Gulf Island Fabrication Inc (GIFI) 2007 Q1 法說會逐字稿

Good morning and welcome, ladies and gentlemen to the Gulf Island Fabrication Incorporated 2007 First 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 Knoblockfor opening remarks and introductions. Debra, please go ahead.

I would like to welcome everyone to Gulf Island Fabrication's 2007 first 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 10K filed March 16, 2007.

The 10K was included as part of the Company's 2006 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. I was going to review the press release for the year. First paragraph of course describes revenues and incomes, earnings per share. We're going to go over that in more detail shortly.

Second paragraph is the revenue backlog in the case at about 34 - $394 million of backlog with 3.7 million man hours remaining to work. This is composed of about 96% for deepwater locations, about 39% of foreign locations and as a matter of note, all of the foreign, the 39% foreign is all deepwater projects. So there's 100% overlap there. And then we anticipate working 74% of this backlog during the year 2007 and then the remaining 26% during the year 2008. We've increased our cash and short-term investments to $15.2 million at March 31, 2007. We've maintained our debt at zero.

The next paragraph indicates the rebroadcast information and then the Company profile down at the bottom.

Moving to the second page, the income statement. As a matter of note, the revenue of $109.4 million for the first quarter of 2007 is made up of 80% for deepwater locations, 15% for foreign locations and once again, this is almost a complete overlap in that all the foreign projects are also deepwater projects. And we worked 878,000 hours during the first quarter of 2007. This compares to 686,000 man hours worked during the first quarter of 2006 with a revenue -- which produced a revenue of about $57 million.

Gross profit of $8.5 million which worked to 7.8% gross profit margin compared to last year's $4 million of gross project at 7% of revenue.

It's been our Company policy to not discuss individual projects or cost centers but we felt like for this quarter it was necessary to provide a better understanding of our gross profit margins.

The first item I wanted to review is out pass through revenue which include material and subcontract costs. This is revenue that passes through the income statement with no profit attached to it. As we've discussed in the past, we attach all our profit to our direct labor as we work that off. Historically, this pass through revenue is equal at about 43% to 46% of revenue -- of the revenue has been this pass through revenue. For this quarter it equaled 56%. So that negatively impacted the gross profit margin by having a high level of pass through costs.

And then the next area I wanted to talk about was the three jobs -- I guess we'll call them our legacy jobs. It's composed of the Tahiti job which we assumed in the Gulf Marine acquisition and then the two projects that we were awarded shortly before the hurricanes. And of course we'll discuss the environment both for labor and material has changed dramatically since the hurricanes impacted the Gulf Coast.

These three project, these legacy projects equal just under 30% of the revenue we generated during the first quarter of 2007 and of course these have passed through at a much lower gross profit margin and also negatively impacted our gross profit margin.

The other two issues we wanted to just express a little bit more detail in. Moving on to G&A expense. $2.3 million or 2.1% of revenue for the first quarter of 2007 compared to last year's $2.2 million of G&A expense which equaled 3.8% of revenue.

The effective income tax rate for 2007, the first quarter is 30%. And for last year it was 32% effective tax rate. Gives us an income or $4.4 million or 4% of revenue for 2006 -- I mean 2007 -- compared to $1.9 million or 3.3% of revenue for 2006 first quarter. Gives us a $0.31 per share of income and compared to last year's diluted income per share, $0.14 a share.

This is based on 14.3 million adjusted weighted average shares at 2007 compared to last year's 13.5 million. And as a matter of note, we paid a $0.10 per share dividend during the first quarter of 2007 compared to last year's $0.07.5 per share.

With that being said, we're going to now open up the phone to questions of analysts and then after that we'll open it up to the general public.

Thank you, Mr. Gallagher. (OPERATOR INSTRUCTIONS) We'll go first to the line of Joe Agular with Johnson Rice.

Good morning, Joe.

Good morning. I was wondering how long -- is this is just an unusual event in this quarter with the past due revenues being that high or do you see this as something that's going to remain that year for the rest of this year?

It's a quarter to quarter thing, Joe. It was high this quarter. We do have some large projects that we're starting up on and a lot of the material is bought on the front end. So it will impact the early stages of the job which will be probably the first two quarters of this year.

Okay. Next question. Could you tell us the jobs -- the couple of jobs that were an issue last year and sort of where you are in terms of completion on those?

We felt like the information we gave, the detail we gave was as much as we felt comfortable giving. So we did not want to identify the projects, just to say that they were awarded prior to the hurricanes and then of course the Tahiti project we identified as being part of the acquisition.

I'm just -- I'm not asking you give us a whole lot of information. Just when those things will wrap up.

Yes. Okay. Two of the projects will wrap up in the second quarter, towards the end of the second quarter and the third one would be probably later in the third quarter.

Okay. And then, Kerry, the general comment if you could on bidding activity and both = in terms of deepwater and international mix and just what that looks like these days. And also, I want to ask you to make sure you update us on some of those comments you made earlier on the refinery type projects?

