Gulf Island Fabrication Inc (GIFI) 2007 Q3 法說會逐字稿

Good morning, and welcome, ladies and gentlemen, to the Gulf Island Fabrication Inc. 2007 third quarter earnings release conference call.

(OPERATOR INSTRUCTIONS)

At this time, I would like to turn the conference over to Mrs. Deborah Knoblock for opening remarks and introductions. Deborah, please go ahead.

I would like to welcome everyone to Gulf Island Fabrication's 2007 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 and prices of crude oil and natural gas, the timing of new projects and the company's ability to obtain the,m and other details that are described under "Cautionary Statements 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 for 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. Robin Seibert, our CFO.

Thank you, Deborah.

I would like to go over the press release now. And the press release consists of two pages: the first is tech; the second page is a financial statement presentation and I will go over that first. We'll go over the September 30, 2007 quarter versus 2006.

Revenue was $124.9 million versus $89.7 million. Gross profit was $18 million versus $16.9 million, which is a gross profit margin of 14.4% versus 18.8%. G&A was $2.8 million versus $2.6 million. Other income and expense was $44,000 compared to 2000. Income before taxes was $15.3 million compared to $14.3 million. Income taxes were $5.2 million versus $4.3 million. And net income was $10 million versus $10 million.

Basic earnings per share, $0.71 versus $0.72. Diluted income per share, $0.70 versus $0.72. The weighed average shares was 14.2 million versus 13.9 million. Adjusted weighted average share was 14.3 million versus 14 million. Depreciation and amortization that is included in the expense numbers above, $3.5 million versus $3.3 million and the company declared dividends during the quarter of $0.10 versus $0.075 for the quarter of 2006.

For the nine-month period ending September 30, 2007, versus 2006, revenues were $371.8 million versus $236.2 million. Gross profit was $40.6 million versus $31.4 million, with a margin of 10.9% versus13.3%. G&A was $7.9 million versus $6.8 million. Other expense income was $300,000 versus $871,000. Included in the other interest income categories for 2006, was approximately $980,000 associated with our interest in Mindot that we sold last January. Income before takes was $33.1 million versus $25.5 million. Income tax was $10.7 million versus $7.9 million. Net income was $22.3 million versus $17.6 million.

Basic earnings per share was $1.58 versus $1.28. Diluted income per share was $1.56 versus $1.27. Weighted average shares was 14.2 million versus 13.7 million. Weighted average shares were 14.3 million versus 13.9 million. Depreciation and amortization was $10.5 million versus $9.3 million. During the nine months ending September 30, 2007, the company had declared dividends of $0.30 a share compared to $0.225 a share.

Just a note, during the quarter of September 2007, intangibles on the book were completely amortized. And the intangible amortization expense accounts were for about $230,000 per quarter, which we won't have anymore.

Referring back to the first sheet of the press release, the text. The company had a backlog of $245.2 million revenue backlog, labor backlog was 2.7 million man hours. Selected balance sheet data: We had a cash balance of $4.2 million. Total current assets were $140 million. Property plant and equipment was $179 million. Total assets, $320 million. Total current liabilities, $77 million. We had debt of $11 million. Shareholders' equity was $221 million. Total liabilities and shareholders' equity was 320 million.

During the quarter ending September 2007, we had 887,000 man hours worked compared to 913,000 man hours for the quarter ended September 2006. The man hours for the nine months ended September 2007 was 2.7 million man hours. The man hours for the quarter ended September of '06 was 2.5 million. Included in our backlog was $229.6 million related to deepwater work, which represents about 74%. Included in the backlog was $83.6 million or about 34%, which is foreign activity.

During the 9 months ended September 30, CapEx was $33.4 million versus $22.2 million for the quarter and the nine months end ending September 2007.

Now I would like to turn the call over to the analysts so Kerry and I can answer some questions.

Thank you.

(OPERATOR INSTRUCTIONS)

We'll take our first question from Joe Agular at Johnson Rice & Company.

Thanks. Kerry, you there?

Yes.

I couldn't hear you. The question I had first, I guess was in the quarter. Was there -- could you maybe give us an overview of how things went from an execution standpoint overall on your view. Were you pleased? Was there any unusual things that happened in the quarter that we might not notice just from looking at the results?

Yeah, Joe, I'll be glad to.

Basically we started the quarter with a lot of rain in July that effected our financials somewhat but the other two months were fine. We didn't have any problems with any issues during the next two months. And just give you a little highlight of the quarter, actually for the third quarter of 2007, 51% of our revenues were made up of direct materials and contracted services that are pass through, whereas the September quarter of 2006, about 38% of the revenues were made up of direct material and contract services which are pass through, so materials and services that are pass through significantly higher than what we saw during the same quarter last year. And if we look at it on nine months basis, we looking at materials and contracted services as 55.9% of revenues compared to 42.2% of revenues for last year. Nine months.

