Gulf Island Fabrication Inc (GIFI) 2004 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 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 the conference up for questions and answers after the presentation. The Safe Harbor statement will now be read by Miss Deborah Knoblock, management representative.

I would like to welcome everyone to Gulf Island Fabrication's 2004 Second 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 price of the 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 10K filed 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 assumes no obligation 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. Going to report the -- I'll review second quarter earnings release. Of course the first paragraph went over the Income Statement information, which we're going to review on the second page. The second paragraph indicated a revenue backlog of $60m, and with approximately $850,000 man-hours remaining to work.

Our balance sheet information indicated cash and short-term investments of 31.3m. Debt remains at 0; shareholder's equity of 122.8m. This computes out to a current ratio of 5.3 to 1 at June 30, and a working capital of 68.5m.

Moving on to the second page, the quarterly information, comparing the second quarter of 2004 to the second quarter of 2003, revenue was 41.4m, compared to 44.6m last year. That's a 7% decrease in revenues. However, gross profit for 2004 for the second quarter was 6.5m at 15.7% of revenue, compared to 4.6m or 10.4% of revenues, which indicates a 40% increase in gross profits.

G&A expense was 1.3m or 3% of revenue for 2004, compared to 1.2m or 2.6% of revenue. Income taxes for 2005 we're using -- I mean 2004, we're using an effective tax rate of 35%. Compared to last year, it was 34% -- brings us down to net income of 3.5m or 8.5% of revenue -- of net income of - for 2004, compared to 2.3m or 5.2% of revenue for 2003, which is a 51% increase in net income -- brings us down to a $0.29 diluted earnings per share, compared to $0.20 last year.

And that's based on an adjusted weighted average shares of 12.2 million at June 2004, compared to 11.9 million June of 2003. And depreciation included in those numbers was 1.5m, or 3.6% of revenue for 2004, compared to 1.3m or 2.9% of revenue for 2003.

Moving on to the year to date six-month information, revenue of 92.2m for 2004, compared to 84.2m in 2003; a gross profit of 13.8m or 15% of revenue for 2004, compared to 10.6m or 12.6% of revenue for 2003. That works out to a 30% increase in gross profits. SG&A expenses of 2.6m, 2.8% of revenue, compared to 2.3m, which also was 2.8% of revenue.

Income taxes for the year to date 2004 is at 35%, and was 34% last year -- brings us down to a net income of 7.5m or 8.1% of revenue on net income, and 5.5m, 6.6% of revenue last year, a 34% increase. Diluted earnings per share -- $0.62 for 2004, compared to $0.47 last year, based on 12.1 million shares at 2004, and 11.9 million last year.

I also wanted to bring up the hours that were expended during - the direct labor hours expended. For the three months ended June of 2004, we spent 512,000 hours, compared to 592,000 for the quarter last year. And year to date 2004, expended 1,061,000 hours, compared to 1,107,000 last year. With that being said, we're going to open up the lines to the analysts for any questions.

Thank you. The question-and-answer session will begin at this time. (Caller instructions.) Please stand by for your first question.

Chris (ph), are the analysts still on at this point?

I do have the analysts on.

Okay. I just wanted to be sure.

Their lines are live.

Good morning Kerry, Duke. Darren Horowitz of Raymond James. Can you guys hear me okay?

Yeah. Yeah. Good morning Darren.

Great. A couple quick questions for you. I am assuming, just by looking at the gross margin, that not only did you guys benefit from some decent weather this quarter, and stay dry, stay out of some of those afternoon showers, but also that the majority of the contract labor is just not only off the yard, but, with that said, that you got projects out on a timely manner, and were eligible for the project completion bonuses. Is that accurate?

You've got it. That's it.

All right.

We did get a substantial bonus for completing the [Taylor Symbol] [ph] project ahead of schedule - about a month ahead of schedule. So we did receive a substantial bonus.

All right. With that said, was there a lot of pass-through revenue involved at all during the quarter? I know that's something that's kind of been there recently, but not all that frequently.

Darren, for the quarter, the pass-through revenue was slightly less than say historical levels. However, year to date, which includes the first quarter, it was probably a little bit on the high side. That's why I guess the revenue numbers show that change from 2003.

Okay. That's exactly what I was getting at. Probably the biggest question on a go-forward basis is the backlog. I know that, given where it stands today, at a shade over 60m, it's down about six - six and a half million from last quarter. The biggest question on my mind is what are you hearing out there? Is there a lot of irrational players in the market that are cutting price in order to get work? Or is there a scarcity of work? Or maybe a slight combination of both - both international and domestic?

