Gulf Island Fabrication Inc (GIFI) 2005 Q3 法說會逐字稿

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 introductions. Deborah, please go ahead..

I would like to welcome everyone to Gulf Island Fabrication's 2005 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 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 part of the Company's 2004 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. I was going to do a quick review of the press release. The first paragraph of the first page reviews the income statement information, which we're going to review in more detail on the second page.

Going to the second paragraph of the first page, indicates the backlog information. We had a revenue backlog of $105.7 million. That's made up of 71% deepwater projects and 18% projects for foreign destinations. That's also made up of 1.4 million man-hours remaining to work.

Selected balance sheet information. Our cash and short-term investments was right at $42 million and our debt position remains at 0. This works out to a current ratio of 8.1:1 and a working capital of $85.9 million.

The bottom paragraph of that first page just reviews what Gulf Island does.

Going on to the second page with the income statement information, we're first going to review the third quarter of 2005 compared to the third quarter of 2004. The quarter of 2005, we worked 535,000 man-hours. That compares to 504,000 man-hours for 2004 third quarter.

Revenue for 2005 was $37.5 million, compared to $35.8 million. That's about a 5% increase in revenue. Gross profit for 2005 was $4.6 million, at a 12.3% of revenue, compared to last year's $3.7 million, which equaled 10.3% of revenue.

G&A expenses was right at $1.5 million for this year, or 4% of revenues, compared to last year's $1.2 million, which was 3.3% of revenues. Income taxes, the effective rate for this quarter of 2005 is 36%. Last year it was a 35% effective tax rate.

Brings us down to a net income of $2.2 million, or 5.9% of revenue, compared to last year's $1.7 million, or 4.8% of revenue. Diluted earnings per share of $0.18 per share this quarter, compared to last year's $0.14.

And that's based on an adjusted weighted average shares of 12.4 million shares at 2005, compared to 12.2 million shares at 2004.

Moving on to the 9-month year-to-date information, so far this year we've worked 1,742,000 man hours, compared to last year's 1,565,000 man hours. Revenue this year's 9-month is $147.1 million, compared to last year's $128 million. It's about a 15% increase in revenues.

Gross profit this year, $19.6 million, at 13.3% of revenue, compared to last year's $17.5 million, or 13.7% of revenue. G&A expense so far this year, $4.4 million, compared to last year's $3.8 million.

Income taxes, the effective tax rate for the 9-months year-to-date, 2005, is 36%, compared to last year's 35%. Brings us down to a net income of $10.3 million, or 7% of revenues for this year, compared to $9.2 million, or 7.2% of revenues for last year.

It gives us the diluted income per share of $0.83, compared to last year's $0.76 a share. And that's based on adjusted weighted average shares of 12.4 million, compared to last year's 12.2 million.

Also as a side note, year-to-date, 30% of revenue is for projects for foreign destinations and 19% of that revenue was for projects for deepwater destinations.

With that being said, we're going to field the questions from the analysts.

I guess the first question that probably everyone's going to want to know, this quarter came in light of expectations and I presume that most of that's related to all the hurricanes?

That's correct, Jim. We lost about three weeks of our operations with 4 hurricanes during the quarter. We had Cindy and Danny that came in, in July and then we had Katrina and Rita that came in later on in the quarter. Rita probably caused us the most downtime. Our West yard was flooded by about 1.5 foot of water and some of our main facility was also flooded.

The problem with the hurricanes was getting our employees, first of all, to evacuate, and second of all, getting them back on the job, as well as getting our utilities, our electricity hooked up again. So we estimate we lost three weeks of operations, which cost us probably in the neighborhood of about $8 to $10 million in revenues.

So, it's really a lot like a comp to last year, where you had hurricane Ivan and a few others in the $0.14 result as well?

Right, but we were a little slower last year, really, if you remember right, in the third quarter, as far as our work level. We were more active this quarter and we were working more overtime and more hours and were geared up more this time than last year.

If you look back at the year before, that was a pretty good third quarter.

I think somebody's interfering with us here. I apologize for that. I thought the lines were closed to everyone, but apparently they're open.

But yes, we were affected considerably by the hurricanes during this quarter.

So that's the bad news. I guess the good news, as you go out forward, with all the hurricane damage, we presume that you've got a lot of opportunity for repair and maintenance and rebuilding and stuff. What's your thought process on what you're seeing?

Well, it's still a little early, but the bids are starting to pour in, so we have a considerable amount of bids in-house right now that we are working on. And as you know, we'll probably have a record revenue backlog at the end of the quarter, realizing that $8 to $10 million was delayed from the third quarter. But it seems like our backlog is picking up and bids are coming in at a faster pace.