Is that generally just because you're earlier in the earlier stages of contracts when you're buying materials or is it -- .

Well, we have a lot of materials going through because of these big contracts we have, at this point in time, plus we have a lot of outside services like electrical and instrumentation, as well as contract labor and the facilities.

Yes. Okay, and then you typically give us a little bit of help in terms of your overview of market demand out there, bidding activity, that kind of thing. Could you give us kind of what your view of the market is right now, please?

Sure, Joe. Basically the market's a little slow right now. We're seeing most of the projects slip another quarter, as far as the bidding activity and actual awards. Apparently there were delays in getting sanctions on some of the larger projects for the deeper water. However, the projects are still ongoing and in the design phase, both on the upstream and downstream side of our business. We should see some of those projects hit if not in the fourth quarter, hopefully in the first quarter of next year. Our backlog right now is substantial enough to carry us, you know, well into the second quarter of next year.

And when you say sanctions, I mean typically, I don't know, you all are doing a project now for ATPG which is obviously a smaller company. When you refer to sanctions, I generally tend to think of larger companies.

Even a smaller one has to get board approval before they go ahead with the projects and also sometimes they're waiting on financing.

Okay, so it doesn't necessarily give you an indication exactly who the customer is, it happens on all the different companies regardless of size.

That's correct, Joe.

Okay, thanks. I'll jump in later with another question. Thanks.

Okay, good.

We'll take the next question from Mike Kelly at Kennedy Capital.

Morning, Mike.

Hi, Kerry, how are you doing?

All right.

Question in regard to the backlog, you've seen a decline 30% the second quarter, another 20% this quarter. Given this reduction, should we be concerned that it will be hard press to achieve sequential revenue growth going from 2007 to 2008?

Right now, I think it's a little premature to say anything on that right now. As I said, we do have a substantial backlog that can carry us at least two and probably three quarters at this point in time. So, the backlog can increase dramatically at any time should some of the larger projects come to pass. And just for reference realty now, in terms of revenues, remaining backlog that we planned to work off of 2007 is $89.1 million, and $163 million will be worked in 2008.

If you could talk about the scope of some of the projects on both the refining side and some of the deepwater projects. What is the magnitude?

They sizeable projects, needless to say on the deeper water type projects -- similar to what we have seen for the Mirage project that we're doing now, as well as several other ones and also on the downstream side of the business, these projects should be in the range of $60 million to over $100 million per project.

Okay, thanks. One more.

Okay.

Switching gears on the international side. Let's talk about in the past, you were interested in acquiring an international yard. Is there any new development on this front?

No, we're looking at all possibilities. Mike, we're looking at that and also, you know, the marine side of our business, what I call the shipyard type work, and we have some of that under contract now. Granted it's a very small percentage of our business at this point in time and we're looking, of course, international yards, as well as we're looking for the possibility of investing in our, some of our facilities in the United States to be able to handle more of the what I call shipbuilding-type work, barges, boats, things of that nature. We have hired a very credible individual who is on board to help us do that analysis and help guide us in that direction.

Interesting. Thank you.

Okay.

And we'll take our next question from Joe Gibney from Capital One Southcoast.

Morning, Joe.

Morning guys, how are you?

All right.

I just wanted to follow up related to that international question there.

You had indicated some interest previously; you may be bidding some activity in North Sea, West Africa and the Caribbean. I was trying to see what you could characterize as the best near-term opportunities for you on the international front. And I know you indicated bidding to projects in the Far East is not a likelihood. But geographically speaking, the lowest-hanging fruit for you in the areas that you're most interested in.

I think possibly the North Sea may have a few projects coming out that may happen sometime in 2008. Of course, Africa is always active and we're always looking to participate in that arena. But at this point in time, there is no projects imminent coming out of West Africa. And also, the West African countries are requiring 60% local participation in the projects and we're having to wait on that. As far as the Caribbean, there should be a couple of projects coming out and sometimes in the beginning of the 2008 that we hope to bid.

Okay. How about on the labor and equipment constraint side? Obviously, these issues are cropping up again in a lot of company commentary on deepwater and offshore. I was wondering if you could give us an update on contract labor in terms of level of reliance that you guys have on it and how this can impact your margins on a typical job.

Yes, we are still heavily reliant on contract labor, because we haven't been able to actually put very much labor on the payroll. We are still working on that; we've improved a little during the third quarter. Our retention rate on our employees is getting a little better; we're not losing as many at this point in time.

But yes, we have relied on contract labor that cut into our margins because contract labor, you have to understand there is a middleman making money, as well as the productivity on the contract labor side is not as good as our labor that we have on the payroll. So it has cut into our margins but it's required right now to be able to meet our delivery schedules. We don't really have a choice. Other than that we would is to delay the projects to a longer delivery schedule which is not tolerable by our clients.

