Gulf Island Fabrication Inc (GIFI) 2004 Q3 法說會逐字稿

Please standby we are about to begin. Good morning and welcome ladies and gentlemen to the Gulf Island Fabrication Inc. third quarter earnings release conference call. All participants will be in a listen-only mode for the duration of the presentation. This call is being recorded. At this time I would like to turn the conference over to Ms. Deborah Kern-Knoblock for opening remarks and introduction. Deborah, please go ahead.

I would like to welcome everyone to Gulf Island Fabrication 2004 third 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 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 10-K filed March 12, 2004. The 10-K 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 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. Just going to do a quick review of the press release for the, this -- for the third quarter of 2004. We ended up the quarter with a backlog of $59.1 million and 727,000 man hours. Selected balance sheet information, cash and short-term investments of 45.1 million, debt remains at zero, shareholders equity of 124 million gives us a current ratio of 6.0 to 1 and working capital of 71.6 million. Going to the second page the quarterly information comparing the third quarter of 2004 to the third quarter of 2003, direct labor hours for 2004 was 504,235 compared to 636,000 for the 2003 quarter.

Revenue of 36 million for 2004 compared to 63 million in 2003, coming down to a gross profit of 3.7 million for 2004, which was 10.3% of revenue compared to last year's 7.3 million of gross profit at 11.5% of revenue. G&A expense of 1.2 million for the third quarter of 2004 which is 3.3% of revenue compared to last year's 1.2 million at 1.9% of revenue. The income taxes the rate -- the effective rate for 2004 is 35%, and 2003 it was 34% for the quarters. Net income of 1.7 million or 4.8% of revenue for 2004 compared to 4 million at 6.4% of revenue for 2003, gives us the diluted earnings per share for the third quarter of 2004 of 14 cents compared to last years 34 cents.

We used adjusted weighted average shares of 12.2 million shares at 2004 and 11.9 million shares at for 2003. Depreciation was 1.5 million for the quarter this year which is 4.3% of revenue compared to last year's 1.4% -- I mean 1.4 million or 2.1 of revenue. Moving over to the nine month information, in 2004 we were 1,565,000 hours compared to last years nine months we think we had worked 1,744,000 hours. Revenue this year was 127 up -- $128 million compared to last years $148 million. Gross profit 17.5 million at which is 13.7% of revenue for this year compared to last years $17.9 million or 12.1% of revenue.

G&A expense so forth this year is 3.8 million or 2.9% of revenue compared to last years 3.6 million or 2.4% of revenue. The effective tax rate actually for the nine months of 2004 has been 35% and was 34% for the nine months of last year. It brings us down to net income of 9.2 million for 2004 or 7.2% of revenue compared to last year's $9.6 million or 6.5% of revenue. Diluted earnings per share, 76 cents for 2004, 81 cents for 2003. Adjusted weighted average shares, was 12.2 million for this year compared to 11.9 million for last years nine months. Depreciation year-to-date is 4.5 million or 3.5% of revenue for 2004 compared to 3.9 million or 2.6% of revenues for last year. With that review being completed we will now open up the line to the analysts for questions.

Thank you Mr. Gallagher. The question-and-answer session will be conducted electronically. If you would like to ask a question please do so by pressing the "*" key followed by the digit "1" on your touchtone telephone. If you are using a speakerphone please make sure your mute function is turned off to allow your signals to reach our equipment. We will proceed in the order that your signal us and we will take as many as time permits. Once again, press "*" "1" on your touchtone telephone to ask a question. If you find that your question has been answered you may remove yourself by pressing the "#" key. We will pause for a moment to give everyone an opportunity to signal for questions. We go first to Darren Horowitz with Raymond James.

Yeah. Good morning guys.

Good morning Darren.

Good morning Darren.

Quick question for you and I apologize I jumped on the call a couple of minutes late. Just looking at the quarter in total and the results that are posted relative to the previous sequential quarter and also last year, was it function of the amount of work coming out of backlog may being longer in duration or possibly not ramping up in the quarter as expected or was it more a function of project timing within the quarter due to weather or something like that or may be a slight combination of both?

