Gulf Island Fabrication Inc (GIFI) 2005 Q1 法說會逐字稿

Good morning and welcome ladies and gentlemen to the Gulf Island Fabrication Inc. first quarter earnings release conference call. This call is being recorded. All participants will be in a listen-only mode for the duration of the presentation. At this time I would like to turn the conference over to Mrs. Deborah Kern-Knoblock for opening remarks and introduction. Please go ahead ma'am.

I would like to welcome everyone to Gulf Island Fabrication's 2005 first quarter teleconference. Please keep in mind that any statements made in this conference that are not statements of historical facts 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 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 4, 2005. The 10-K was included as a part of the Company's 2004 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, this is Duke. I am going to review the press release quickly and we will move on to questions and answers.

First paragraph pretty much gives the revenue, net income and earnings per share information, which we are going to cover in more detaile on the second page. The second paragraph indicates that the Gulf Island had a backlog of $70.2 million and 885,000 man-hours remaining to work at March 31, 2005. Selected balance sheet information, cash and short-term investments of 48.5 million, debt remains at zero. This works out to a working capital of $79.3 million and a current ratio of 5.2 to 1.

The next paragraph gives a phone number and a pass code for anyone desiring rebroadcast of this conference call. And then, the bottom paragraph on the first page gives a profile of the Gulf Island company.

Moving on to the next page is the income statement information. It is not indicated on the page, but during the first quarter of 2005 Gulf Island worked 566,000 direct labor-hours compared to last year's first quarter where we worked 549,000 man-hours. Revenue for the first quarter of 2005 was $54.2 million compared to 50.8 million of last year's first quarter. This is about a 7% increase in revenues.

Gross profit, 6.5 million for the first quarter of 2005 at 12% of revenues compared to last year's 7.3 million gross profit dollars out of 14.4% margin. The 10-Q is going to be issued later on this afternoon, and that's going to indicate in the MD&A section that there was a lot of pass-through of material costs in the first quarter of 2005.

G&A expenses of 1.4 million at 2.5% of revenues for the first quarter of 2005, compared to 1.3 million or 2.6% of revenue for the first quarter of 2004. Other income was 257,000 for this first quarter 2005 compared to 60,000 of last year's first quarter. Income taxes of both periods, income taxes, effective rate was 35% bring us down to a net income of 3.5 million or 6.5% of revenues for this year's first quarter compared to last year's $4 million at 7.8% of revenue.

Diluted income per share was $0.28 per share for this quarter compared to last year's $0.33 a share. We used an adjusted weighted average shares of 12.3 million shares for the first quarter 2005 compared to 12 million for last year's first quarter. Depreciation was 1.6 million at 2.9% of revenue compared to the last year's 1.5 million, also 2.9% of revenue. And Gulf Island paid a $0.075 per share dividend cash dividend for this year compared to last year's nickel a share dividend. With that review being completed, we can now open up for questions from the analysts.

Darren Horowitz of Raymond James. Your line is open.

Good morning, Kerry; good morning, Duke

Good morning, Darren.

Quick question for you guys. I thought maybe we could spend a minute going over the bidding activity in the current outlook, both domestic and international, specifically as it relates towards back half of this year.

Okay, I guess I will take that one. Right now the bidding activity is relatively slow. But we anticipate a pickup on the bidding activity in the second half of the year, predominantly in deepwater and international. That is where most of the activity is. There's not a lot of projects forecasted for the shallow water, shelf areas. There are a few coming out. We will be on top of that. Predominantly, needless to say our business has been more directed toward the international and deepwater. Deepwater is the Gulf of Mexico as well as international. There should be projects, of course, coming out of Mexico. Mexico is probably the most active area that we are responding to now. But also we also we are see some projects out of Trinidad and Coast West Africa as well as the -- anticipated some smaller type project coming out of the North Sea area that may be coming out toward the second half of the year. Does that answer it?

Yes that is very helpful. I appreciate that outlook, Kerry. As far as it relates to '06, in particular hearing from a lot of the big offshore drillers, everybody is really excited about deepwater projects and everything else. At this point, domestically, what are you hearing kind of through the grapevine in terms of what's on the schedule for 2006?

