Gulf Island Fabrication Inc (GIFI) 2004 Q1 法說會逐字稿

Good morning and welcome ladies and gentlemen to the Gulf Island Fabrication first quarter earnings conference call. At this time I would 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 up the conference for questions and answers after the presentation.

I would like to welcome everyone to the Gulf Island Fabrication's 2004 first 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 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 statement concerning forward-looking information, and elsewhere in the company's 10K, filed in March 12, 2004. The 10K was included as part of the company's 2003 annual report filed with the Securities and Exchange Commission earlier this year. The company assume no obligations to update these forward-looking statements.

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

Good morning everyone. This is Duke Gallagher. I was going to review the press release.

The first paragraph of the press release gives the income statement information, which I'm going to review in more detail. The second paragraph reviews the backlog. We had a revenue backlog of 66.4 million, and a labor backlog of approximately 951,000 hours remaining to work. Of the revenue backlog, 54.9 million, or 83% of that backlog will be completed -- we expect to have completed in 2004. Selected balance sheet information is cash and short-term investments of approximately 25.9 million. Debt of zero, and shareholders's equity of $118 million. That gives us a current ratio of 4.8 to 1, and a working capital ratio -- working capital of 67.7 --$66.7 million.

Going to the second page, the income statement information comparing the first quarter of 2004 to the first quarter of 2003, in the 2004 quarter, we worked 548,000 -- 548.6 thousand hours, and in the 2003 quarter we worked 514.6 thousand hours. Revenue was 50.8 million for 2004, compared to 39.6 million of 2003, which is a 28.4%increase.

Gross profit, 7.3 million for 2004, or 14.4% of revenue compared to 5. -- right at 6 million for 2003, which was 15.1% of revenue. That's about a 23% increase in gross profits.

G and A expenses of 1.3 million this year, or 2.6% of revenue, compared to last year's $1.2 million, or 3% of revenue. Income taxes of 2.1 million, which is 35% of income before taxes, compared to 1.7 million, or 34% of income before taxes for 2003. We have increased the effective tax rate to 35% for this year after doing our computations. Which gives us a net income of 4 million for the 2004 quarter, or 7.8% of revenue, compared to 3.2 million of last year, which was 8.1% of revenue. It gives us a diluted income per share of 33 cents a share for 2004 compared, to 27 cents a share for 2003. Adjusted weighted average shares of 12 million at March 31 of 2004, compared to 11.9 million shares at March 31 of 2003, and we used depreciation and amortization contained in these numbers as 1.5 million for 2004, compared to 1.2 million for 2003.

With the review being complete, we're now prepared to field questions from the analysts. Any questions from the analysts?

There appears not to be, sir.

Okay. Well, then we're prepared to field questions for the general audience.

Thank you, Mr. Gallagher. The question-and-answer session will begin at this time. If you're using a speaker phone, please pick up the handset before pressing any numbers. Should you have a question, press star one on your telephone. If you wish to withdraw your question, please press star, two.

Your question will be taken in the order that is it received. Stand by for your first question.

Our first question comes from Darren Horowitz from Raymond James.

Good morning, Duke. Good morning, Kerry.

Good morning. How are you doing?

Good, thanks. A quick question for you. Obviously, and I'm sure this is certainly throughout your industry adds as well as others. Everybody wants to know what's going on with steel prices, but also what's going on with lead times.

I remember historically that you guys, I believe, had about $1 million in the yard of steel, and also were working on pushing through some surcharges to existing customers. I was just wondering the current status of that, and also are you continuing to hear the strap prices are coming back down a little bit more from previously elevated levels?

Yeah, this is Kerry. You pretty much said it all. It's all true, what you said.

Well, that's a good thing.

Yeah, but we still have about $1 million worth of steel in inventory. We're using it to price some of this work that we see coming out in the near future. So we may have a competitive advantage, we hope, on getting some of this work.

Fuel prices have somewhat stabilized. The surcharges, again, we are passing on to our customers in our bidding process. We're going to continue to do that. It seems like they've gone up about 40% in the last four months, but we hope they stabilize in that area and possibly come down.