Darren it’s a combination of lot of the -- but basically was our work levels were down. We did not see as many bids as we anticipated coming out during the period and the period before. The engineering firms have been pretty slack recently and as a result we haven’t got -- haven’t received any bid. We are getting into our bid cycle now or next year which we see the engineering firms in Houston which is a good sign they are actually hiring people right now, several engineering firms are booked with work. So that’s a good sign for the future. But as far as the quarter we did have a hurricane that shows down for about five days, we lost about five days of production. We also had some storms that evacuated the Gulf which our employees at Dolphin had to come in and they did say -- we didn't have any revenue for that. There was total of about 17 days we were shut down during the quarter.

Okay.

July was pretty rainy and then we ended up with some storms in September that hit us pretty hot. So without been able to work those days we lost quite a bit of -- we lost some revenue.

During that point in time was there any additional contract labor that had to come onto to the yard that potentially you know ate into margins?

No we had no -- the only contract labor we had during the quarter and it was at the end we have eight contractors working off shore on a [inaudible], other than that we have no contract labor whatsoever on the yard. We did reduce our overtime during the quarter because of the lack of work you might say during that period. So reduced the amount of hours we actually worked.

Okay you touched a little bit on the bidding activity and that’s actually where I wanted to go next. I remember last quarter we were discussing the potential for some international contracts coming in and I know that they usually lack in terms of bidding process how long it takes relative to domestic stuff. But on the international front what are you seeing there?

Well it's a lot more positive where we are headed at the end of the last quarter. There are several significant projects being bid for West Africa. Of course [TMax] is very active in Gulf Island and is bidding some of the activity in the [TMax] area. We see Trinidad having some activity for next year with [inaudible] by far the biggest market should be Mexico and West Africa. We will see and are seeing some indication that there will be some deepwater projects also coming out in 2005 and we are staying on top of that.

Good. I guess that leaves me to my question in regards to steel, I know that you guys were sitting with a shade less than a million in inventory in terms of steel on the yard. As it stands right now how are both prices and lead times in terms of delivery?

It is all horrible. You know steel price is going up on an average of about 40% is what we have seen which adds about 20% price to out actually selling rate. But right now deliveries we can get some steel in our facility in the first quarter which is good. We have some commitments from the mills that allow us to move ahead of some other service centers and that's a very good position to be in at this point of time and we are actually utilizing that in our bidding activity. We do still have a significant amount of our own steel inventory in-house and we are replenishing it as we use it up. It does give us a better jump on the competition in the bidding process. We still have about $400,000 of steel and inventory and we are making an order of probably this week or next week to really enhance that inventory getting ready for next year in the bidding cycle. The pricing is somewhat stabilized. The surcharges are more or less constant right now or even dropping just a little. But obviously the steel prices are staying at pretty high level and the mills as they book up the first quarter, you know deliveries for specially the high strength steel will lag into probably the second quarter at this point in time?

Okay. Just another quick one, taking a step back in terms of talking about the bidding activity I remember in the second quarter I think year-to-date you said that about 54% of the work was, and correct me if I am wrong -- was deepwater was about 21% of international is that still kind of rough breakdown of it stands right now?

Pretty close.

Okay. I appreciate it guys.

Okay. Thank you.

Thank you Darren.

As a reminder if you would like to ask a question today please press "*" key followed by the digit "1". We return to Darren Horowitz with Raymond James.

Well if nobody else has any other questions I might as well just jump on again.

Come on Darren.

Let's talk for a minute about the hurricane impact. I know that at this point people have been very to say exactly how much in terms of work its going to create for a lot of the fabrication guys, but can you help me for a minute trying to get my arms around the potential amount of work that you could be bidding for both on the fab yard with Dolphin everything inclusive?