Well, it's still, the drilling activity, of course, I am not all that familiar with it. I keep tabs on it. But there is a tremendous amount of drilling going on in the deepwater. There have been some feed studies, which is the front end of engineering and design on some projects for deepwater. They are still under evaluation right now, but we should see or could see some possible bids coming out in the second half of this year for delivery in '06 into '07. It looks like we have potential to be a somewhat active year in 2006 and 2007, especially for the deepwater.

Great, also, let's shift gears little bit, and talk a little bit about the shallow water as it relates to the Gulf of Mexico jack-up market specifically, in say the 100 to 250 on up to 300 foot class. I know that that market is extremely tight. Some companies have very limited available capacity and are maybe thinking about refurbishing expenses to get that out to the market you know given higher day rates. With that being said, are you hearing kind of anything in terms of any of these rigs coming in for say you know refab work or jack-up work anything done before they go out to activity?

We do not deal with the jack-ups. That's not our business. We deal strictly with the platforms. We have seen some refurbishment of platforms. We have done some recently. Of course, refurbishment of platforms don't generate a great deal of revenue. It is normally the smaller type projects that refurbishment involves. So, as far as generating a lot of revenue from refurbishments, we don't see that necessarily happening. One of our companies however does go offshore and performs a lot of work and the expansion and that's required for enhanced production on some of the platforms especially deepwater platforms. And we have seen quite a bit of activity in that area in the last six months and hopefully we will see more, especially in the shallow water.

Sure. Another quick one for you as it relates to steel. I know on the last conference call when we spoke you said that you had a favorable agreement with the steel mill to obviously purchase steel. However, you weren't obligated in fact you did not actually need that steel. What is your current steel situation and are you holding any inventory on the yard?

Yes we have inventory in the yard. We have in January we actually ordered another $1 million worth of steel inventory to supplement the $1 million we are already put in actually about a year-and-half ago. And we are constantly replenishing that inventory as we can. Steel mills, needless to say, are behind schedule. They are delivering steel late. Their pricing continues to go up. We do not see-- we saw actually a leveling of prices, but they are increasing the prices for the future. I think there is still some demand side that's pushing the prices. But, again we do have a favorable position with our couple of the mills and we are constantly replenishing our supply. So we are very fortunate we did get that in place. The steel that we ordered in January, we actually do not even have in now and so you know it probably will come in sometimes during the summer. I would hope.

Net of that order and net of what you worked out in the first quarter in terms of backlog, you're still sitting with about a million in inventory, at this point?

Sitting with a million inventory, besides replacing those orders, we have another million that we are putting into inventory. We will maintain about a $2 million inventory.

Okay. That is helpful. One quick housekeeping question. It looks like the SG&A was up a little bit this quarter relative to where it had been. What is an appropriate range going forward?

I tell you, Darren, that 1.3 million to 1.4 million, that is where normally runs. Sometimes there are some legal costs or accounting costs that come in there. But that is the standard range.

Thank you, very helpful.

Anyone else?

Hi, Kerry. This is Joe Agular. I think I'll jump on here. Quick question to you, did you give the hours worked in the quarter?

I sure did.

I missed that.

For the first quarter of 2005 it was 566,000. For the first quarter of 2004 it was 549,000.

Right. Okay. I just have a kind of a general question with regard to the marketplace and try to understand the-I know you all are bidding of a lot of work outside of the Gulf of Mexico. I am trying to get a better feel for the competitiveness of the Gulf of Mexico fabrication yard in the international markets. Kerry, can you kind of give us an update today for where you stand?

Yes of course. What has really helped us in the year is the dollar being down against foreign currency. That makes us more competitive than some of these yards, especially in the European sector. That has been a real big push for us. We can compete, at least Gulf Island can, with any of the yards in Europe or Mexico or even Brazil. We have not been able to successfully compete with the Far East yards because the labor over there is so cheap. And of course, transportation to get these structures to the Far East.

We are doing work right now for West Africa. We are actually doing a project for the North Sea, and we are doing a project right now for (inaudible) down in Mexico. Our backlog that we reported, about 80% of that is Deep water and 46% is what I call foreign or international, outside of the Gulf of Mexico. That will give you some indication of where we are going and most of it is international. If you look at where it was before, we normally were running around 20 to 25% international. Now we're seeing upwards of 50% of our work from international markets.