Any concept of what the pricing environment looks like on the bids? It seems like some of the guys in the other service oriented businesses in the oil patches have been able to start realizing or expect to realize prices picking up with the storms and all the demand coming from it. What's your thought there?

Well, we should see some increased pricing for several reasons. One reason is, there's a lot of pressure on our labor right now to go to work for FEMA contractors in this area and other areas. So we will have some cost increase. But at the same time, we'll pass those cost increases on to our customers.

Same with the steel. Steel is pretty much in demand right now and the pricing is continuing to go up. However, we have been protected and are passing that on to our customers.

With the increased work, we would hope, you know, there's no guarantee, but you always would hope that your margins will get better with this fast turnaround work that we're seeing coming in the next couple of quarters.

All right. And last question, Kerry, in the last two or three quarters you've kind of been looking out, expecting to see some pick up in bids from the international arena. Can you give us an update on what that looks like and this ramp-up in the Gulf, is that going to change the timing of any of that or what do you think?

No, I don't think it'll change it. We're still expecting some bids in around the fourth quarter for the international side of our business and we're also expecting some work on the deepwater. And I think that will continue. We haven't seen a slowdown in that particular process.

So, coupled with the additional work that we're seeing in the Gulf of Mexico, it ought to be a fairly active bidding cycle here in the fourth quarter and in the first quarter of next year.

Anyone else? Any more analysts?

Melanie, if there's no more questions from the analysts, you can open the questions up to the general public.

[OPERATOR INSTRUCTIONS] Warren Clifford with Clifford Capital Management.

Yes, with the damage in the Gulf to rigs and whatever, is there any more interest in the MinDOC?

Warren, again, we're still pursuing that. We haven't sold one yet, but we're still making presentations to potential clients and are marketing it. There is always some interest in it, but we haven't gotten anybody to step up to the table and pay for a feed study yet.

Yes. Have you any hypothesis at all how it would hold up versus the more standard rigs?

Well, of course we market it and we think that it could hold up considerably better than the spars have, because of the concept we have. It has a little more semisubmersible technology than the spar project. So we think the semisubmersibles in our particular design would hold up better than the spars.

Yes. Well, if you can't sell one after this experience, I think you might as well give up.

Well, if nothing else, MinDOC keeps our name in that deepwater arena. And as you can see, our backlog right now is about 71% deepwater. So it keeps our name in the arena and keeps us going.

[Biju Contril] with Jefferies & Company.

A couple of quick questions. I noticed that the revenue per hour in the quarter was about 20% down from the second quarter. And is there anything driving that? Is that the mix of work? And also, were there any costs related to, not just the revenue in this, but any incremental costs due to the hurricanes that was in the numbers this quarter?

Yes, there is some cost associated with the hurricanes. Whenever we have to shut down for a hurricane, needless to say, there's the procedures that we have to go through that are somewhat expensive, to protect our equipment and property. And again, when we come back from the hurricane, the time element to get our employees back is somewhat difficult and again, we have to gear our operations or remobilize our operations to get back into business. So, yes, there is some expense associated with that. So that did have some effect on our third quarter as far as our margins.

Okay. And can you quantify that, what the incremental costs were?

Well, that's difficult to do, it really is. It's hard to break out. You have a lot of inefficiencies with shutting down and restarting and sometimes those inefficiencies are rather difficult to quantify.

Okay. And then the revenue per hour decline, can you address that?

Well, some of the hours we may have worked during the quarter may not have been as productive, when you're dealing with rain and situations where our employees are looking at evacuating and shutting down. So I think our revenue per hour was low, mainly associated with the hurricane problems.

Yes, and we also have the factor of, it depends on how much of the pass-through costs fall in a quarter. You can have a lot of material costs that is passed through in revenue, that can be an increase or a decrease, that revenue per hour, just by the timing of those costs flowing through the income statement.

Okay. And then as you look forward to the fourth quarter and '06, do you expect to get back to the sort of work hour levels that you saw in the second quarter and also the revenue per hour numbers?

Well, we would hope so, as long as we don't have any hurricanes in this fourth quarter, I think we should be back to normal. Hurricane season ends very shortly, but I remember some coming in, in November. But hopefully we won't have four of them and we can get back to normal operations. We perceive that should be the case.

[OPERATOR INSTRUCTIONS] Stephen Gengaro with Jefferies & Company.

Just as sort of a general question, obviously, the backlog is in pretty good shape. Can you give us a sense for--actually two parts to the question. One, a sense for current bidding activity and I may have missed this, but what you have seen sort of post hurricanes, if they're been a material impact?