Right. Okay. Well, the bidding activity is pretty slow. The first quarter was real slow. There wasn't very much out for bid. There was one deep water project which we were not awarded that particular project. Shallow water projects are very, very few right now. There may be some coming out it looks like later in the second quarter and possibly the third quarter. But they will be a lot less than what we've seen in the past.

On the deep water side, we are anticipating one of two additional projects coming out for bid this year. We hope somewhere towards the end of the third quarter.

As far as internationally, the international market is about the same. There's not a lot of projects coming out but it looks there may be a couple of them for Mexico, maybe one for Trinidad and then maybe a couple of them for West Africa. But that's pretty consistent with what we've seen on the international side. There's no real spike up or less of projects coming out for the international side so we're going to continue to be a player in that market.

As far a the refineries and chemical plant, those bids are coming out. We have been in preliminary discussions with various engineering construction firms that were handling this project. No real large projects have been awarded to my knowledge at this point in time. It looks like that will probably get very active as we come to the end of the second quarter and into the third quarter.

Okay. Thanks.

Alright.

We move next to the line of Collin Gerry with Raymond James.

Good morning, Collin.

Good morning. I've got a quick question and I'll touch briefly on the labor market. I wanted to kind of dive in a little bit more there. Have you seen some of your initiatives in hiring people -- are those bearing fruit? Are we still expecting a lot of contract labor?

Collin, there's still a lot of contract labor. We actually have 300 -- about 350 contract laborers on our facilities between Texas and Louisiana. We don't see a lot of improvement in that area. There's still a tremendous strain on the labor market and as these refineries and chemical plants gear up for turnarounds and increase capacity projects, we think that will probably even get worse. So we're struggling with contract labor. We still have a basis of about 1800 employees on the payroll but we're trying to increase that and we are taking more efforts and we'll get a little more aggressive in the near future to try and enhance our employment levels.

Okay. That makes sense. I guess what I'm trying to get to -- get a better sense of what parties could look like going forward in the rest of year and typically the seasonality, you'll see strong in second and third quarters, kind of baking all that in and knowing that you had a lot of pass through revenue and assuming that doesn't happen next quarter, can you give us a ballpark of what we should think margins should look like maybe in the coming quarter?

Yes, Collin, we don't do any type of guidance in that respect.

Right. Okay. But directionally I would that they would probably be higher in the next quarter than they are here and assuming you don't have the same pass through revenue that you -

We can always hope that, Collin. There's no guarantee. We're shooting to do a lot better than that. And we have some new projects coming on line that we bid post-hurricane so we hope that we do a lot better on those projects.

Okay. Okay. And final question, just kind of housekeeping. You also expect about 30% tax rate for the full year?

Yes.

Okay. Thanks, guys.

(OPERATOR INSTRUCTIONS). We'll move next to Stephen Gengaro with Jefferies and Company.

Thank you. Good morning, gentlemen.

Good morning.

Good morning.

Just to be -- when I look at the operating margins in the quarter, you sort of had that abnormal amount of pass through revenue. It seems to sort of adjust to something in the range of about 8.7%, 8.8%. When we look going forward, I realize you don't want to give too much detail. If you have sort of a more normalized pass through revenue number, is -- how should we think about margin performance over the next few quarters.

What I was trying to state is that normally the pass through information -- pass through costs and revenues is more in that 42% to 46% area. That's the typical range of those revenues whereas for this quarter it was 56%. So it did impact revenue or growth profit margin but in addition to we have these three legacy jobs that also with adding slightly less than 30% of the revenue being provided by those three legacy jobs. That also impacted. So we've discussed that both of those issues will be going away in second quarter, third quarter. So we'll get more back to the range of gross profit margins that we've historically had or we expect to which has been running, if you look back, is around 12% to 16% gross profit margins.

Is it fair to conclude that if you -- if you broke out -- if you sort of separated those three problem projects out of the mix that you would be in that sort of historical range of sort of 12% to 16%?

We're not going to comment on that. But good try.

Okay. Thanks.

Okay.

(OPERATOR INSTRUCTIONS). We'll go next to Jason Podraza with Howard Weil. Go ahead please.

Good morning, guys.

Good morning.

Good morning.

Just a quick follow-up from the commentary on the two awards that you guys sited -- or two jobs that were difficult from last quarter. You mentioned that you would perhaps being going back to the customers looking for change orders, certainly weren't putting anything in the numbers or suggesting that we do either with respect to getting any adjustments there after the fact. But I'm wondering if those conversations had taken place and how that might be shaping up on getting any change orders on those jobs?

They're ongoing conversations. There's nothing definitive at this time but we're changing our conversations with these particular customers.

Okay. Thanks, guys.

Okay.

(OPERATOR INSTRUCTIONS). And we have no further questions registered at this time. 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. We appreciate everyone calling in 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 or 888-203-1112 beginning at 11 o'clock A.M. central today until 11:59 P.M. central time on May 26. Please use pass code 9410246 to access the replay. That concludes today's conference call. Thank you for your participation.