Gulf Island Fabrication Inc (GIFI) 2005 Q4 法說會逐字稿

Good morning and welcome ladies and gentlemen to the Gulf Island Fabrication Inc. fourth 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 fourth-quarter telecom friends. Please keep in mind that any statements made in this teleconference 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 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 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. We're going to review the press release quickly. Indicates a revenue backlog of right at 115 million, which is composed of about 1.4 million man hours. Just a side note is, this is our highest backlog we've ever reported.

And this backlog also excludes the contracts assumed in the Gulf Marine Fabricators asset purchase, which was closed yesterday. 93% of this backlog is expected to be completed in the year 2006 and the backlog -- this backlog is made up of about 65% for deepwater projects and 8% for foreign deliveries.

Cash and cash equivalents of right at $36 million, debt remains at zero, working capital works out to 87.3 million at the end of the year, which -- and a current ratio of 6.4 to 1.

Moving to the quarterly financial information, comparing fourth quarter 2005 to fourth quarter 2004. During the 2005 quarter, we worked 515,000 hours compared to last year's 510,000 hours, produced a revenue of 41.4 million compared to 45.9 million; that is about a 10% reduction in revenues. Produced a gross profit of 4.5 million at 10.7% of revenues compared to last year's 5.2 million of gross profit, equal to 11.2 million -- I'm sorry -- 11.2%.

I wanted to point out in the other income section under other net, there's a $455,000 cost there. That was due to taking the unrealized gain in the fourth quarter of last year when the decision was made to move forward with the asset purchase of Gulf Marine Fabricators. At that time, we knew we were going to use our short-term investments to fund this purchase. At that point, we had about 450,000 of unrealized gain -- or unrealized losses, which at that point, we had realized through the income statement. So that's what makes up the majority of that cost in that area.

Income taxes for the quarter has a rate of 13.5%. During our tax computation, we realized we had to true-up some enterprise-owned credits coming from the state of Louisiana, and that actually produced a $500,000 reduction in our income tax computation, which hit in the quarter and of course is going to show up in the annual numbers also. That brings us down to a net income of 2.7 million compared to last year's 2.9 million. 2005 is 6.5% of revenue compared to last year's 6.2% of revenue. It gives us a diluted earnings per share for 2005 quarter of $0.22 a share compared to last year's $0.23 a share. That is based on adjusted weighted average shares of 12.5 million for 2005 compared to 12.3 million of 2004.

Moving on to the 12-month information. Direct labor hours for 2005 is 2.3 million man hours, compared to last year's 2.1 million man hours. Revenue was actually up for the year in spite of all of the hurricanes we incurred by about 8% to 188 million compared to last year's 174 million. We were able to produce a gross profit of right at 24 million, or 12.7% of revenue compared to last year's 22.7 million, or 13% of revenue.

The income taxes for the period, 32% rate for the 2005 year, and of course that was due to that $500,000 adjustment compared to last year's 34% rate. Bring this down to an annual net income of right at 13 million, or 6.9% of revenues compared to last year's 12 million of net income, which equaled -- also equaled 6.9% of revenues.

Diluted earnings per share -- income per share of $1.05 for 2005 compared to $0.99 for last year, that is based on adjusted weighted average shares of 12.4 million for 2005 compared to 12.2 million last year. Depreciation in those numbers is -- for the year of 2005 was 6.3% -- I mean $6.3 million compared to last year's $6 million.

The revenue breakout between foreign -- it was -- the revenue for the year was 30% foreign for 2005 compared to last year's 16% foreign and the deepwater breakout for this year was 18% for 2005 and was equal to 44% last year.

That concludes the review. We will now open up questions for the analysts.

(Operator Instructions). Bill Sanchez, Howard Weil.

Congratulations on closing the Gulf Marine Fabricators deal. I was curious, Kerry, if you could, or Duke, quantify what the total number of man hours and the potential revenue backlog you were going to be gaining from this acquisition so we could -- since it's not included certainly in the December 31 numbers that you reported?