And then secondly, kind of what you're seeing from a pricing or profitability standpoint, on the bidding?

Well, I can't talk to you much about the pricing and the future of the profitability, but as far as the bidding activity, it has increased. We have seen a definite increase and it's rather--it really has just started to increase. There was some time where our customers had to evaluate their particular fields and locations and see what was available for them as far as infrastructure. By that I mean the pipeline systems, be able to transmit the oil and gas back to the shore.

Now that most of these evaluations have taken place, we are seeing some bids and there's a considerable amount of bidding that is coming forward, for work associated with the hurricane damage.

So your sense is that as you go forward here, you'll see backlog continue to sort of ramp?

Well, we would hope so, as long as we're successful in getting some of this bidding activity that's going forward. Gulf Island notoriously has been one to standby on the beginning of a cycle and wait until the pricing gets a little higher, before we go ahead and take our work. So, it may not ramp up as fast as you'd like, but we're actually going to sit back and wait and get the more profitable work that would come a little later.

Okay. Do you have any even anecdotes about where sort of pricing appears to be right now in the bidding process, vis-a-vis where the backlog is or where the last couple of quarters were?

Well, I can't tell you going forward, on the pricing. But basically, we would hope that our margins would be considerably better than what we've seen in the past.

TJ [Livert] with Five Corner Partners.

Yes, can you guys elaborate a little bit more on the types of projects you're seeing bids for? And also perhaps, are these just repair type of projects or are these new projects that your customers are asking about?

We are seeing both, but predominantly what we're seeing are replacement structures for some damaged structures out in the Gulf of Mexico. Remember, our little subsidiary, Dolphin Services, does a lot of repair work, so we have offshore crews that are doing a lot of repair work and we have seen quite a few bids in that area, besides the new construction that Gulf Island does in replacing, let's say, tripods and [case-ons] and four-pile type structures for the shallow water Gulf of Mexico.

But you are seeing new structures as well that you're bidding on too?

Yes, that's correct.

Brad Evans with Heartland Advisors.

I have a couple of questions. First and foremost, I guess, did you contemplate putting in the press release the fact that the quarter was so severely impacted by the events of the quarter, in terms of weather?

I think you'll see it in our 10-Q, which we'll file--.

We'll file later on today.

I mean, it seems like it was a pretty material impact. I'm just confused as to why you didn't choose to at least mention it in the overview of the quarter.

We decided to cover it in this conference call. We thought it would be better to discuss it rather than trying to squeeze a bunch of information into one or two paragraphs, that it'd be better to discuss it on this conference call.

Okay. Can you tell me how many open positions you have right now, from a labor perspective?

We could hire probably 100 to 150 people at this time.

What do you place the chance of that happening?

That's very difficult. Right now, FEMA contractors are paying pretty high wages at this point in time. So I can't really comment too much on it. We're making every effort to try and hire people, but the short-term money from the FEMA contractors are pretty enticing to the people in this area to get quick money.

But we're making efforts to recruit people from other areas of the country as well as even maybe getting some international labor.

So your commentary is that you think that the pricing dynamics in the marketplace today should help you get back or above a 12% operating margin that you achieved in 2003?

Well, I can't say definitely, but we sure hope so.

And do you have a sense as to how long the tail, so to speak, of work from the hurricanes in the current quarter will take to be repaired? I guess the timeframe in terms of how long this will impact your backlog or your revenue streams?

Again, that's difficult to say, but I would say probably at least for the next 6-months.

[OPERATOR INSTRUCTIONS] Carmen Ilacqua with Eli Investment Partners.

Carmen Ilacqua, with Eli Investment Partners in Cleveland, and hello to Warren Clifford, an old friend and colleague of mine that I used to cover when I was with McDonald & Company.

I just wanted to ask you again on the labor front, you say you could hire 100 to 150 people. FEMA's obviously paying up right now, the contractors. Do you foresee that as impacting your ability to fulfil your obligations?

No, we have enough labor onboard right now to fill all our contractor obligations. But what we're trying to do is hire more labor to expand our ability to get more work.

Okay, great. Thank you, gentlemen. Great job and good luck.

[OPERATOR INSTRUCTIONS] And it appears there are no further questions at this time. I'd like to turn the conference back over to Mr. Gallagher for any closing comments.

Okay, we thank everybody for calling in our third quarter conference call and talk to y'all next quarter. Thank you.

Thank you. If you'd like to access the replay for today's conference, you may dial 719-457-0820, beginning at 11:00 a.m. Central today, until 11:59 p.m. Central, on November 25th, 2005. Please use the pass code 6724442.

That concludes today's conference. Thank you for your participation.