Duke Gallagher Okay. It's still little early to come up with some hard figures on that. There is still a lot of evaluation going on. Dolphin has been very active though going offshore. Our crews offshore during minor call relatively minor repair work at this time. We also are doing some pipe spool fabrication and things of that nature at Dolphin too because of the storm. So we have been very active in that area but the larger fabrication is yet to be seen. They are still assessing damage. We know there are some structures that were lost and destroyed and there are some that are heavily damaged. There are still evaluations going on well enough to replace these structures, whether that brings some of the damaged ones in just to be repaired onshore or, to actually try and do some of these repairs offshore. So it is still a little early to assess that. I think in the next month we should have a better handle on what’s going to happen in that regard.

Right. And that's kind of what we are hearing throughout the industry?

Right.

With that said lets move for a quick second to the backlog number. I know that typically a backlog number like this -- correct me if I am wrong, will probably be about what five to seven months worth of work give or take?

That’s correct.

In terms of the work that's in backlog right now, do you have a sense for how much if it is longer duration type work or actually kind of quick term work that can be completed within the quarter so that it's eligible for project completion bonus. I guess what I am trying to assess is going into the calendar this year obviously with daylight savings hours, coming to a halt and the holiday impact and everything else, I am just figure out exactly the type of workload that you guys will be able to have throughout the quarter?

Okay. For the rest of the year our backlog will work off at least 36 million of our backlogs and if we get some additional work it could be more. So for 2004 we still have 36 million of our backlog that will be worked on. The rest will go into 2005 and a small amount into 2006. But we are all in the bidding cycle right now or work for next year. Our bidding activity is significantly higher than what we have seen in the past. So there has been a jump in the bidding cycle so hopefully we will pick up some of this work as we go into next year.

Alright that's very helpful. Thank you very much.

Okay great.

Thank you Darren.

We go next to Warren Clifford (phonetic) at Clifford Capital Management (phonetic).

Yes, I believe --

Hello Warren.

You said that you missed -- or you were shutdown 17 days in the quarter?

Yes sir.

How does that compare with last year?

Well, I don’t have last year's numbers during the quarter but we did not have nearly as the hurricane season that we had this year. So I would venture to stay at normal quarter cost would be somewhere around 8-10 days of shut down. So we will probably shutdown twice as much as what we were last couple of years.

Right. If you took that extra week let's say what sort of impact would that have had on volume and earnings?

Well, I don’t have exact numbers Warren I can get that together and give to you but I don’t have the exact numbers right now.

Yeah, well, you know a rough estimate will do?

Well, we probably would have worked, in addition -- we had a 1000 employees on the payroll so, if you take about 40 hours a week I will tell you about the hours we could have -- we approved if we had had that week of productivity. Some may have been a little high or may be 45 to 50 hours so that will give you some indication of what we could have worked. And if you, you know use about lets say 40,000 to 45,000 hour for selling rate you know that will give you some indication of what the revenue could have been.

Okay. Thank you.

Alright. Great.

There are no further analyst questions at this time.

Okay. Any other questions from the audience.

Got it, Terry Raterman with Kennedy Capital.

Hi guys. I know you just talked about how your steel costs are going up. Are you generally able to get those covered in your bids?

Yes, we cover them -- we have a stipulation we put in our bids. First of all we lock in on all major bids of steel price going in from either the warehouse or service centers or the steel mills. So we have a locked in price from our vendors when we go into the bidding process. What is somewhat unknown in the past year and continues to be a problem is what we call the surcharge. The surcharge is actually applied to your order on steel from the mill when you received the steel, not when you place the order. Therefore that's an unknown and we stipulate in all our bids that whatever increase in steel surcharge will be passed on to our customer and they have been accepting those situations. So we have a locked in price on our steel we don’t take the risk, a very little risk of steel prices going up.

Thanks a lot.

Alright, great. Anyone else?

There are no further questions at this time. I would like to turn the call back over to Mr. Gallagher for any closing comments.

Okay. I appreciate everybody calling in for the quarter and talk to you all next quarter. Thank you.

Thank you. If you would like to access the replay for today's conference you may dial 719-457-0820 starting at 12 o'clock Central Time until 23:59 on November 3. Please use the pass code 958119. Once again the phone number is 719-457-0820 and the pass code is 958119. That concludes today's conference call. Thank you for your participation. You may now disconnect.