We don't have that quite calculated yet, but basically the main project they have, which of course has been in the press, is the Chevron Tahiti project, which is about an 18,000-ton topside. They are just getting started on that particular project. They do have some revenues against it. We have not gotten in and reconciled all of their financial statements yet to see and determine exact backlog. But it's just beginning that project. It's in the neighborhood in terms of revenues and total project of over $90 million. We don't know exactly how much has been expended at this point in time.

That's what I was going to ask you. You don't know exactly how that 90 million is going to flow here, the timeframe of that being realized here in the future?

I don't know how much has been expanded already, but most of it will be worked in the second half of this year and the first half of the next year.

Okay. As far as people in that facility, Kerry, how do you stand there in your mind right now, given maybe the bid activity you have outstanding here for this particular yard?

Well, we feel good about it. Needless to say, they have a reasonable backlog right now to bring us into the second half of this year. There are some deepwater projects that are surfacing now and as well as some shallow water projects that we should see coming out for bids in the near future that should help us in that particular facility as well as the facilities we have now. So we feel pretty good about the ability to secure future work. And of course with the purchase of that facility, it makes Gulf Island the fabricators with the greatest amount of fabrication capacity on the Gulf Coast, as well as the greatest amount of rolling capability.

Great, thanks, I will turn it back.

Warren Clifford, Clifford Capital Management.

My Internet connection isn't working, so I don't have your press release in front of me. But I believe you said for the fourth quarter that the man hours were up and the revenues were down. Why is that?

I'm going to explain that. Basically, we had some storm damage that was good for one of our companies that traditionally has lower margins, and their man hours were up. Our biggest margin area, which of course we're not segmenting, but I would biggest margin area is our large fabrication work. And because of the storm, there were some carry-on deficiencies in the Houma Navigation Canal that prevented us from getting some vessels in during the fourth quarter that we had anticipated working on during that period. And as a result in that particular area, we were somewhat less in our man hours, as well as some delays in some materials coming in in the fourth quarter to start some of the newer projects we have under contract.

Okay, will you make that up in the current quarter then?

Well, no guarantees, but we hope to.

Okay, thank you.

Joe Agular, Johnson Rice.

Kerry, did you all complete the Constitution deck in the quarter?

Yes.

Was that shipped out?

That it was shipped out in October.

Okay. So the delays you were just referring to, those were for some other projects, I guess?

We had some ships that were supposed to come in in the fourth quarter that couldn't make it in because of the silting problems in the Houma Navigation Canal. We're working with the Corps of Engineers right now to hopefully resolve that problem. They did resolve the deficiencies in the lower region of the Houma Navigation Canal, but we still have some deficiencies in the upper areas of the Houma Navigation Canal that we're working with the Corps to try to get dredged. Right now, it's silted up to about 12 foot of water and the design depth of the Houma Navigation Canal now is right at 15 foot of water.

Are there still some size decks or jackets that you could ship out? Is it --?

We've been managing to get these structures that ship out by barge out of our facility without too much of a problem. The problem is, the shipshape type hulls have been prohibited from coming up the channel.

Well that obviously I guess --.

That's normal normally a smaller segment of our work. But in this particular case in the fourth quarter, we had resources allocated for this vessel to come in and do some work, and that didn't happen.

Well that kind of I guess leads to another question with regard to the Gulf Marine Yard. Does that mean issues like this point out the benefits obviously of buying that yard down there? And how in the future are you going to allocate, say, a job between the Houma Yard and the yard in Texas? Is it going to be on measures like this? Obviously if you something large, that you want to have the access to the Gulf unrestricted, you'd put it in Texas in the Gulf Marine Yard?

That's correct Joe. Anything large of a nature that requires a larger type vessel that cannot really navigate the Houma Navigation Canal very well we will bring down to South Texas where we have a 45-foot channel and actually have 45 feet of water adjacent to the bulkhead, as well as we have a 75-foot hole where we can sink the heavy lift ships that come in from overseas with the hulls and actually bring them to our dockside and do the final outfitting before they go offshore.