Deliveries are still stretched out, but there may be some relief in the second half of the year on that. But we're not quite sure at this point in time.

Okay. And also, switching gear as little bit. I thought we could address the backlog issue. I know that at the end of the 2003 you guys were sitting with a shade over 99 million in backlog. And consequently, worked off about 33 million this quarter.

I was just wondering, you know, the current bidding climate out there, I realize that shallow water shelf Gulf of Mexico is still extremely sparse and also fierce with competition, but I was just curious as to -- when the phone rings, what you guys are hearing in terms of bidding activity.

Well, our main source is engineering firms, and for the last three or four months, engineering firms have been real dormant, you might say, at the point of laying people off. They seem to have picked up some activity, so it looks like there'll some bidding activity in the near future for future projects.

Again, we normally sit on the sideline and wait and let our competitors take the low price work at the beginning of a cycle, and we come on the back side and try and get a little higher margin work. So our backlog going down doesn't really bother us as much. If you look at it, we still have about 950,000 man hours left to work. So still a pretty significant backlog for us going.

But we would hope the bidding cycle that we see coming up will be fairly active. We will definitely participate in it. Again, there's a lot of foreign projects that should be bid in the next four or five months, as well as we're seeing a slight renewal in the activity in the shallow water Gulf of Mexico.

Okay. That's helpful. So I would imagine that overall in terms of composition of backlog, the majority of it, as it sits right now, would be mostly commercial, I would imagine, relative to government and energy-related work?

Well, it's all energy related. Very little government work. But primarily all energy related. Some deep -- the bulk of it is deep water, Gulf of Mexico, as well as some international work.

Okay. That certainly helps. Additionally, I know that obviously given better weather and things just kind of falling into place here, I know that you guys have alleviated a lot of that contract labor that was sitting on the yard, which in quarters past have been cutting into, not only margins, but also impacting -- or I should say, trying to help completion times for projects.

Is the contract labor situation pretty much down to zero at this point?

That's correct, we've gotten rid of all of on-contract labor except for our scaffolding personnel, which we normally have on an ongoing basis, which is about 44 people right now on [inaudible] and scaffolding. But basically as far as welders, painters, and other skilled craftsmen, we have no contract labor on them.

So would I imagine then that as this quarter was similar to that of last quarter, project timing continues to be on course?

Well, all projects are on course as far as scheduling. But right now we have -- at the end of the quarter, we had 1,012 employees on the payroll.

Okay. That helps. And finally, just one quick thing. Duke, when you were flying through those numbers, I think I might have glanced over it. You said the direct labor hours worked in this past first quarter were what again?

540 -- well, 549,000. And the first quarter of last year was 515,000.

Great. I appreciate that, guys.

Okay.

Thank you. Your next question comes from Blake Hutchinson from Howard Weil.

Good morning, guys.

Good morning, Blake.

Just a quick question, kind of looking here, you know, more closely at near-term results. We see you guys little longer on manhours and shorter on revenue dollars in terms of your backlog numbers. Should we expect as in the past that maybe you were a little lighter on the revenue side, but margins open up a bit as you start to work through more manhours versus sort of start up, and some of the stuff that's just really pass-through and early in some of these jobs?

Yeah, that's correct. We -- you know, we bill or invoice and pull out of backlog for the steel as we buy it early in the project, and then later in the project, as we add value, then we take our earnings associated with adding value of working manhours.

You mentioned that -- as the year progresses here you're going to be in line for -- or at least bidding on some international projects. As you look at currency exchange rates right now, do you feel better than in past years about your positioning in terms of pricing on some of these contracts, or does not that really have much of on effect for you guys?

Well, we don't take any currency risks, but basically the lower the dollar is against the foreign currency, the better off we are. It makes our exports to other areas of the country cheaper. But we kind of want a weak dollar in our business, more than we want a strong dollar.

