margins we did last year, I am not sure right now. (multiple speakers).

As you can appreciate with some of the movement let's say that you have had in your quarterly results this year, it gets a little bit hard for us to try to pinpoint where exactly to project you for '04.

I apologize for that, but we can't talk to you all very much anymore. But a lot of good things happened to us in the second half of the year. Namely weather was very very good. The second quarter and right into the third quarter, we really had some serious problems with rain. So hopefully we will get a little better weather conditions this year than what we had last year, and our productivity hopefully will be as good or better.

We have now our large fabrication building where we can do a lot more work on the roof and not be quite as subject to weather, but we still are subject to changes in weather conditions that can affect our profitability. So there are a lot of variables out there, but we will do the best we can.

Well, you've done well so far. One last question on the dividend. Could you maybe give us a little bit of thinking behind that? I want to make sure I understand this is a regular quarterly dividend you intend to keep going forward, correct?

Well, you never know. We are not saying that we are going to keep it going forward. We will make a determination at each quarter on what we are going to do(multiple speakers), but we would not have declared one if we did not think properly we would like to continue to do that.

Understanding that, if we do need our cash for specific needs later on, we may modify that. But the company right now has no debt. The balance sheet is strong. We have about $25 million cash and short-term investments in the bank. So with that in mind and the new dividend policy, we figured that we owed it to our shareholders to share some of that with them and let them benefit from this new change in the tax structure. So it is not a large dividend, but it is something that we needed to reward our shareholders with.

If you look at a percent of our actual income for 2003, you're looking at a very small, relatively small percent of it compared to -- and it is actually about half I think of our depreciation, so it is not something that is going to really tax the company. We still have plenty of capacity for capital if we need to get it.

Anyone else?

Darren Horwitz with Raymond James. Just on the housekeeping side, obviously yesterday was up as was D&A. Is this something that for modeling proposes we should increase going forward or keep the SG&A about 1.2 and the D&A about 1.3 for our run-rate?

Well, I can tell you what happened to it in the fourth quarter for the SG&A to jump on it dollarwise; I think percentagewise it was not bad. We had won our first actual write-off of a receivable in the fourth quarter, and of course, that was a bad debt. We are still trying to collect the whole amount of money, and it was about $220,000 that we actually wrote off. We are still pursuing collecting that money, but the particular company may go into bankruptcy, so we really feel we needed to reduce the amount by about half.

So we did that, and also as our earnings go up, our executive bonus rolls up percentagewise. So those were the two factors in the SG&A that went up. Other than that, it would have been pretty much in dollarwise a flat line.

Okay. Great.

Anyone else?

Jeanne, I would say at this point the analysts are through with their questions. I don't know if all the lines are open at this point. If not, we would like them to be open.

Thank you, Mr. Gallagher. The question-and-answer session will begin at this time. (OPERATOR INSTRUCTIONS). J.D. Pagit, Founders Asset Management.

Hi, guys. Impressive results. I just had one or two quick questions about expected CapEx for next year and how when you layer that on, that will impact your depreciation next year or I guess this year?

We have a very low CapEx for this year. It is in the neighborhood -- I don't have the exact number here. Duke is looking it up, but it is not $5 million. Fairly lower.

Last year for 2003, it was 16.1 million. It actually worked out to be, which included part of that large fab shop and some equipment. And like Kerry said, this year it is going to be right at the 5 million total.

So nothing else you can do to build more covered workspace?

Well, we are looking at that. We are studying that right now, and we may modify that as the year goes on. But right now we are going to digest that large building in the CapEx we spent last year.

And then with CapEx at only 5 million, if you had about 5 million in depreciation last year, what do you think depreciation amounts to in '04?

I mean you're probably going to have a 10 year average depreciation rate on that. So add in a possible 1.6 million for new acquisitions, but then as these -- the current fixed assets become fully depreciated, that continues to be reduced too from the base from 2003. So it is going to be maybe a slight increase in depreciation.

So a couple of hundred thousand or something like that?

Yes.

Great. Thank you.

In that area.

(OPERATOR INSTRUCTIONS). Mr. Gallagher, I am showing no further questions.

Okay. Well, thank you, Jeanne, and thank everyone for calling in. We will talk to you all next quarter. Thank you.

Ladies and gentlemen, if you wish to access the replay for this call, you may do so by dialing 1-800-428-6051 or 973-709-2089 with an ID number of 327146.

This concludes our conference for today. Thank you all for participating and have a nice day. All parties may now disconnect.