Well Darren, there is a scarcity of work out there. I'll tell you that right now, especially in the Gulf of Mexico. The international markets are active, somewhat. And the deep water market is a little down right now. But there's some real good prospects for next year on the deep water side. But basically the Gulf of Mexico - it's not the Dead Sea. But it has been down this year.

We do see some pick-up in activities for the second half of the year. Some of the independents are beginning to give the engineering firms some work, which indicates that we'll be bidding some of those projects later on in the year, probably within the next two or three months. But the international market still remains pretty strong, especially in Mexico, Trinidad, West Africa, and Venezuela. There's a little work coming out of Venezuela also we're starting to see. So the international market is the real play right now.

Okay. And then is a lot of that work, I guess, being bid currently, going to show up towards the fourth quarter and into the first quarter of '05?

Well, that's what we hope. It's got to come up for bid. And we hope that would be the case. Normally -- normally in the third quarter and in the beginning of the fourth quarter is when we're bidding work for delivery in 2005, for the next year. So we would hope that would be the case again.

Right. Okay. And then I guess just one more quick question then - a few housekeeping items. Steel, obviously on the forefront of everybody's minds, wondering what you guys are seeing in terms of not only pricing, but also lead times out there.

Okay. Lead times aren't good at all. Lead time on mild steel right now, if you place an order, you'll get delivery hopefully in October. And if you have high strength steel, your deliveries would be in December. However, Gulf Island, at the end of last year, in November, saw the problems with steel. And we actually have about a million dollar inventory on high stress steel at our facility, that we can use for quick turnaround jobs and other jobs. And then we would replace that steel as needed.

We're going to maintain that inventory level somewhere around the $900,000 to $1m level. This steel was priced at prices also prior to the increases. So we're very fortunate to get that in our facility. So we're able to use that on short turnaround jobs. But we are - needless to say, we're having to charge our customer the higher prices that are in the marketplace now.

Sure. And has there been any push back regarding that?

What do you mean by push back?

Just from the customers. I know that some of the previous contracts that were bid, there were a few surcharges that had to go out to compensate for those higher steel costs.

Well, what we're doing is that's into our bid, and into our contracts. Our customers are paying the higher price and the surcharge. So we have ourselves protected in our contracts and our bids. In fact, one of the largest jobs we have at this point in time, the customer is paying for all the surcharges and increase in steel prices.

Good. That's good to hear. Well Kerry, I appreciate it. Duke, just a couple of housekeeping items for you. On the D&A side this quarter, trended up a little bit higher relative to the March quarter, to about 1.5m if I am not mistaken. Is that fair to model going forward for the rest of the year? Or would it come to more normalized, around 1.3 or 1.4?

Yeah, the - what the 1.5 is, is the number that's going to remain based on fixed assets acquired through the end of last year. And I think we have about another 9m in the budget for this year. So that will start ramping up toward third quarter, maybe fourth quarter, but just slightly for this year. So the 1.5m is a good number per quarter.

Great. Well guys, I appreciate it. And I'll turn the call over to somebody else, without hogging up all the questions here.

All right. Thank you Darren.

Good morning guys. It's [Michael Moreno], filling in for Joe Aguilar.

Yeah.

I was - I guess it was two calls ago, you all talked a little bit about the L&G market, and the possibility to pick up some work there in the back half of '04. I was just wondering if I could get a feel for where that stands right now, if that's something that's still in the engineering phase, or how it's moved through that process.

Yeah. Most of that is still in the engineering phase and the conceptual phase. It may be even delayed until next year, to be honest with you, from what we're seeing. There is one small project that's moving forward now. But apparently the permitting process has been taking a little more time, as well as the evaluation of the feed engineering studies. So if we see it this year, it will be late in the fourth quarter. But I would venture to say it will probably be next year. Okay?

Okay. Great.

Anything else Mike?

Yeah. I guess a follow-up on one of the previous questions was about the international work. As a percentage of revenue I guess this quarter, with the Gulf being down, what kind of - how much international work was there in Q2?

Let's see. I'm looking that up right now Mike. It's actually up from last year's quarters. For so far this year, 54% of our work was for deep water projects. And 21% was for international projects. That compared to last year, 41% deep water - well, actually 24% foreign work.

Okay great.

So we're staying around that 65%-70% for those two types of work.

Okay. Thanks. That's all I had.

Okay Mike. Any questions from the general audience?

(Caller instructions.) I have no further questions Mr. Gallagher.

Okay. Well, we thank everyone for calling in, and talk to you all next quarter.

Thank you. (Caller instructions.) This concludes our conference for today. Thank you all for participating, and have a nice day.