Gulf Island Fabrication Inc (GIFI) 2007 Q2 法說會逐字稿

Good morning and welcome, ladies and gentlemen, to Gulf Island Fabrication, Inc., 2007 second 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 Knoblock for opening remarks and introductions. Deborah, please go ahead.

I would like to welcome everyone to Gulf Island Fabrication's 2007 second quarter tele-conference. 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 can 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 statement concerning forward-looking information and elsewhere in the Company's 10-K filed March 16, 2007. The 10-K 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 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 review the press release briefly. First paragraph, of course, gives income statement information that we're going to review more -- in more detail shortly. Second paragraph gives some backlog information indicating a revenue backlog of $308.4 million with 3 million man hours remaining to work. That's made up of 94% projects for deepwater locations and 35% of projects for foreign locations. Also, we anticipate working about 60% of this backlog off during the year 2007 with the remaining 34% being completed during 2008.

Going down to selected balance sheet information, at June 30, 2007, indicates cash and short term investments of $7.0 million, property plant and equipment of $166 million and debt of zero. This works out to a current ratio at June 30, 2007, of 1.7 to 1 and a working capital of $53 million. The paragraph below that indicates any call-in information or digital re-broadcast and then right below that is a nice profile of Gulf Island's operations. Moving on to the second page, we have first of all the three months ended June 30 of 2007 compared to the same period of 2006. For the first quarter, I mean for the second quarter of 2007, we worked 901,000 man hours, compared to last year's second quarter of 885,000 man hours. Generated a revenue for the second quarter of 2007 of $137.6 million, compared to $89.5 million last year. That's a 53% increase in revenues. Gross profit of $14.1 million at a 10.3% gross profit margin, compared to last year's $10.5 million or 11.7% of gross profit margin.

One thing to add at this point is the legacy jobs that we've been talking about. There was three jobs, two of them that were awarded shortly before the hurricanes where we incurred labor and material problems and also the job that we took over from the Gulf Marine acquisition. Those legacy jobs made up about 15% of this revenue and, of course, we've explained that they had quite low profit margins. Moving on to G&A expense of $2.8 million for this year's quarter, that's 2% of revenue, compared to last year's $2 million of G&A expense at 2.3% of revenue. The effective tax rate for this quarter is 31.6%, compared to last year's 32.5% effective tax rate, brings us down to net income of $7.9 million or 5.7% of revenue for this quarter compared to $5.7 million or 6.3% of revenue for last year's second quarter. Generates diluted earnings per share of $0.55 for this quarter, compared to $0.41 of last year and that's based on an adjusted weighted average shares of 14.3 million shares this year compared to 14 million shares last year. And we did declare a dividend during the second quarter of $0.10 a share, compared to last year's 7.5% (sic) a share.

Moving on to the six months of 2007, compared to the same period of 2006, hours during the first half of 2007 was 1.8 million man hours, compared to last year's 1.6 million man hours. Generated a revenue of $247 million, compared to last year's $146.5 million, that's a 68.6% increase in revenue. Gross profit of $22.7 million or 9.2% of revenue, compared to last year's $14.5 million or 9.9% of revenue. As a matter of note, the legacy jobs in -- for the six month period actually equaled 21% of the revenue for that six month period of 2007. SG&A expense of $5.1 million or 2.1% of revenue compared to last year's $4.2 million or 2.9% of revenue. The effective income tax rate for 2007 six months is 31%, compared to last year's 32.5%, bringing us down to a net income of $12.3 million or 5% of revenue compared to last year's $7.6 million or 5.2% of revenue. Diluted earnings per share, $0.86 so far for 2007, compared to last year's $0.55 a share and that's based on 14.3 million shares for the 2007 period, and 13.8 million shares for last year. And dividends declared and paid during the second quarter of -- I mean during the six months of 2007 is $0.20 a share, compared to last year's $0.15 a share. And then a breakout of projects between deepwater and shelf work is 80% of the revenue for the six months of 2007 was for deepwater locations and 20%, which, of course, is included in that deepwater percentage, is for foreign locations. That being said, we were going to open up the lines to questions from the analysts.