Okay. Robin, just some minor housekeeping, just curious if you got the feel for CapEx yet if you look to '08 and what reasonable tax rate expectations for next year?

Well, we had some federal and state work credits that were allowed because of the hurricanes we had and those are starting to phase out. That is why you see -- that is for the current quarter, the tax rate is 34% versus approximately 30% for last September quarter. We anticipate the remaining of the 2007 year to be between 32.5% to 33% and during 2008, probably 34%.

Okay. That's helpful. And CapEx?

We have budgeted approximately $17 million remaining to spend. I'm not sure we're going actually spend all of that. We do have $7.5 committed for our graving dock, which we will have completed by the end of the year. So out of the $17 million, we'll probably spend at least the $7.5 million. 2008's budget hasn't been formalized yet.

Okay. Fair enough. I appreciate it, guys.

Sure.

Okay, great.

(OPERATOR INSTRUCTIONS)

We'll go next to Jim Rollyson at Raymond James & Associates.

Good morning, Jim.

Morning, guys, how are you?

All right.

Good morning, Robin.

Good morning.

Kerry, just going back to one topic you talked about earlier on the shipyard Marine-type contracts you guys are pursuing, can you just maybe characterize margins in that business versus your traditional fab work.

Well, Jim, we really analyzing that right now. We hope that the first project we all are very successful on and realize that we have a learning curve in the margins and may be low or the first projects and what would typically we would see; however, we hope to get the margins at least where we have seen them in the past and hope to improve on that. We are going to ask the board to come up with some CapEx for next year to invest in a new panel line and if we see that the Marine side is a good area that we need to be in, then we may look ultimately into building our own dry-dock and putting that into more operations to do repair work. As far as a new construction site, we can pretty much build any new construction within our facilities at this time.

Got you. And one of the topics we have talked about the the last few quarters was the fact that you still had some residual kind of pre-hurricane work contracts that were bidded at lower margins than last year or so market has provided you. Can you kind of give us an update on where you stand there? Are you through most of those contracts?

There is only one left in the yard and we're doing very little work on it at this point in time. So, we should be finished with that project by the end of this month but it's a very small part of our business.

Got you. So it's on to better things. And last question, I think during the quarter you guys appointed a new President for Gulf Marine and if I recall, you had -- the previous President came in kind of later part of last year. You maybe just talk about what has been going there and what the new guy brings you and how you see that playing out?

Well, the new guy is Johannes Ikdal, and he was actually the operations manager at Gulf Marine. He's been there for several years and we felt that Johannes was the man we needed to move up into that position. We think he's doing a very admirable job in that position and I think he's going to do a good job for us going forward.

Great, thank you.

Okay.

(OPERATOR INSTRUCTIONS)

Our next question is a followup from Joe Agular at Johnson Rice.

Kerry, was wondering if you could give us an idea in terms of the magnitude of the amount of bids that you have out? I know you mentioned the projects may have slipped a little bit, but in terms of the amount, total amount is relative to where your backlog is today.

Joe, that is kind of hard to define at this point in time. Some of it is AFE numbers. All companies can change their mind one way or another in a heartbeat, it's difficult to say, but we have bid several significant projects and we're waiting for those projects to hopefully go forward and we would participate in them. I can't really give you a number on the magnitude, but these are projects and, you know, upwards of the $100 million range.

I guess what I'm asking is the end of last year, your backlog was a little over 400 million?

That was record backlog.

Right, right. With what may, you know, happen the next two quarters, could you get back to that level or more?

Well, there is a possibility we could get to that level. I don't know if we want to take more than that, Joe. Because, you know, we typically wait in the cycle and let our competitors take the low price work and we kind of back side and hope to get better margins as the competitors fill up with work.

So, that I guess, would lead me to ask you the question that you must think there is a lot more work coming then -- maybe this is the bigger-picture question. Could you maybe discuss 2009, you know, 2010?

Everything we read and hear says that 2009 and 2010 should be very active years. I'm not saying it's a real slowdown in 2008, but we definitely see more projects being bid in 2008 for 2009 and '10.

Do you want to guess as to what you know of the number of projects out there, how it compares to what the industry capacity is today?

Well, we really don't know, Joe, but I would speculate it would be enough to probably fill up all the capacity.

Okay. That's all I need. Thanks, Kerry.

Okay.

With no further questions left in the queue, this will conclude today's question-and-answer session as well as today's presentation.

This call will be available for replay starting today October 26 at 12 p.m. Central time through November 10. You may reach the replay by dialing 888-203-1112 and entering passcode 6249930. Once again, the should be 888-203-1112 and passcode 624-9930.

We thank everyone for your participation. You may now disconnect.

Thank you, Anthony.