The wearer the dollar is the more competitive we can be in the international markets. But again, we don't take any currency risks. All of the bids are in U.S. dollars.

Okay. But -- but it's safe to say that you feel significantly better about your positioning, you know, pricing-wise, versus your competitors, some of your foreign competitors than have you in the past?

That's correct.

Okay. I think that's all I had. Thanks guys.

Thank you, Blake.

Your next question comes from the Joe Agular from Johnson Rice. Please state your question, sir.

Thanks. Good morning, everybody.

Good morning, Joe.

I just want to make sure I understand something with regard to the backlog, because I don't want to read too much into it either. If you look back over the last two years, y'all's backlog has bounced around from quarter to quarter. I mean you were in the 80s, and then you went down to 60, then you went into the 90s, and even into the end of the quarter you were at 75, and then bounced back up at the end of the fourth quarter.

Is it the market still the same, basically, where you, you know, we might look out a quarter or two you might be right back up in the 90s, 90 million range?

Joe, we would hope so. I mean, that's -- you know, depends on which jobs we can pick up and what kind of markets are out there and what kind of work we can get.

Right.

But, you know, when you dealing in the foreign market, especially in the deep water, normally the projects are a larger size, so your backlog will increase more dramatically as these projects come out and you actually secure some of these projects. It will go up more significantly because the volume of the pricing, total pricing on those projects are a lot higher than normal.

In other words, it sounds to me like you're targeting the, you know, the larger decks today versus maybe what you may have been doing in the past, you know, on these foreign jobs, so therefore when you get one, it's going to be meaningful to your backlog.

That would be correct.

Right.

We are going after the decks because we built that large fabrication shop and we can do more under roof and faster and more efficiently, so yes, we are targeting decks. There aren't as many jackets out there as what we like to see, but there will be some jackets bid later on in the year.

Right.

We are concentrating a lot on the decks and modules.

Could you tell us what in that -- in the backlog you -- you know, what major projects are still in your yard or what's left to be worked off?

Joe, I'd like to but we normally don't discuss that, you know, because of confidentiality statements in our contracts and things of that nature.

Right, right.

I really have a problem with that, okay?

No problem at all. I just -- you know, you some -- from time it time, see things in the trade press, and I'm just trying to just see what they're saying versus what's, you know, actually in your yard but that's okay. I totally understand it. And I guess that's about it, Kerry. I think I think all of the questions I have have been covered already, thanks.

Okay. Joe. Thank you.

As a reminder, if you do have a question, press star one at this time. Our next question comes from the line of Terry Raterman from Kennedy Capital. Please state your question.

Morning, guys. Sorry, my question's been answered. Can you go on to the next.

Okay. Thank you.

Thank you we do have a follow-up question from Darren Horowitz. Please state your question, sir.

Hey, guys. Just a quick follow-up question. Circling back to address the steel surcharge issue.

I was just curious if you guys were getting any push-back from the customers on some of the surcharges that have been going through? And also since, I guess, there were really no major project awards within the quarter, should we assume that the majority of the surcharges for the existing backlog have already been passed through to the customers with no push-back?

That's correct, you have it, we are -- on our major contracts we have clauses in there that any increase in steel prices would be passed on to our customer, customers and we are doing that, all projects that are in our facility. We're also stating that fact in any future bids that we put out, that any -- we have a baseline for steel in our bid, and any additional costs on that, whether surcharges or price increases, would be passed on to our customers.

Sure. I guess more importantly, what I was just concerned with is making sure that the work in the backlog at this point in time that was previously bid is covered in terms of the surcharges that have already gone through to the customer, so that way we wouldn't be surprised with any increased costs on a go forward basis?

That's correct, it's all covered in the backlog.

Thanks, guys.

Thank you as a final reminder if you do have a question, please press star one at this time. Since there are no further questions, I will now turn the conference back to Mr. Gallagher.

Okay, I just wanted to thank everybody for calling in. Talk to you 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 350808. This concludes our conference for today. Thank you all for participating, and have a nice day. All parties may disconnect.