Thank you, Mr. Gallagher. The question-and-answer session today will be conducted electronically. (OPERATOR INSTRUCTIONS) We'll pause for just a moment to give everyone an opportunity to signal for questions. We'll take our first question from Martin Malloy, Capital One Southcoast.

Good morning, Marty.

Good morning. Just a couple questions. On the legacy projects, you mentioned that you had three, I think two were supposed to be finished in the second quarter. Did that happen?

Yes, sir.

Okay. So then there's only -- there's one left out there that should be in third quarter?

There's one left. It makes up a very small percentage. Actually, below 5% of the outstanding backlog.

Okay. And just in terms of the bidding environment, what you're seeing out there for projects currently, what you expect through the end of the year, including any refinery module work, can you comment on that?

Yes, Marty. This is Kerry. Basically the bidding has been pretty dormant recently. This past quarter, we haven't seen very many bids. And, of course, shelf projects are almost non-existent. However, we do see a couple of deepwater projects that probably will be bid before the end of the year and we're actively seeking those particular projects. We are seeing the projects from the refineries and chemical plants, the modules. We're actively bidding one at this particular time and we anticipate one or two will be coming out for bid prior to the end of the year. There are a few holes in our production cycle that we have, that we're trying to fill with smaller work at this point in time. And we're also bidding some-- I guess what you call non-traditional work for us, which would be more shipyard related work than fab yard related work. So we are experiencing some work in this area. By that I mean, sections of boats and potentially barges and things of that nature, as well as repair work on dock side on drilling rigs and on jack-up boats. So we are pursuing that also to help fill some of the holes that we have in our production cycle.

How do the margins compare on the shipyard type work versus your normal fabrication work?

It's normally smaller; smaller margins than what we see in the fabrication side. However, we use it as fill-in work and it will be a very small percentage of our work going forward.

Okay. Thank you.

Okay.

We have a question now from Joe Agular, Johnson Rice.

Good morning, Joe.

Good morning, Joe.

Good morning, Kerry and Duke. I was wondering, was there any unusually high amount of pass-through or material revenue -- material revenues in the quarter.

Yes, there was, Joe, and significantly higher. These pass-through costs -- we've talked about this before, usually runs 42% to 46% of revenue. Actually for the second quarter, it equaled 60% of revenue. So about 15% higher than historical levels.

Okay. And then, I mean, not to try to get too fine in the detail here, but you mentioned 15% of your revenue was on these legacy projects which is a very low margin and I would assume that extra whatever it is, 18% or so of your revenues that was from materials probably is at very low margins as well, right?

The materials is actually passed through at zero profit.

Right. So, when we're looking at your margins in this quarter, I mean, if you sort of adjust for that and adjust for legacy, that gives us a little bit better picture, I guess, of you did a pretty good job in terms of your margins, I think.

Yes, for the ongoing projects that have been awarded over the last year or so, the margins are much more at our historical levels.

Good, good. The other question I wanted to ask was, Kerry, you mentioned some of the deepwater -- maybe bidding one deepwater project before the year is over. Internationally, I know the Eastern Hemisphere yard seemed to be completely full. Are you getting any international inquiries because of shortage of yard space in other markets?

We are getting some inquiries right now but nothing definitive at this point. Hopefully, some of this may materialize but I think it would be towards the end of the year rather than right here in the third quarter.

I would assume you would be helped competitively by the dollar.

Yes, we are. With the low dollar, that does make us a lot more competitive, especially in the European sector. So, normally we can compete very well with the European sector. Again, in the Far East, it's very difficult for us to build projects going to the Far East but for West Africa, the Caribbean, and even the North Sea, we may see a couple of projects come out for bid sometimes, I'd say, within the next nine months.