Two other quick question. One is on the personnel side. I know you had mentioned last conference call I guess that there was some potential competition for workers in the area. I'm just wondering how you all were faring on that.

Okay, we're managing to stay ahead of the game a little. Right now, we have about 1117 employees at Gulf Island, Dolphin and in Southport. And at Gulf Marine, there's about 380 employees. So we're kind of staying even. We hope to build that up in the very near future as material comes in for these additional jobs. We could always send another 200 people offshore right now, but we just cannot find those individuals to do that.

Okay. And one final question on bidding. Can you give us an update on just the way the market looks today versus whatever it was a couple of months ago from your last call?

Well, it's not that much different, but what we're seeing is the possibility of some of the storm damage bids coming out probably in the second quarter of this year as they totally evaluate these fields. There will be some structures because of the storm damage and there will also be some international projects. We see that materialize probably towards the first half of this year, which will be some deepwater projects which should be beneficial towards us now that we have the Gulf Marine facility.

Thanks for the update, Kerry, I appreciate it.

(Operator Instructions). Jim Rollyson, Raymond James.

Good morning. Kerry, just to kind of follow-up on Joe's questions, you talked last time not only about getting and keeping labor, but if I recall correctly, you talked about labor cost going up thanks to your friendly FEMA guys. Can you kind of talk about if you're having to pay up to keep some of these guys, especially the welding guys? And if so, are you being able to pass that on, or are you factoring that into your new contracts?

We have factored that into all of our new contracts that we have, but we still have some risk that labor will even go up more. But we have factored it in as best we could. We are not losing as many welders and fitters to FEMA, but it's mainly other type people like truck drivers, people that do scaffolding, architectural which work on our living quarters; electricians and more or less these other type of more semiskilled type people that we still need to do the work, but they are rather difficult to find. Steel workers are pretty much staying around, but we're not seeing an influx of many additional skilled people. So we are actively training our lower-class people to become more higher-skilled personnel through these state grants and our own inside training programs.

Aside from cost pass-throughs, it sounded like obviously the market has gotten -- started to get tighter thanks to the hurricanes, and you mentioned international and deepwater projects. You obviously now have a bigger piece of the pie with Gulf Marine Fabricators. Can you talk a little bit about kind of what you're seeing or your strategy on the pricing side with the way the market is today?

Well of course, we're always trying to get the price up and there's a lot of resistance to do that. Unfortunately, if you look at industry capacity, we have with a couple of our competitors, one in particular that has about 90% of their capacity available. So the pricing is still somewhat depressed. But we're going to try and inch it up as much as we can.

Alright. Lastly, I think I got the characterization that your Q4 may have came in a little bit off because of some of the issues stemming from the hurricanes. You mentioned the blockages and the Houma Navigational Canal, which may carry a little bit into the first part of the year. But generally outside of that, that has been the issue for you more so than just the market. Is that fair?

That's fair. Just remember, we'll be trying to bring Gulf Marine onstream. Gulf Marine has not been a very profitable company in the last couple of years, or not quite at breakeven. So we will have some effect on Gulf Marine in the first and possibly second quarter so we can get them up to speed.

By not quite at breakeven -- on the positive or the negative side?

It would be on the negative side. They've been on the negative side. So we're (indiscernible) to institute the programs that we have at Gulf Island to get this company profitable and build them back to what they used to be.

Gotcha. Thanks.

That concludes today's question and answer session. At this time, I would like to turn the call back over to Mr. Gallagher for closing comments.

Okay, thanks everybody for calling in and we will talk to you all next quarter.

Thank you. If you would like to access the replay for today's conference, you may dial 888-203-1112 beginning at 11:00 AM Central today until 11:59 PM Central on February 10. Please use passcode 296-2496 to access the replay. That concludes today's conference call. Thank you for your participation.