So do you expect that to continue to sort of be the source of orders in 2005?

I would assume so for 2005. I think for 2006, with all this deepwater drilling activity in the Gulf of Mexico as far as projects, it may change somewaht in deepwater domestic.

It seems that maybe this is more not-- the conditions today are more like the traditional cycle that we had may be in the '90s. It feels a little bit more that way to us at least?

I would say that is a good feeling you have.

The North Sea work, just out of curiosity, can you just tell us what that is?

It is a relatively small platform for an independent who's venturing into the North Sea. As some of these majors move out of the North Sea, we have the same reaction as the Gulf of Mexico a few years ago. When the majors moved out, the independents move in and take some prospects that may not be quite as lucrative, not a big elephant find, but they're going in and working these areas that are maybe less economically productive and we are seeing that in the North Sea right now, where some US independents are moving into the North Sea to develop some of these blocks that had been passed over.

Are you doing both the deck and the Jack --?

No, just Jacket.

Just a Jacket(ph)

Jacket that's correct.

Are the standards more stringent for North Sea installations?

Yes they are. But if you remember when years ago, two years ago, we did a project for Exxon that went to Nova Scotia and those are the same standards as the North Sea. So we are very familiar with the North Sea standards. In fact, all of our certifications were in place to be able to do work to meet those standards.

Great. Thank you very much.

Okay, great.

Hi, Duke, Neal McAtee.

Good morning Neal.

Hi how are you, can you really, what were the hours once again? It is not on my release.

Okay, it was not on the release. Nea,l the first quarter of 2005, it was 566,000 hours compared to the first quarter of 2004. It was 549,000 hours.

Okay. Great. Thanks guys good quarter. Let me ask you one more question. What are you going to do all that cash? Now you are paying a dividend?

I was waiting for somebody to ask that.

You don't buy trucks with radios or air conditioning so don't spend very much so what about a share repurchased or bigger dividend or you just going to wait it out or maybe buy something?

Well I think we are studying all the things you mentioned, to be honest with you, Neal. We are constantly evaluating that, I am sure, our board meets later on today. I am sure, that's normally a topic of discussion at our board meetings. We just don't want to blow the cash and give it away or not spend it prudently. We will be in those discussions later on today, as well as probably throughout this year.

We have been generating cash, but if this industry does pick up like some people are projecting, we might need that cash to look at certain situations or even for CapEx for expansion. Rather than having to go back to the market and actually borrow for money, so we just feel it's prudent right now to hold onto that cash, a good cash position, but we are going to evaluate it, and if we don't see anything in the very near future, we may do some other things.

Okay , good job. Thanks guys

Thanks. Any other questions from the analysts?

Mr. Horowitz, Your line is open.

Hi guys. just one more quick question. Kerry, if you had to look at any market and say over the next 12 to 18 months that's going to be the most robust market in terms of fabrication activity, what would it be?

I think you probably have to look at Mexico. Mexico is going to be the most active to play in the Fabrication market over the next two years. That is what we're doing now. We have dabbled in the Mexican market and have a project going that is going quite well. Again we have assumed no risks in our Mexican market as far as monetary risks or contractor risks with (inaudible). We have some things that have protected us from those types of risks. If we can continue that type of scenario, I think we will be very fortunate. I think our partners would want to secure additional work from the Mexican market and we are going to pursue that.

That is helpful, thanks.

Okay. Any other questions from the analyst? Sophia you could open up the lines to the general public now.

Thank you Mr. Gallagher the question and answer session will be conducted electronically. [Operator Instructions] We will pause for just a moment to give everyone an opportunity to signal for questions. Mr. Gallagher it appears that there are no questions at this time. I would like to turn the call back over to you for any closing comments.

Okay we appreciate everybody for calling in. We will speak to you next quarter. Thank you.

Thank you. If you like to access the replay for today's conference, you may dial 719-457-0820 starting at 12 noon central time today until 11:59 PM Central Time on February 8, 2005. Please use the pass code 216143. That concludes today's conference call. Thank you for your participation.