Okay. Is there anything in Mexico that you're looking at right now?

Mexico has been pretty dormant as far as we're concerned. The yards still have some capacity. They have worked down some of their capacity. So, I would perceive that considering Mexico, most of the projects coming out in the near term will be kept in Mexico.

Right, right, okay. Thank you very much.

Okay. You're welcome.

We have a question now from Jim Rollyson of Raymond James.

Good morning, Jim.

Hey, guys. How are you doing? First, Duke, what are the man hours in the quarter?

Okay. For the quarter it was 901,000 for 2007. That compared to 885,000 for 2006. And Jim, I don't know if you got the first six months, but it was 1.8 million for the six months and compared to last year's 1.6 million for the six months.

Great. Kerry, you talked in the past about issues getting labor, both yards but particularly Gulf Marine Fabricators. Can you kind of give us an update of how that's working out?

Well, it's still very difficult. We're treading water on that and making slight progress but very small progress. Both labor markets are really jammed up and it's very difficult hiring people. We have increased our hiring very slightly in the last six months but we are instituting some programs where maybe we can speed that up. We're still very dependent on contract labor. We have over 400 contract laborers working at our facilities right now. We perceive some of that will come down after the end of July, specifically in Houma, because we will be delivering the one large job that is requiring a lot of contract labor at this point in time. However, in South Texas, we probably will be still dependent on a few hundred contract laborers. Hopefully we can whittle that down by the end of the third quarter.

Got you. You guys won last year the MinDOC contract award. And my understanding, I know you probably -- may not comment on this anyway, but I'll try. Recently see that ATP is looking at possibly building a second MinDOC. I would presume you guys are in good shape to possibly get that since it was originally your design. Is that a fair statement?

I would say Joe (sic), you know more than we do.

Alright, last question. Duke, just kind of housekeeping stuff. G&A up a little bit. Thoughts on that going forward and same with tax rate was up a little bit and thoughts on that going forward.

Okay. G&A question, Jim, it did jump up a little bit but realize that that was a lot of the additional legal and accounting fees that we incurred at the -- producing the 10-K. If you remember we had the restatements of the prior quarters because of the legacy job from Gulf Marine -- or at Gulf Marine. We expect that rate -- that G&A to go back to its more historical level of --

kind of $2.5 million or so -- or a little under.

Correct,. About 2.5 -- about the 2% range of revenue. And then the tax rate, we did bump it up a little bit in the second quarter. Of course, there's a lot of tax incentives both within the State of Louisiana and, of course, federally with the hurricane recovery initiatives that are going on so it's a little bit harder to peg the tax rate but we feel like it's going to move forward at around 31%.

Okay. Great. Thanks, guys.

Okay, Jim.

(OPERATOR INSTRUCTIONS) And at this time we have no further questions from the analysts.

Okay. We can open up -- Amanda, if you could open up the phone -- the lines to the general public.

Okay. (OPERATOR INSTRUCTIONS) We have a question now from Anthony [Yeagle], Upstream Oil and Gas.

Good morning, Anthony.

Good morning. Just a couple quick questions. The blind safe topsides, has that been completed and delivered yet?

No it hasn't been completed. But we anticipate it will be completed in the next few weeks.

Okay, And then, any comments, Kerry, on how the first MinDOC is coming along as far as fabrication and so forth?

Well, it's going fine. There's no real problems. It looks like it's on schedule. Everything's going fine at this point in time.

Okay. Thank you very much.

Okay, Anthony.

(OPERATOR INSTRUCTIONS) And at this time we have no further questions. That does conclude today's question-and-answer session and I would like to turn the call back over to Mr. Gallagher for closing comments.

Okay. We want to thank everybody for calling in and we'll 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 11:00 p.m. Central Time today until 11:59 p.m. Central Time on August 10. Please use passcode 8704691 to access the replay. That concludes today's conference call. Thank you for your participation.